Article

Trade Promotions 101: What They Are & Why Measuring their Impact is Critical to Success

Consumers look to promotions to cut costs and help them make key purchase decisions. This means promotions are a prime opportunity for brands and retailers to influence consumers and their shopping behaviors – and crafting an effective trade promotion strategy is critical to competing in today’s dynamic market.

What is a trade promotion?

A trade promotion is a discount that is offered by manufacturers to increase consumer demand for their products and is different from a consumer promotion, which is generally launched directly by retailers. In trade promotions, the “cost” of the promotion is absorbed by the manufacturer as retailers buy the product at a discounted price and then pass the savings on to consumers. Retailers can then use these promotional rates to market these products and drive consumer behavior.

Trade promotions can be passed on to the consumer in many formats, but the most common are:

  • Sale pricing–Advertising lists the final, discounted price of the product.
  • BOGO–BOGO generally signifies “buy one, get one free,” although retailers are increasingly using the term to represent “buy one, get one at half off” offers.
  • X/For–This type of promotion encourages the purchase of multiple items and pricing reflects a final price for purchasing multiple items – for example “buy 2 for $1.”

How do you track digital, in-store, and any other types of promotions?

And why should you do it?

Tracking overall market promotions is essential for brands and retailers competing in the modern promotional landscape. Consumers rely heavily upon promotional offers when making their purchase decisions – so promotions must be competitive to attract shoppers.

promotions 101

What’s more, as e-commerce shopping continues to see significant growth, consumers are also becoming ever-more adept at using the internet to compare promotional offers.

Today’s promotions can manifest in many ways and multi-channel purchases in particular can make tracking promotions challenging and time-intensive. The complexity of consumer purchase patterns means tracking these promotions internally–as opposed to partnering with an experienced promotions data provider–often starts with faulty or incomplete assumptions and ends with misleading or erroneous conclusions.

Tracking the full promotional landscape

What exactly does it mean to track the full promotional landscape? It starts with gaining a comprehensive view of promotions across channels, retailers, and brands.

  • Channels: How do promotions differ across food, dollar, drug, mass, and more?
  • Retailers: Are certain retailers leaning more heavily into specific categories? How do their front-page ads differ?
  • Brands: Which brands lead their category in ad block volume?

Tracking different channels, brands, and retailers is just the beginning. Next, it is critical to build a comprehensive view of promotions across all media types/formats:

How do you create a good promo strategy?

Before creating a promotional strategy, it is important to define what “good” means. In general, a good promotional strategy meets the following objectives:

  • Attracts shoppers: the point of launching a promotion is to encourage shoppers to buy the designated product from your brand or retailer, rather than having them purchase the product from a competitor or see them not purchase the product at all.
  • Drives incrementality: a good promotion should not only appeal to brand loyalists; it should attract new shoppers who may not have previously purchased the brand or category.
  • Maximizes ROI: it is important that your promo strategy drives profitability. In the case of BOGO promotions, for example, you shouldn’t give away free products if this promotion doesn’t appeal to new shoppers. Without new shoppers, the lost profit on “free” items may not be worth the promotional cost.

craft a perfect promo strategy

To craft an effective promo strategy, brands and retailers also need to leverage a holistic view of the promotional landscape and pull actionable insights based on it. These actionable insights generally include:

Understanding common characteristics of successful trade promotions

Understand which promotions are most successful during certain times by leveraging historical data to determine how the promotional landscape has traditionally shifted during different seasons and events.

Tracking what competitors are doing

Tracking your competitors’ trade promotions is essential to understanding how they may be influencing and capturing your shoppers. This is especially important in the case of trade promotions as your competitors may offer very similar promotions. Collecting this data starts by asking the following questions:

  • What types of offers are your competitors running? How do they compare to your own?
  • What does competitive ad placement look like? (front page, back page, etc.)
  • What do other retailer-brand relationships look like?

Leaning into promotions that drive incrementality

Assess your past promotions and replicate the promotional characteristics that have driven new buyers to your brand, category, or retailer – and lean away from promotional characteristics that haven’t shown significant ROI.

Measuring trade promotion effectiveness

One of the most important aspects of crafting an effective promo strategy is accurately measuring how a trade promotion meets key success metrics.

Traditionally, brands have used sales/unit lift to measure effectiveness, but this metric doesn’t always provide a full picture because it’s based on a limited view of sales and it doesn’t include any consumer context. While sales/unit lift can tell you if units sold increased and if sales in general increased as a result of a promotion, it doesn’t yield any information on who was buying the promotion. The “who” is a key piece for replicating successful promotions.

promo effectiveness quote

How do promotions affect buying behavior?

Since the “who” is a key element behind a successful promotion, successful tracking must measure how promotions affect consumer buying behavior. To measure this success, brands and retailers must dive into questions that focus on the consumer-driven impact of a promotion, such as:

  • Which promotions drove new buyers to your brand or store?
  • Which promotions drove new buyers to the category?
  • Which promotions appealed only to brand loyalists rather than new brand buyers?

To gain the most complete and actionable understanding of trade promotion effectiveness, you need to link trade promotion activity to purchase behavior. This creates deeper, more meaningful analyses because it explores the following:

  • Which shoppers are motivated by promotions? Are they shoppers who have historically bought from your brand or store? Or are they new shoppers who have not purchased from you recently?
  • How different are your on-promo buyers from your off-promo buyers? What are their income levels, generation, or urbanicity?
  • What is the impact of your promotion on metrics like buy rate, purchase frequency, and spend per trip?

promotional effectiveness quote

Exploring these metrics allow you to understand which types of promotions can most effectively contribute to your overall business goals.

Understand the impact of promotions on your business 

Numerator’s industry-leading Promotions Intel and Promo Insights are designed to help brands and retailers build effective promotional strategies. Backed by 30+ years of promotions tracking and market leadership, these solutions give you access to total market activity across all media types and link this activity to consumer purchase behavior. For more information, reach out to your Numerator representative today.

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