“In & Out”: best promotion practices for manufacturers*

13 de Novembro de 2012

Categoria: Inglês

In & Outs, or “limited editions” are excellent tools to increase frequency of purchases, volume per shopper trip, and some times penetration. This FMCG tool brings not only the novelty impact to the points-of-sale, but also influences shoppers blurring their comparative price reference in the category purchased.
However, the use of limited editions of fast moving consumer goods may be pretty harmful if not planned and executed right. If mismanaged, In & Outs can lead to high inventories of unfinished goods and packages. They may get stuck in small shelf spaces if not supported well with promotion and merchandising. Or even worse, they may go rotten without ever leaving the storage room of a retail shop, killed by some Information
Technology (IT) parameter generating a replenishment error.

Therefore, the challenge to brand manufacturers is not to develop great strategies using promotions, but to manage them. To do so, it is fundamental to create the right set of performance indicators (KPIs). In fact, these KPIs should address both internal processes and market results with the use of previously established success criteria for comparison. Internal KPIs will tell if the company must introduce a new SKU in the market as a limited edition. Meanwhile, market KPIs will show if the manufacturer should keep it running.

Examples of internal (process development) KPIs are:
– Speed to market: to control this process three intermediary processes must be monitored:
– Listing process;
– Retail logistics;
– Indirect channel sell-in.
– Sales process: channels execution influence incremental sales as a response to:
– Sales promotion;
– Out of stock levels;
– Retail replenishment parameters.
– Incremental contribution margin: manufacturers should reduce these costs to a minimum possible in terms of:
– Listing fees;
– Unfinished goods and inventory;
– Losses caused by short shelf life.

Examples of strategies to increase frequency, volume of transaction and penetration:
– Frequency is obtained when current shoppers of the brand buy it more often. The use of In & Outs to increase frequency are commonly associated with the introduction of new packages (e.g. individual size of a regular SKU, promo packs with collectionable gifts, free-samples);
– Volume per transaction is increased by price or volume sold. The use of combos (bundles of products from related categories) and value packs is a common practice. Premium versions also bring extra revenues per transactions if price/unit sold is higher than regular SKU;
– Penetration is increased when new-to-brand shoppers try the SKU. The use of in & outs to increase penetration can be exemplified with the introduction of new flavors, imported or seasonal versions of one regular SKU;

Examples of market (result metrics) KPIs related to frequency, volume of transaction and penetration and should measure trial and repurchase:
– KPIs that serve as reference to measure trial and repurchase:
– sell-in (introduction in retail stores): # of points-of-sale with new SKU / # number of points-of-sale with the category;
– sell-in (repurchases from retailers): # of units ordered for repurchase / # of units of last order;
– sell-out (trials): # of tickets with brand before In & Out introduction / # of tickets with brand after In & Out introduction;
– sell-out (level of repurchase from shoppers): based on loyalty programs information it is possible to check the amount of shoppers who tried and repurchased the new SKU.

Other best practices per functional area of the company (FMCG)
– Controller – Check ROI (Return on Investment) of every In & Out project separate P&L).
– Merchandising – Use secondary placement to avoid shelf space constraints. Follow up out of stocks in store.
– Marketing – Build a table with all versions of category SKUs to check invisible opportunities and overlaps with competitors before launching new version. Synch media plan previous to launching.
– Supply – Lower packaging/labels purchase lot to a minimum size.
– Market research/Trade marketing – Hire incremental assortment studies from research companies such as Nielsen if available (they bring data of potential volumes and pretty accurate simulators).
– KAM – Create a calendar (of substitute In & Outs) with retailers so listing fees are paid only once in a life time.
– Trade marketing – evaluate the impact of the “paradox of choice” in-store using instore tests to check the impact of a new SKU in the overall sales of that category in the POS.
– R&D – Extend shelf life of the product, if possible.

Example of incremental analysis (assortment optimization)

Product D selling is less than product C selling in total quantity, however the incremental units sold in-store is larger for product D. That is the correct analysis using units sold to determine what is the most successful In & Out. (the one with less canibalization)

Conclusion

Sell-out is still a key source of information for performance but is not always a viable/available KPI. Retailer’s loyalty program data (or “tagged shoppers” data) can play a major roll in the decision process as it provides a reliable KPI of “repurchases” from shoppers of a category or brand. The problem is that this kind of data can be as hard to get from retailers as sell-out. So there are not many options of KPIs to manufacturers evaluation of in & outs.
However, by investing time and resources in creating a perfect product launching process they will leave fewer variables with potential to go wrong along the path to purchase. That practice leaves the success of a product in the market only to shopper’s preference, fashion or taste (something easier to infer from product-test research), thus avoiding failure by poor field.

* With Daniel D’Andrea and the collaboration of Betina Steinkopff
Originally published at Mundo do Marketing website in 11/13/2012