The consumer goods sector is facing unprecedented challenges. Rapid e-commerce growth, shifting consumer behaviors, and inflationary pressures have created a complex environment. As companies struggle to maintain volume amid rising prices, promotions can serve as a crucial tool to bridge the value gap, especially since value for shoppers is more important than ever.
Traditional promotional strategies are now proving less effective. Approximately two-thirds of promotions fail to generate incremental value, often due to insufficient planning and optimization. To enhance the promotion management process, businesses need to undertake a comprehensive evaluation of their current practices, advance their capabilities over time, and find ways to leverage the potential of artificial intelligence (AI) technology, including generative AI.
The case for a holistic approach to promotion management
While negative return on investment (ROI) on promotions may not always be immediately apparent, there are a variety of symptoms of poor promotional strategies. The company may, for example, experience extreme sales peaks at quarter ends, promote top-selling products year-round, have several promotions active for the same stock keeping unit (SKU) within a single week, or launch poorly timed sell- through promotions.
It’s crucial to address these symptoms, but doing so successfully requires a holistic view of promotional performance that evaluates efficiency from four perspectives:
- Brand/product providers’ perspective: To gain a granular understanding of the true incremental value of promotions.
- Retailers’ perspective: To define operations that benefit both the brand and the retailer, particularly in light of retailers’ consumer-centric pricing strategies.
- Competitors’ perspective: To analyze competitors' promotional strategies and performance and limit brand switching.
- Consumers’ perspective: To understand consumer behavior and the impact of promotions on loyalty.
How promotion management capabilities progress
Consumer goods companies exhibit a range of levels of sophistication in their promotional strategies, from basic sell-in views aimed solely at boosting volume to advanced, data-driven approaches that leverage comprehensive insights — including consumer behavior, competitive dynamics, and machine learning-based forecasting — into promotional performance. This evolution progresses through four key stages:
- Basic: At this initial stage, companies have a limited understanding of the incremental impact of promotions, focusing primarily on direct effects without considering indirect ones and other factors. Promotions are often repeated year-on-year as short-term volume drivers, and the approach is tactical rather than strategic.
- Market standard: Companies at this level develop a stronger understanding of past promotions’ incremental impacts, incorporating a vision of ROI from both their perspective and that of retailers. The promo planning process becomes more sophisticated, allowing for informed negotiations that aim to create win/ win scenarios.
- Advanced: Organizations achieve a full 360-degree view of promotional performance, considering consumer perspectives on recruitment and share of stomach, as well as competitor dynamics. They utilize machine learning for forecasting future promotions’ expected impacts and empower teams to plan with clarity regarding financial implications.
- Next-gen AI-driven: The most mature stage features fully automated promotional plan building, driven by AI. This approach allows for the creation of optimal promo plans based on historical performance and predefined inputs, enabling teams to simulate various scenarios with different constraints.