Through a special arrangement, presented here for discussion is a summary of part of a current article from the monthly e-zine, CPGmatters.
The days of traditional high/low retailers may soon be gone with nearly 75 percent of retailers expected to be either EDLP or some form of hybrid EDLP/high-low format within three years, according to a study around trade promotions by AMG Strategic Advisors.
The study solicited direct feedback from shoppers and gathered feedback from the Acosta sales teams executing trade promotions with retailers across the country every day on behalf of clients.
As retailers shift strategies to a more EDLP focus, trade spend is often allocated to buy price down every day or on long-term temporary price reduction (TPR).
AMG evaluated a number of eight-week TPR promotions and found the first week for a TPR returns the highest lift on average. Each additional week of promotion shows a lower lift than the previous week and the eighth week shows a 31 percent lower lift than the first week.
But EDLP and long-term price reduction promotions are effective with many retailers, specifically in categories where it is necessary to manage to key price points or where specific price gaps must be maintained relative to other competitive brands. For example, one CPG manufacturer recently experienced significant and unexpected volume and share losses due to shoppers switching to a new market entry and/or switching to private label. Unable to effectively combat this shopper switching behavior, the company offered to selected retailers an EDLP allowance that was then used to lower the everyday retail price. Closing the price gap with private label worked, and the company subsequently experienced an increase of 30 percent in base volume for the brand.
As retailers begin to do more competitive price matching, like the Walmart "Ad match guarantee" or the Safeway "Just for U" program, everyday retail pricing can be equally or more important than the trade promotion strategy.
On the manufacturing side, Trade Promotion Optimization solutions are being implemented to generate better ROI but they may not drive the same lift as less profitable promotions. Many promotions generate lower lift levels, but return a better ROI for manufacturers or meet other promotional objectives like gaining trial from new users or driving repeat purchases from loyal shoppers.
To maximize return, two thirds of CPG manufacturers are segmenting retailers and executing trade promotion strategies based on the programs retailers offer. Forty-two percent of manufacturers plan to spend more on long-term TPRs to buy price down.