Easier Said Than Done

By Jim Prevor, Editor-in-Chief, Produce Business

Promotional strategies are driven by real data. Deciding what to do not based on what your Uncle Louie or first boss told you 30 years ago but based on actual outcomes? This is not your father’s produce industry anymore, and this contribution by Kelli Beckel of the Nielsen Perishables Group is an important piece.

It is important because hidden in the data routinely captured is the key to promotional success. Yet, “hidden” may well be the operative word.

The Nielsen Perishables Group is doing the Lord’s work by urging people to look at the data, try and understand it and then act in accordance with what they find. There is little question that intelligent vendors will try to position themselves as the masters of this data. Still optimally using this data is easier said than done.

Part of the problem is that what actually works isn’t all that matters. Wal-Mart and others have been drifting away from the EDLP, or Everyday Low Price, a concept not because it has been established that building a reputation for consistently low prices is not optimal, but because it denies retailers flexibility. If a retailer needs a sales boost next week, then a low price promotion may be just the trick. This is despite the fact that many a manufacturer and many a retailer have been ruined because they trained their customers to wait for the sale to buy.

Another issue is that promotional success is defined differently depending on where one sits in the supply chain and even one’s position within a company.  A grape vendor may see a promotion as successful if it boosts sales of grapes at an appropriate price. The category manager at retail for grapes might go along. Yet the produce VP won’t be so happy if the increase in grape sales comes at the expense of stone fruit sales.

And, if anyone is really on the ball, there are overall store ramifications that need to be assessed. A particular salad greens promotion might, at a glance, seem less successful than a particular snack fruit promotion, yet if the promotion leads consumers to buy tomatoes, peppers, onions, mushrooms, apples, berries, etc., to place in the salad that are not on sale at reduced margins, that might be a bigger win for produce than the supposedly more successful promotion. If the salad promotion leads consumers to buy protein, such as eggs, meat, and seafood, to put on the salad, it may be a much more effective overall store promotion than the supposedly winning snack fruit sale.

Another key issue in evaluating promotions is time. In the very short term a promotion of, say, garlic, might be a success, but if the promotion only leads to consumers stocking up and kills garlic sales for the next month, it may not be a success at all.

Great data is important, but data produced in the normal course of business can’t test propositions that are normally not done. So, for example, typically many variables are tested at once: A deep discount on the product often comes along with larger more prominent positioning in the department and an advertising investment both in-store and out-of-store. Because so many variables change at once, the data can’t typically tell us which components of this promotion actually led to increased sales and to what degree each component contributed. This holds open the possibility that much of the lift in sales comes from components of the promotion other than price. Realize, of course, that the lift doesn’t have to be as large without a price reduction to maintain equal dollar sales and to gain enhanced dollar profitability.

One place data can be very useful, but that requires a deep dive to truly understand its ramifications, is the role that a promotion has on overall store profitability by examining the nature of the clientele it attracts to the shopping venue. See, all customers are not created equal, and not even a dollar of sales is equal among all customers. In days of yore, we had no data so we defined our best customers as our biggest, but that is almost certainly not the case. A family with 10 children may buy an awful lot of stuff, but they may be under budgetary stress and so “cherry pick” the ads, use double and triple coupon offers and shop in multiple venues to get the best deals.

In the end, that very large customer may not produce much profit for the store at all. In contrast, a bachelor, who zooms in a few times a week to pick up a high margin prepared food item for dinner and on the weekend buys a nice wine, expensive fish, and pricey balsamic vinegar to make a dinner to impress for his date, that guy, who never looks at the price, may be much more profitable than a price-conscious consumer who buys much higher volume.

This holds major implications for what makes a successful promotion. It means that certain stores at least might be more successful promoting specialty product, maybe more with usage ideas and implications of status enhancement. After all, if the key goal is to attract the customer who will buy high margin items, is a deep discount promotion the tool most likely to attract that customer?

The data is there to look at these subjects, but scarcely anyone ever does.