Call it shopping at the breakfast table.
Not all that long ago, promotions came in the paper, in the form of free-standing inserts (FSI), those massive coupon bundles wrapped around the Sunday comics section.
You’d clip the coupons, keep them in the purse or wallet, trek to the store … and find that the toothpaste or paper towels or dog food you so earnestly desire are out of stock.
The inefficiencies had (and still have) ripple effects up and down the consumer commerce space. The consumer packaged goods (CPG) companies were laying out money for the promotions, the retailers were getting paid for those promos, the inventory management across all parties remained subpar.
Oh, and the consumer went home empty-handed.
In an interview with Karen Webster, John Gibson, advisor to Inmar Intelligence, said that omnichannel commerce, the huge swaths of real-time data available across supply chains, and digitally savvy customers are changing the way trade funding is done. Paper promotions are giving way to new ways for CPGs to better manage trade spend.
In broad terms, that’s the money the CPG allocates in the drive to boost demand for its products. That spending covers everything from discounts to coupons to the money paid to retailers for prime in-store shelf locations.
Historically, CPGs have often suffered “slippage” of 4% to 5% of trade spending, which can quickly add up. For a firm with $10 billion in sales that devotes 15% on trade spend, a rule-of-thumb 5% slippage rate equates to $75 million lost, each and every year. Gibson said that rule of thumb is a bit optimistic — many CPGs would be happy with a 50% effectiveness rate with their trade spend.
It was “simply tied to the cost of doing business,” Gibson said. CPGs have not had the data at retailer level to see how goods are flowing off the shelves, and to gauge what actions (promotions or discounts) can be leveraged to keep consumer spending buoyant.
Free Money for the Retailers
For the retailers? Well, that trade spend by the brand equates to free money — the retailer is seldom held accountable for what’s been happening in store, and whether goods are in demand or simply taking up space. Retailers operate notoriously low margin businesses, Gibson remarked, and so it may be understandable that they would take the deal that is offered to them by the CPG, pocketing what’s being left on the table by these huge trading partners.
The retailers have had a bit of leverage over the CPGs, historically, too, Gibson said. A CPG’s sales reps typically have been responsible for a given territory, calling on retailers with several locations within a geographical region. The CPG (and by extension its sales rep) quickly become reliant on retailer for on-shelf presence.
But: The current inflationary environment demands that CPGs and retailers work together to offer relevant promotions, discounts and offers in context in order to cater to price conscious shoppers.
That means leveraging data to make sure inventories are being managed, optimally, throughout the channel.
The urgency is there, Gibson said, to leverage data in optimal ways. Firms, he explained, “can mine data” and look at what’s happening in an individual shopper’s cart. In that instant they can, perhaps through insight into card spending or loyalty number, deliver more meaningful offers on more meaningful brands to them.
In the bid by CPGs to spend their money more efficiently, indexes are gaining ground as a tool to gauge whether their relationships with retailers are paying off — and which retailers to reward. CPGs, he said, will want to boost their efforts with those retailers in order to reduce the cost spent on each hypothetical incremental case of dog food, and drive market share.
Efficiencies Up and Down the Retail Chain
For those less efficient retailers, Gibson said, who may have to purchase their inventory from a wholesaler or who belong to a purchasing group:
“They’re going to have to get on board with better and more actionable data so they can create loyalty programs that allow them to be competitive from a ‘trade deliverance’ perspective.”
Digitally delivered coupons, promotions and loyalty programs can help both the brands and their retailers be more competitive — to meet the consumer where the consumer wants to shop. That extends into the omnichannel realm, Gibson said, but with offers delivered through digital means.
“This is the key to having more efficient promotions,” he said.
There’s a higher probability that the consumer will respond to those offers, because the benefit is immediate and targeted.
“The younger generations will become agitated and irritated if they are delivered offers that do not make sense to them,” he predicted.
Looking ahead, Gibson said, data-driven models can help retailers and CPGs more accurately predict demand, what goods will be out of stock, and what needs to be replenished. That approach leads to targeted promotions helping foster targeted inventory — rather than the retailer trying to appeal at all times to all people with all (haphazard) manner of items.
“For the retailers,” he told Webster, “the stores become more profitable. Their ‘out of stocks’ wind up going down, and they have the brands on hand that more people are looking for. That’s good for everyone.”