By George Anderson
Trade promotion is a critical part of manufacturers' budgets for driving sales at retail. For retailers, it is not only a proven method for building incremental volume and profits of promoted products but for complementary items, as well.
Despite its importance, each party says actual performance falls below their expectations. Two-thirds of retailers do not believe they are getting a fair return on promotions while 91 percent of manufacturers believe they are ineffective despite spending upwards of 15 percent of their sales budgets on trade promotions.
Last Thursday's RetailWire Webinar, ROI from RFID: Promotion Execution, explored some of the reasons that promotional programs fail and how the lack of timely store-level information makes it nearly impossible to make the corrections necessary to quickly fill holes in execution.
It also served as the site of the first official announcement that OATSystems, ADT Tyco and Intel were conducting a 50-store test RFID test to track promotional performance at retail.
Marc Osofsky, vice president, marketing & product management for OATSystems, told attendees how the use of radio frequency identification (RFID) technology can dramatically improve promotional performance.
According to Mr. Osofsky, RFID tracking of promotions has several advantages over traditional legacy systems.
RFID enables retailers to not only identify whether product has made it to the store but if promotional product and displays have made it on the floor. Since RFID transmits this information in near real time to vendors and retailers, fast action can be taken to alert store managers and a manufacturer's store level coverage personnel.
Once a program period has concluded, according to Mr. Osofsky, legacy systems may be able to identify the sales achieved during a promotion but they do not identify areas where execution fell down and the systematic learning needed to improve future performance.
Conversely, RFID tracking provides the level of detail to not only assess performance of the just finished promotion but also to accurately forecast future program opportunities and the means to achieve them.
One opportunity that RFID has identified is in the area of stock-outs, many of which occur as a result of pre-promotional program activity.
"If you have a promotional spend or a circular coming out two weeks from a date in which a product is moved out; if the store moves it out too early, the product will move from the sales floor; sell out; will be an out of stock situation when the advertising circular hits and all that does is drive customers to the store who become frustrated with that supplier and buy a competitor's product," Mr. Osofsky said during the Webinar broadcast.
RFID also helps trading partners see when stores have not complied with the terms of the promotion. In some cases, as Mr. Osofsky pointed out, this may be because manufacturer pallet displays have to be broken down because they are too large to fit in the backroom or on the sales floor.
The use of RFID tags enables retailer and manufacturer to see, for example, if a display pallet has spent less than a day on the sales floor. Because the information is transmitted in near real time, the parties can investigate if promotional product was moved to an end-cap or if there is a real problem with execution that needs to be addressed immediately.
"This process describes how things generally work today with folks using POS data to determine if there are sales on a given SKU or looking for an uptick on a promotional item. That data has to be reviewed by an analyst then sent to a third party. That third party then has to schedule it with the rep to get to the store. That rep then has to fit it into a schedule and get to the store and send confirmation and this can extend anywhere from seven to 21 days, which may be well beyond the promotional period to begin with.
To provide further quantified support for his position, Mr. Osofsky along with Randy Dunn, director of RFID for ADT Security Systems announced that their companies along with Intel would be launching a 50-store RFID test to track promotional performance at retail.
"The solution is called Promotions on Standards. It will be announced officially today (Thursday, May 18) and you're hearing it first on RetailWire," said Mr. Osofsky.
"The Promotion on Standards solution is designed to help other retailers who have not yet engaged in RFID to get started in an ROI-based manner," he said. "We have found that the biggest win-win-win for retailers, suppliers and consumers for RFID...the first place to start is around promotion display compliance...better execution of promotions at the store-level."
"We're making it available for up to five retailers to participate. For each retailer, ADT Tyco will install readers, antennas, stands, etc to provide a physical RFID layer for each of up to 10 of their stores, and they are funding that exercise as part of this proof of ROI project. So you have a total of 50 stores across five retailers that will be wired," he said.
"This is a very concrete way to enable a retailer who has not been engaged in RFID to get started with the subsidization of the infrastructure from ADT Tyco; Intel providing servers and funding the academic study and OATSystems providing the necessary software at the store level as well as the analytic software for both the retailer and the suppler."
Moderator's Comment: How much of a need is there for improvement in the area of promotions? What opportunities do you see for radio frequency identification (RFID) technology to improve performance at store-level, specifically in connection with the execution of promotions? - George Anderson - Moderator