Encyclopedia of Marketing

Ekaterina Ivina CEO of BTL agency NGN Promotions
Marketing PRO Magazine, No. 6, 2007

Trade promotions (trade promotions) or promotions to stimulate the sales staff of the company to sell or display (merchandising) products of this brand, promotions to create loyalty of the sales staff to this brand is one of the fastest growing areas of the Russian market of BTL services.

Trade promos are becoming an obligatory element of any BTL campaign for most companies. Carrying out a trade promotion campaign in support of a consumer promo event guarantees the availability of goods in the retail warehouse, excellent display of this product, as well as the loyalty of sellers to this brand. According to RAMU, the volume of the trade promotions market in 2006 amounted to $400 million and grew by 25% compared to 2005.

Companies managing a significant assortment need to thoroughly approach the planning of trade promotion events, scheduling trade promotion activity based on the seasonality of product demand, periods of marketing activity, etc. In order for the trade promotion campaign to be as effective as possible, the number of products or categories participating in the promotion at the same time should not exceed two or three. With an increase in the number of goods participating in the action, the effect of the event is rapidly declining. In each period of time, it is necessary to concentrate the attention of the internal sales staff of the company or the staff of the retail network for which the promotion is being carried out as much as possible on a narrow range of products.

Choosing the mechanics of trade promotion events

When planning to start a trade-promo activity, it is necessary to proceed from the tasks that the company sets for itself. Each task corresponds to a certain mechanics of trade promotion.

Methods for conducting trade promotional events are diverse and depend on the category of goods promoted by this promotion. One mechanism is effective and actively used by companies in the non-food market, but is not applicable to the food market. The other one is recommended for FMCG companies, and the third one is ideal for motivating the company's internal staff.

The tables show some examples of choosing the mechanics of trade promotion events based on the tasks set by the company:

After the mechanics of the promotion is determined, the planning of the event itself begins, the development of a motivation system, and the choice of trade promotion tools. In order for the assessment of the success and effectiveness of the action to become possible, it is necessary to clearly fix the planned performance indicators or KPIs (key performance indicators) in advance. Then, at the end of the action, on the basis of previously established planned indicators, the degree of achievement of the tasks set is assessed, and, consequently, the degree of satisfaction of the company with the action carried out.

Below are some of the trade promotion metrics we use to measure the effectiveness of promotions for our clients.

1) When holding a promotion for retail chains personnel, to assess the degree of attractiveness of the promotion for its participants, we use the calculation percentage of participants

Definition:% of sellers who participated in the promotion from the total number of sellers in the database

Formula:% return (return rate) = number of participants in the promotion / total number of sellers

In our experience, this indicator ranges from 20 to 55% and largely depends on the mechanics of the promotion, its availability, and the attractiveness of rewards.

2) to assess the overall financial performance of the stock, a standard indicator is used ROI (return on investments)

Definition: The ratio of the total net profit received as a result of holding this share to the value of the costs of this share

Formula: ROI = ((actual sales* - planned sales) X margin - share cost) / share cost

The indicator should not fall below 0 (breakeven point). It is necessary to strive for an indicator > 1 (that is, every 100 rubles invested brings an additional 100 rubles).

This calculation should ideally be based on sell-out data (sales to the end consumer), and not sell-in (sales to distributors), since distribution overstocking often occurs under the influence of such promotions.

When calculating sales as a result of a promotion, it is necessary to exclude such factors as market growth, the effect of an advertising campaign or consumer promo campaign, etc.

3) The simplest technique that allows you to assess at a glance whether the costs of the action carried out justified themselves - simplified performance evaluation

Definition: comparison of 2 indicators - the ratio of actual sales to planned sales and the ratio of the spent budget to the budget planned for this event

Formula: Actual/Budget X 100< = >Cost/Budget per share X100

4) When planning any marketing event, it is extremely important to properly plan inventory. With all the evidence of this fact, in about 30% of all our promotions, we faced the problem of a lack of stocks from the client, which ultimately negatively affects the result of the promotion. When summing up the results of the action, it is important to evaluate the influence of this factor on the overall result of the action. We use the indicator Out of Stock Ratio.

Definition: The number of days when the product was out of stock to the total number of promotion days

Formula: OOS Ratio = Number of SKUs* OOS X number of OOS days**/ total number of SKUs* X total number of promotion days

When conducting trade promotion events, a very effective tool for checking the quality of the promotion, as well as the main tool for evaluating the work of the staff participating in the promotion, is the mechanics of the mystery shopper. In some cases, especially when conducting large-scale actions, this method is the only possible one. This verification system is often a necessary element of the promotion, as it allows you to regularly and objectively evaluate the activities of trade promotion participants. On the part of the sales staff, confidence in stocks that include verification mechanics such as the mystery shopper tends to increase. the verification is carried out by a third-party organization - an agency organizing a trade promotion event, according to clear, pre-known and understandable criteria.

Trade promotion is definitely an important and very effective tool of modern trade marketing. But, as in the case of any other type of marketing activity of the company, this activity requires thorough planning, clear setting of tasks, as well as a scrupulous calculation of the effectiveness of the event. A seemingly successful stock may turn out to be unprofitable upon closer examination.

In the conditions of fierce competition, companies that conduct active trade-promotion activities, who care about the high level of motivation of their sales staff or retail staff, have a significant advantage over their rivals. In some sectors of the market, companies are already competing with each other in a creative approach to ongoing promotions, the level of technical support for ongoing events, the degree of interest of sales personnel participating in such promotions. Today, the trade promotion market is growing and developing at a rapid pace. And on how successfully your company will be able to use this tool in its activities, its future position in the market largely depends.