Up and Down the Street
February 1, 2005
Up and Down the Street
By Paul Adams, President, Paul Adams & Associates
One product manager said recently, “There are only so many promotional dollars … and the trick is understanding how and where they should be spent.”
If only there were simple answers to the dilemma.
Maybe part of the answer can be found in examining the purposes of effective promotions from both the perspective of the manufacturer and the retailer. The purposes remain pretty constant for both parties:
Improve both short-term and long-term performance of the product
Increase sales generated by consumers
Stimulate consumer interest
Protect market share
And, for the manufacturer, the purpose is to get repeat promotions and develop a strong relationship with the retailer customer.
If we can agree that those long-time purposes still hold true today, what must we do to develop promotions that are effective and are seen as beneficial to consumers, retailers and manufacturers?
The role of the manufacturer’s representative will have to be seen more by the retailer customer as that of a “sales consultant.” By this, we mean someone who can assist a retailer’s understanding of the purposes of promotions that we mentioned earlier. Let’s look at some aspects of promotions that an effective sales consultant can help a retailer think-through.
It seems as though anything related to retail begins with “price.” Promotions are usually tied to price, but the question becomes, how much should the item be reduced to generate additional sales? It’s here that the sales consultant can provide
good information on pricing strategies and expected returns from the promotion in terms of items sold and profitability.
Often, deals are promoted “too deeply” without getting a significant increase in sales. It used to be stated that consumers would not switch products unless there was at least a 10% price difference from normal retail. Today, some of the major manufacturers have found that a 7% price difference is effective. These same manufacturers have found that when products are promoted at a level of 15% or more, diminishing returns set in. Also, promotions should not occur at the same deal level each time. Seasonal issues will impact decisions here, but when not in season, lower promotional price points can get good returns.
Frequency of promotion may be as important as pricing decisions. Good sales consultants can help a retailer understand that many national brands operate on promotional schedules to maximize potential sales. Because of this, a retailer will see what’s happening in the market and react accordingly. This can lead to overspending in a category with limited results. An effective sales consultant will work with the retailer in developing business plans for category promotions that are run in order to grow the category and protect incremental promotional lift. Also, strong plans for effective promotional frequency will prevent a category from developing an EDLP image causing the consumer to buy a product only when needed instead of impulsively.
The sales consultant should be there to assist the retailer in knowing what to pro mote. Soda pop and salty snacks are promoted to the point that most consumers fail to understand a “true” promotion among these products. Some of the new growth merchants, such as Trader Joe’s and Whole Foods, have attractive promotional end-caps of unique snack items that sell quite well. Their customers see these items as “different” from the ones normally seen in most stores selling food and they seem willing to try the products.
Does that mean the sales consultant should pull all promotional dollars away from the so-called driver items? Absolutely not! However, real incremental sales increases may come from getting retailers to promote items that customers don’t usually see at reduced prices. And, the truly effective sales consultant may even talk the retailer into a tie-in product with the key promotional item. For example, blue corn chips at Trader Joe’s are seldom promoted without an unusual salsa tied into the display.
Sales consultants have the responsibility of keeping the retailer informed of the items being consistently promoted in the big box stores. The world’s largest retailer maintains a policy of never being beaten on price, so it can be damaging to a competitor to have the same items promoted at the same time with a higher retail price. Some successful retailers have learned to promote different product sizes or use multiple pricing or buy-one-get-one-free when promoting since the big box merchants usually will not match these promotions.
Stimulating consumer interest is a key component in the roles and responsibilities of an effective sales consultant. Although these points could be stand-alone topics, the sales consultant should assist the retailer with proper informational signage for the promoted products as well as attractive point-of-sale material. Retailers understand the
importance of signage and exciting promotional material, but sometimes it takes stimulation to get them to use it properly. A trip to the new growth merchants, in particular, demonstrates the importance of informational signage as a way to assist the customer to make a buying decision from a promotional display. Linked to this is coaxing the retailer to promote products in different locations and away from their normal home in the store. Incremental sales are the results of getting a customer to slow down and give a product unexpected attention.
Getting repeat promotions is a function of good information given back to the retailer. Retailers often report that they don’t get this information unless they take the time to fish it out or unless they ask for it. Top-notch sales consultants always give feedback and they always develop sales goals with their customers with every promotion. This information is invaluable to both parties, and it demonstrates to the retailer the concern the manufacturer has in helping them grow their business profitably.
We may never have all the answers to the question posed by the product manager, but if we analyze the purposes of a good promotion and put the right kind of sales consultant in place to assist the retailer, we just might see a better return on our promotional dollars and please lots of retailers and their customers at the same time.
Paul Adams will be one of the speakers at SNAXPO 2005, March 12-15 in Hollywood, Fla. To learn more on this topic, please join us there. As always, we welcome your comments and ideas for future “Up and Down the Street” columns. Please send them to SFA’s Vice President of Communications, Ann Wilkes, at email@example.com or call her at 703.836.4500 ext. 204.