Consumer Promos: The necessary evil

Hello people. Hope everyone is safe & has found a rhythm of working from home and I hope we soon resume normalcy because unlike for people like us for whom this is a matter of lifestyle and ways of working, for millions it is the thin line that divides destitution and livelihood. apologies for the morbid beginning but well we are living in uncertain morbid times.

And I am also sorry for being away for so long. A lot happened in the last year or so including a role change, lots of work related travel, craziness overall but most importantly, writers block. I just wasn't sure what should I write about next. So thanx to a dear colleague who drew up a list of topics I could write about and this is the first one I have chosen. Before I delve deep, just a reminder - this blog is for FMCG/CPG beginners and hence may not be relevant for the experts or people who have done this for many years.

Consumer promotions are what I call the absolute necessary evil of FMCG industry. You cannot survive with them because of margin dilution and then at some point they become such an inherent part of your brand that you cannot do away with them either. "Ek baar base mein chale gaye to kuch nahi kar sakte unka" (loosely translated - once in base, need to be repeated). Before I go into more details (as usual), some caveats. No brand does only 1 thing and hence this post should be viewed as a zoom into consumer promos within the larger brand plan instead of taking this as the gospel truth for growing the brand. Also, any of what I am saying will vary by trade set ups, ability to create awareness of the promo, cultural nuances, VFM disposition towards a particular category and most of all execution capabilities of the cross functional team. I am going to stay away from the nitty gritty of execution at the last mile. But happy to answer any questions for a particular channel. country, category to the best of my abilities.

Consumer promos come in many forms and shapes - price offs, additional volumes (10% extra, 200 gms more, etc.). cross promotions (buy a shampoo get a conditioner free), gift with purchase (pen free, tiffin box free), chance to win prizes (gold coin inside soap, scratch & win a prize) and many many more. The definition of a consumer promo is anything you offer a consumer that gives them an incentive to buy your brand vs other brands in the category, try a new category or buy more of a product vs what they ordinarily will. Essentially in a nutshell something that increases your sales.

By its very definition hence, consumer promos are closely linked to sales and unlike a lot of marketing spends can easily be deemed effective or not. The ROI calculation on consumer promos is fairly easy & straight forward. Incremental sales in the period of consumer promos vs the sales before the promo period vs the cost of doing the promo. Well as with anything simplistic in the world of brands if one is not careful then lazy analysis can lead to bad decisions. The purpose of writing this piece is to spell out the lead up to 2 sets of decisions for consumer promos. Firstly, their purpose in your brand plan & secondly, mechanics of the consumer promo.

Let's begin with the first - purpose of the consumer promo. Please don't hate me because I am going to go back to my first advice on anything marketing work & mine your numbers before you lay the options down for decision making for the larger team or your managers. There could be 3 distinct reasons for doing a consumer promo:

1. Stealing Market Share: if you are in a large, extremely competitive and repetitive category then stealing market share could be one of the biggest reasons why you should run a consumer promo. Let's look at each of the 3 things mentioned above. By a large category; I don't mean big in size - I mean big in penetration (mostly will also be big in size). Basically categories which have awareness and repeat purchases in a very large number of households. I don't think I need to explain extreme competition. Repetitive means a category where category choice (not brand) is made frequently. For me, the 2 big & universal categories that match all three criterions are soaps/bodywashes and detergents. The average frequency of purchase is 11 times in a year which means 11 times in a year a consumer has the opportunity to evaluate brands within his/her consideration set and buy one. For me 2 of the three things listed above needs to be true for Consumer Promos to be a primary source of stealing market share beyond building brand awareness and sometimes even at the cost of building brand awareness depending on the trade structure/seasonality of the category.

• A flip side of the MS game is also that sometimes you have to do competitive consumer promos just to stay in the game and ensuring that you dont lose MS to competition because of aggressive consumer promos. It is ultimately a 2 way street in a competitive market and well sometimes it is a proper 4 way crossing where just because a cycle is in the middle of the road, large trucks end up banging into each other (small brands giving extremely aggressive consumer promos in very competitive categories). 

2. Generating Trials for the Brand: Usually this is used for new brands, variants or NPDs in large competitive or undifferentiated or low involvement/impulse categories. Here, there are 2 things to be pulled apart when analysing the consumer promo - the need for trial and the category dynamics. If you are a well established brand but with low trial rates, then a consumer promo cannot help you in generating trials. One must be very clear on why you need to generate trials. For e.g. if you are a well established brand then you should be looking to generate trials for a particular variant or a new launch or something that you have done new and you want it to reach as many HHs as possible. Here, again the category dynamics become important. This will work only in 2 cases:

1. If the category is large and has high repeat rate. As I said for soaps or detergents, you have 11 opportunities to generate trial for your brand. On the other hand take the example of a category that is bought only once or maximum twice in a year. You ability to generate trials through consumer promos will be limited and difficult 
2. If the category is an undifferentiated or impulse category. For e.g. chips or candy or biscuits where the barrier to trial is very low and a consumer may try you just for a "change" and your biggest brand objective is to be in the consumption repertoire then depending on your product to deliver repeats. 

3. Generating Trials for the Category: if you are a brand/product that is a completely new format/ fulfills an entirely new need then consumer promos can help in generating category trials. Here, the pricing of the category plays a very big role. If price is a big barrier to trial of the category then promos can help in lowering them. However, if the barriers to category usage are more benefit or awareness led then consumer promos may not help. For e.g. one of the biggest barrier to trying a new form of foundation in make up or a new format of skin cream (sprays vs lotion) would be price and hence by giving a good consumer promo, trials for the category can be generated. On the other hand lets take food supplements - the biggest barrier to trial here may not be price but rather efficacy related questions, safety, side effects etc. and hence even a great introductory price may not help in generating trials. A good case point for using consumer promos to generate trials for a new category is when there is an established proxy for the category and then there is a new format/category fulfilling the same category need but with obvious upsides. Some examples that I have worked on are Liquid format of established powder or bar formats, Cream hair colours vs powders, Isotonic drinks vs plain glucose powders etc. 

4. Winning Shelf Loading/Share of shelf: this will eventually lead to gaining market share but this is not aimed at consumers but one step before that. This is especially relevant for large modern trade markets and also seasonal categories across channels. Every channel/retailer/trader will have limited resources to invest in a category and in large modern trade markets it is literally the shelf a retailer may have. Hence, their sole objective is to maximize ROI in his investment or in large retail formats to maximize ROI on shelf. Here, the more attractive consumer promo can help in winning the fight with competition. Inherently, better consumer promo means better shelf rotation or faster stock turnover = better ROI for the trade. This is even more critical if you operate in a seasonal category. I remember my sales days. I used to be an Area Sales Manager in Haryana (it is a state in India for any non Indian reading this blog) and I remember the win in winters for Ezze (a woollen specialist detergent) was who can stock up the shelves before competition. The offtake of the category is extremely seasonal and you ended up doing 70% of your annual turnover in 2 weeks (usually just after Diwali which marked the beginning of winter). Hence, these 2 weeks were the most critical in getting stock into trade. From a consumer offtake, I am not sure if the promos did anything but for the stock pressure in trade it helped massively. Similarly as a marketer another extremely seasonal brand I have worked on is Nycil talcum powder - if you miss being the only prickly heat powder on shelves in summer you are dead. 

And then one that doesn't have a scientific reason but sometimes can be very useful is to motivate sales teams - if you are struggling with incremental distribution giving promos helps motivating the last mile sales people in ensuring the SKU is in their must call list at the retail door - specially in traditional trade markets. 

Now depending on the objective of the brand, you can choose the mechanism of promos. Some of the usual questions to answer for them are:

1. What drives value for money perception for consumers. In different categories & cultures it differs. For some categories/cultures more volume is seen as better VFM and in some others it is the absolute pick up price and in some other the % discount you are giving. Hence, its important to design consumer promos that will maximize VFM perception for your brand especially in a competitive category when you are trying to gain share. 

2. Is the category consumption constant for the consumer/HH: for e.g. lets take detergents - the annual category consumption would more or less be constant in a household. Just because the detergent is cheaper no one will start washing clothes more. Hence, in this case one must decide whether they want to maximise volumes thereby blocking competition - a phenomenon also known as pantry loading. The jumbo packs of tea, detergents, soaps, 1+1 free, etc. work because if a consumer buys 2-3 months worth of stock then it means for this period they have no place to go buy competition. 

3. What is the biggest barrier to brand/category trial and how can the promo resolve it. For. e.g is it price? Is it fear of not being able to use it properly? etc. 

4. What is the cross category repertoire of the HH/Consumer: I had touched upon this when I had talked about writing briefs and also in my consumer interviews post. Cross category promos are a big way of doing promos but here choosing you carrier is very important. It depends on a lot of factors but it all starts from whether the carrier is important in your consumers life and routine for you to use it as a carrier. 

Just a point on ROI that I do want to highlight without going too much into how to calculate it is one needs to factor in the spike and then the drop effect into calculations. For e.g. if you are going to do bundle packs of  6 and your avg consumption in a month is 3; you have to calculate ROI assuming that the effect will need to be seen not just in the month the promo is run but for an extended period. 

Happy to answer any questions or take comments to edit/change. Also, happy to hear your thoughts on what other topics I should cover in the future. Hope you enjoy this and find it useful.