Building effective promotions is key to building your sales volume and your brand equity. Having a best-in-class product without a following is an exercise in futility. If no one knows how great it is, how will they know to buy it?
Why should I reduce my price point?
You need to draw attention to your product in the very competitive supermarket environment. A shelf tag with a reduced price is the simplest way to do that.- When a consumer shops a specific category, they tend to buy what they bought last time (if it served their needs). You’ll offer an incentive for them to change and (hopefully) gain loyal followers.
- As much as 40% of all manufacturer sales are made on deal.
- Grocery deals average 107% bump; natural/specialty sales average a 73% bump.
- Less than 15% won’t move the needle.
- Some distributors pass on the full %, others calculate the dollar amount and only pass that along.
- Retailers are trained to buy deals especially at distributor shows. Sometimes distributors pitch in (e.g. adding 5% to any promotion over 20%). Ask!
- Promoting during heavy consumption periods allows you to get your fair share of the consumer spend. Offer BBQ sauce at Memorial Day, grab and go items for Back to School and salsa for Super Bowl.
Let’s examine the various ways of getting attention for both new and proven products.
- Demos are very expensive (estimate $150 per store) and limited to the 3-4 hours of activity. You’ll only hit those shoppers who are currently in the store and then, only those who are willing to engage with you. The most effective demos include:
- Off shelf display that stays put even after the demo is over.
- Offers an off-price promotion as incentive.
- Educates staff who will recommend the product in the future.
- Free fills: not technically a promotion, but a cost of entry for new products. Getting on the shelf is only step one. If you don’t promote immediately upon gaining space, you miss the opportunity to get pull and hence, the repeat order which is how you (hope to) pay for the free fill.
- Quarterly Off Invoice (OI): these are expected by retailers and distributors alike.
- Offer 15-20% off 4 times per year. Publish this 3 months before the first effective date. Many accounts require 90 days’ notice. If your product is a really slow seller, you may want to offer fewer OIs to avoid accounts only buying during deal periods. When launching, you may want to offer more OIs to get larger distribution.
- Keep the calendar the same for all customers. This allows you to simplify your accounting. You won’t have to track different months for each distributor.
- Make OIs more effective by buying a distributor ad at the same time. New accounts won’t know your products unless they see a picture in the ad guide.
- Skip the retailer ads unless your brand has strong recognition.
- Spend money on off shelf displays: endcaps, stack displays, shippers, and racks. These options help you get impulse sales from consumers who didn’t plan on shopping your category this trip.
- Be sure to get the promotions to key accounts, brokers and sales managers so they can fill out paperwork at the retailers (or you might need to do this). If the retailer doesn’t have their paperwork in by their deadlines, you end up giving the OI without it being passed onto the consumer.
- Manufacturer’s Charge Back (MCB): Sometimes a retailer wants a promotion when you are not on OI, or they ask you to kick in a little more than the OI to reach a price point. This will be charged back to you based on the amount of product they purchase from their distributor.
- Ask for the retailer and distributor to also kick in some margin to get to the desired price point.
- Require proof of performance. This would be the invoice showing how much was purchased during the agreed upon deal time frame.
- Some distributors charge a fee to track this. Understand your commitment before you make the deal to avoid any misunderstanding and hard feelings afterward.
- Scan-downs: Some retailers will charge you only for the number of pieces they sold to the consumer. This is normally a good deal, but understand that you bear the entire cost of the promotions. For example, $1 off will be what you pay for each item sold. It’s usually a very fair way of promoting.
- Require proof of performance in the form of a computer scan by store for the promotional period. This will be interesting and valuable information for other promotions and demos.
- Some stores will sell out quickly and not benefit as much as others who are better at reordering often during the special time frame.
Conclusions:
- Build margin into your pricing to ensure you can be competitive with your price point and your promotional activity.
- Promotions bring new consumers to your brand.
- Promotions increase consumption in faster turning categories, i.e., yogurt, chocolate bars, cookies and pasta.
- Space out your promotions for slower consumption products, i.e., olive oil, mustard, and BBQ sauce.
- Completely understand what you are signing up for to avoid any misunderstanding when the charge back hits.
- Learn to track your promotions and the results effectively.
