CHANGING YOUR TRADE PROMOTION TRAJECTORY HOW TO BECOME PART OF THE ELITE TIER OF COMPANIES

THAT ARE REVERSING THE PROMOTION TREND

Doug Bennett February 26, 2015

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@Nielsen

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MEET YOUR PRESENTER

Doug Bennett SVP, Sales Effectiveness Nielsen

CHANGING YOUR TRADE PROMOTION TRAJECTORY HOW TO BECOME PART OF THE ELITE TIER OF COMPANIES

THAT ARE REVERSING THE PROMOTION TREND

Doug Bennett February 26, 2015

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PROMOTION INEFFICIENCY IS GETTING WORSE Frequency vs. Return – chicken or the egg?

Source: Nielsen Trade Promotion Benchmark Analysis 2014 Q3

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67% DON’T BREAK EVEN

33% MAKE MONEY

ELIMINATING OF PROMOTIONS WOULD INCREASE SALES REVENUE 22%

THE MAJORITY OF TRADE EVENTS DON’T BREAK EVEN Over the last two years only 1/3 drove positive return

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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DAIRY 75%

MEAT 62%

FRO

ZEN

FO

ODS

66

%

GEN

ERAL

MER

CHAN

DISE

60

%

HOU

SEHO

LD C

ARE

56%

GROCERY 73%

PERS

ON

AL

50%

BAKERY 73%

PET CARE 66%

HEALTH 59%

BEAUTY CARE 50%

PRODUCE 74%

DELI 72%

% OF WEEKS THAT DON’T BREAK EVEN

OPPORTUNITIES EXIST ACROSS THE ENTIRE STORE Trade promotion effectiveness varies from 25% to 50% across departments

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3 70-75% 65-69% 60-64% 55-59% 50-54%

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CATEGORY VARIANCE IS SIGNIFICANT Understanding where your business falls is valuable context

Most Efficient Least Efficient

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Trade Efficiency < 0

Trade Efficiency >= 100

% O

F CA

TEGO

RY E

VEN

TS

LEAST EFFICIENT MOST EFFICIENT

0 < Trade Efficiency < 100

~200 CPG CATEGORIES

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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CATEGORY SIZE DOESN'T DICTATE PERFORMANCE

20%

30%

40%

50%

60%

70%

80%

90%

100%

$-

$2

$4

$6

$8

$10

$12

CATE

GORY

SIZ

E ($

BIL

LIO

NS)

% O

F CATEGORY EVEN

TS THAT DON

’T BREAK EVEN

~200 CPG CATEGORIES

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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CATEGORY HEALTH IS NOT DISCRIMINATING Growing and declining categories alike have tremendous variance in efficiency

Frozen Toaster Pastries

Yogurt

Powdered Instant Drinks

Fresh Poultry

Frozen Juice

Sugar Frozen Fruit

Adult Incontinence

Fresh Meat

Pet Medicine

$(1.00)

$(0.50)

$-

$0.50

$1.00

$1.50

$2.00

-20% -10% 0% 10% 20% 30% 40%

% CHANGE IN CATEGORY SALES

CATEGORY TRADE EFFICIENCY

INCREASING SALES DECREASING SALES

LEAST EFFICIENT

MOST EFFICIENT

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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OVER-PROMOTING DILUTES EFFICIENCY Scrutinize purchase frequency, expandable consumption, and storability

51% 45%

36% 30% 29% 28%

% O

F EV

ENTS

THA

T BR

EAK

EVEN

% OF WEEKS ON PROMOTION

0%

10%

20%

30%

40%

50%

60%

70%

2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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SELECTIVELY UTILIZE DEEP DISCOUNTS More than 25% of promotions on deep discount significantly degrades ROI

37.0% 40.8%

53.2%

60.6%

74.3% 69.0%

100%50-100%25-50%5-25%0-5%0

Average Category Trade Efficiency

% OF TOTAL EVENTS PROMOTING DEEPER THAN 25% DEPTH OF DISCOUNT %

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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YOUR FATE IS NOT SEALED Categories improved their performance by applying optimal strategies

Baby Formula

Coffee

Hair Coloring Cat Litter

Fabric Softener

Shampoo and Conditioner

Frozen Pizza

Fresh Sausage

Pie Filling

Ice Cream

Soft Drinks

Frozen Toaster Pastries

Breading & Stuffing

Hot Cereal

Facial Tissue

Prepared Beans

Cream Cheese

Yogurt

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

20%30%40%50%60%70%80%90%100%

Seizing Opportunity: High Efficiency and Improving

Becoming Winners: Inefficient but Improving

Off Course: Efficient but Getting Worse

Missing Opportunity: Inefficient and Getting Worse

POIN

T CH

ANG

E IN

BRE

AK E

VEN

WEE

KS

% OF WEEKS THAT DON’T BREAK EVEN

Source: Nielsen Trade Promotion Landscape Analysis 2014 Q3

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4 FUNDAMENTAL EXECUTION OPPORTUNITIES

STRATEGIC PLANNING VS. TACTICAL PLANNING Setting guardrails @ HQ and executing at retail consistent with the strategy

PROMOTION PLAN MANAGEMENT AND EXECUTION Tools don’t “talk” to each other

MANAGEMENT PROCESS Break the cycle of ad-hoc execution and siloed management

MEASUREMENT CHALLENGES Disparate data sources/measures/dates, must do events vs. discretionary

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4 FUNDAMENTAL EXECUTION OPPORTUNITIES

STRATEGIC PLANNING VS. TACTICAL PLANNING Setting guardrails @ HQ and executing at retail consistent with the strategy

PROMOTION PLAN MANAGEMENT AND EXECUTION These tools don’t “talk” to each other

MANAGEMENT PROCESS Break the cycle of ad-hoc execution and siloed management

MEASUREMENT CHALLENGES Disparate data sources/measures/dates, must do events vs. discretionary

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6/5/

2013

7/5/

2013

8/5/

2013

9/5/

2013

10/5

/201

3

11/5

/201

3

12/5

/201

3

1/5/

2014

2/5/

2014

3/5/

2014

4/5/

2014

5/5/

2014

Planned Promotion Detected Promotion

Identify parameters to maximize matches

EVENT MATCH ACCELERATES EVENT LIBRARY CREATION Captured 96% of plan spend 61% required time alignment

DETECTION PARAMETERS BENCHMARK CLIENT

1. Promo ACV 10% 30% 2. Discount 5% 5%

3. Incremental Lift 10% 0%

A B

C D

Scan weekly RMS data

Calculate ROI per event Categorize event into match category

Mfr ROI = Incr Volume Per Event * (List Price – COGS)

Direct Event Spend

CLEANSE PROMOTION EVENT DATA

ROI >1 Value Creating

ROI <0.7 Value Diluting

19%

47%

8%

26%

Match

Shift

Remaining Plan

DetectedROI 0.7-1 Value Neutral

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FOCUS RESOURCES ON SYNTHESIS AND ACTIVATION 31% of events were profitable. 96% of profitable events were executed fully

-0.22 -0.11 0.21

0.51 0.80

1.04

-0.5

0

0.5

1

1.5

0

20

40

60

80

0% 1 to 20 % 21 to 40% 41 to 60% 61 to 80% 81 to 100 %

Promo ACV Range

PromoCount

Mfr ROI

DIAGNOSE PROMOTION PERFORMANCE DRIVERS

How does sub-optimal execution impact ROI?

0%

20%

40%

60%

80%

100%

0

0.5

1

1.5

2

2.5

Promotion Event

MfrROI

PromoACV %

What % of my promotions are value creating?

How many events are being fully executed?

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TAKE SPECIFIC ACTION ACROSS THE PORTFOLIO Hi-Lo retailers are driving volume while hybrid EDLP yields superior ROIs

Mfr ROI>1 Value Creating

Mfr ROI<0.7 Value Diluting Mfr ROI 0.7-1 Value Neutral

Incr Value % > 10% High Revenue Driver

Incr Value % < 7% Low Revenue Driver Incr Value % 7-10% Medium Revenue Driver

RE-EVALUATE SPECIFIC CUSTOMER TACTICS

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4 FUNDAMENTAL EXECUTION OPPORTUNITIES

STRATEGIC PLANNING VS. TACTICAL PLANNING Setting guardrails @ HQ and executing at retail consistent with the strategy

PROMOTION PLAN MANAGEMENT AND EXECUTION These tools don’t “talk” to each other

MANAGEMENT PROCESS Break the cycle of ad-hoc execution and siloed management

MEASUREMENT CHALLENGES Disparate data sources/measures/dates, must do events vs. discretionary

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PPG 1 PPG 3

PPG 5

PPG 6

PPG 7

PPG 8

PPG 9 PPG 10

PPG 11

PPG 12 PPG 13

PPG 14

PPG 15

PPG 16

PPG 17 -20%

0%

20%

40%

60%

80%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Manufacturer A PPGs: U.S. Food

% RETAILER ROI

% M

ANU

FACT

URE

R RO

I BALANCE SPENDING FOR BRAND AND CATEGORY OUTCOMES

Note: Size of the Bubble Represents Total Trade Spend

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PRIORITIZE MERCHANDISING TO THE RIGHT PPGs

0%

20%

40%

60%

80%

-20%

0%

20%

40%

60%

80%

100%

Man

ufac

ture

r A A

vera

ge

PPG

8

PPG

13

PPG

12

PPG

9

PPG

15

PPG

7

PPG

16

PPG

10

PPG

3

PPG

1

PPG

11

PPG

5

PPG

17

PPG

4

TPR Feature Feature Lift %

Prom

otio

n RO

I % Volum

e Lift

Priority to Feature

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LEVERAGE THE RIGHT WEEKS AND PROMOTION DURATION TO MAXIMIZE LIFTS

0.80

0.82

0.84

0.86

0.88

0.90

0.92

0.94

0.96

0.98

1.00

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7

Rel

ativ

e Lo

ss v

s. 1

st W

eek

of

Prom

otio

n

% F

requ

ency

of E

vent

Typ

e

# of Weeks Into Promotion Sequence PPG 16 PPG 5 PPG 7 PPG 12

MANUFACTURER A PRODUCT HIGHEST DEMAND WEEKS OPTIMAL PROMOTION LENGTH

PPG 16 4, 11, 12, 43, 51 3 weeks or less

PPG 5 2, 3, 6, 8, 11 5 weeks or less

PPG 12 2-4, 8, 10 1 week

PPG 7 17, 47, 48, 51, 52 2 weeks or less

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SIMPLIFY GUARDRAILS INTO SPECIFIC PLAYBOOK FOR CUSTOMER TEAMS

PPG Strategy Timing & Duration Thresholds Offer

Communication Tactics

PPG 16 Limit depths below 40% 3 weeks or less with focus on Weeks 3, 10, 11, 42 and 50

$1.99 REGULAR PRICE

None Maintain current Feature vs. TPR balance

PPG 12 INCREASE SPEND BY HITTING KEY DEEP THRESHOLDS

1 week without detriment. Focus on weeks 1-3, 7, 9

$1.49 PROMOTED PRICE

None

Increase to 30% of weeks, Focus on TPR with limited Feature support

PPG 8 Increase spend with events <30% depth

No detriment, focus on weeks 2, 45, 47, 48, 52

None None Increase spend with focus on TPR

PPG 7 HIT KEY PROMO MULTIPLES

Focus in summer weeks

$1.49 Regular Price 10 FOR $10 Priority for

Feature support

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ACCOUNT ACTIVATION DRIVES SUPERIOR PLANS Tactical simulation tool with collaborative work sessions is a proven model

• Guidelines & Event Library • Predictive Models

HQ TEAM INPUT ACCOUNT TEAMS

• Live Simulations • Create Selling Stories

COLLABORATION

OPTIMIZED JOINT BUSINESS PLAN

• Customer Boundaries • Initial Event Sequencing

ACTIVATION ACCELERATOR WITH RETAIL TEAMS

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RESULT IS CUSTOMER SPECIFIC JBP ACROSS PRODUCTS Centralized workshops can drive team efficiency

Customer Pack 1 Pack 2 Mfr Revenue

Mfr Profit

Retail Sales

Dollars

Hi Lo 1 2/$8 Everyday +3 Coupon Events - 3 Display weeks

Drive Trial via: Everyday @ $10.19 +3 display weeks

21% 18% 27%

Hybrid 1 $3.79 EDLP No Promo

EDLP @ $9.98 +2 display weeks 6% 6% 9%

Hi Lo 2 Hold $4.89 price +1 BOGO week (3) – align to holidays

Add 2 UPC 40% 25% 33%

Hybrid 2

$4.49 everyday Stop BOGO Add Gas Program Promo @ 2/$8

Add 1 UPC 40% 48% 31%

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OVERALL IMPACT ACROSS CUSTOMERS IS MASSIVE

2014 Planning Sessions – Models based on data through 12/28/2013

Executing across the entire enterprise would yield even greater results

+$8.2 MILLION

Planned Increase in Retail Sales Dollars

+$6.1 MILLION

Planned Increase in Mfr Gross Revenue

+$1.4 MILLION

Planned Increase in Mfr Profit Dollars

20 bps

Planned Decrease in Trade Rate

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4 FUNDAMENTAL EXECUTION OPPORTUNITIES

STRATEGIC PLANNING VS. TACTICAL PLANNING Setting guardrails @ HQ and executing at retail consistent with the strategy

PROMOTION PLAN MANAGEMENT AND EXECUTION Tools don’t “talk” to each other

MANAGEMENT PROCESS Break the cycle of ad-hoc execution and siloed management

MEASUREMENT CHALLENGES Disparate data sources/measures/dates, must do events vs. discretionary

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4 FUNDAMENTAL EXECUTION OPPORTUNITIES

STRATEGIC PLANNING VS. TACTICAL PLANNING Setting guardrails @ HQ and executing at retail consistent with the strategy

PROMOTION PLAN MANAGEMENT AND EXECUTION These tools don’t “talk” to each other

MANAGEMENT PROCESS Break the cycle of ad-hoc execution and siloed management

MEASUREMENT CHALLENGES Disparate data sources/measures/dates, must do events vs. discretionary

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WINNERS USE AN INTEGRATED APPROACH TO PRICING AND TRADE INVESTMENT

Source: Adapting with Speed: How agile selling organizations win in a demanding environment, by McKinsey & Co., Nielsen and Grocery Manufacturers Assoc.

STRATEGY SETTING

Take integrated view of gross to net management Use innovations (product or packaging) to capture price increases and trade changes

EXECUTION AT RETAIL

Create customer P&Ls to understand full pricing and trade picture by retailer

Utilize menu pricing to optimize costs to serve

Anchor customer discussions around category growth and fully loaded retailer economics

ANALYTICS

Establish pricing and trade architecture across the category and portfolio

Use mix management via brand-region-channel-pack price architecture and assortment

Embrace product lifecycles for trade rate and price setting

Use granular, local level analytics when possible

ORGANIZATIONAL CAPABILITIES

Leverage integrated performance management metrics

House tools, data, and analytics centrally, but with close links in the business to ensure impact

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WINNERS LEVERAGE TPM AND TPO TOOLS TO ENABLE EVENT-LEVEL ANALYTICS IN THE FIELD

Source: 2014 McKinsey CCM Survey

Which of the following best describes your organization’s technology investment in trade promotion management? Trade promotion optimization? Who leads the event-level post promotion analysis?

Revenue Management: Trade Investment

13

27 38

47 63

13

EVENT-LEVEL PROMO ANALYSIS Percent of respondents

Other

Field / Customer Analyst

Others

Trade Marketing

Central Analyst

Winners

TPM / TPO TOOLS Percent of respondents with both TPM and TPO

Others Winners

70

50

Centralized revenue management teams typically maintain trade tools and set strategy, architecture, etc. . . .

. . . Field teams execute strategies and leverage central tools for customer specific insights and analytics

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Client example of one step driving the bottom line FOCUS ON ONE STEP CAN DRIVE RESULTS

OPPORTUNITY:

Empower HQ and field sales to implement tactics at account level

HOW WE DID IT:

OUTCOMES:

• Recurring HQ and sales training • Transparency and consistency • Greater speed to insights • Flexibility for local activation

1 ENGAGEMENT, 1 CUSTOMER, 1 CATEGORY

• Increased collaboration between HQ, sales and retail customers

• Organization-wide tool adoption

8x ROI on performance improvement $12M

trade spending

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CALL TO ACTION

Strategic Planning vs Tactical Planning

Promotion Plan Management and Execution

Management Process

Measurement Challenges

Understand context and focus on biggest problems in overall process

LEVERAGE TECHNOLOGY TO FOCUS ON ACTIVATION.

BE SPECIFIC TO BRAND AND CATEGORY OUTCOMES AMONG CUSTOMER TEAMS.

INTEGRATE SYSTEMS FOR IMPROVED EFFICIENCY.

SECURE COMMITMENT. BE TRANSPARENT. INVEST TO WIN.

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THANKS FOR JOINING US!

Speaker Bio/ Contact Doug Contact Us Q&A

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TWEETABLE TAKEAWAYS

• 67% of retail promotions don’t break even, and opportunity exists for categories big and small, growing and declining, according to @Nielsen

• Trade promotion effectiveness varies from 25%-50% across departments. Listen in to find out where your business falls http://bit.ly/1adv7lg

• Deep discounts should be used infrequently. Over 25% of promotions on deep discount significantly degrades incremental return – via @Nielsen

• Executing within a brand’s strategic guardrails with retail customers is the biggest promotional challenge to conquer. – via @Nielsen

• Trade promotion improvement is complex. Start with laser focus to get early wins that inform the journey - rewards are tremendous –@Nielsen

If you have follow-up questions or want more information, please contact your Nielsen Professional Services rep. If you are not a current Nielsen client, please contact us: Phone: 800.553.3727 Email: CPGSolutions@nielsen.com

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NORMATIVE FRAMEWORK TO MEASURE RETURN

1) ISOLATE EVENTS − Identify promotion weeks based depth of discount vs. everyday price

2) BUILD A VOLUME CALCULATION FRAMEWORK − Incremental Sales = Total Sales – Baseline − Incremental Cost = Direct Trade Expense + Incremental COGs − Trade Return = Incremental Sales – Incremental Cost

3) DERIVE PROMOTION COSTS BY APPLYING INDUSTRY STANDARDS

− Manufacturers pay 80% of Discount − Standard Cost for COGs, Feature & Display

4) CALCULATE KEY EFFICIENCY METRICS FOR ANALYSIS

− Trade Efficiency = Trade Return / Dollar Invested − Trade Responsiveness = Lift / Point of Discount − % Sales on Trade

Robust approach provides rich promotion benchmarks

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DRILLING THE ANALYSIS TO ACTIONABLE INSIGHTS Narrowed the analysis to eliminate some of the extreme skews

211 CATEGORIES

13 DEPARTMENTS

811K UPCs

92MM EVENT WEEKS

213B US RETAIL SALES

This analysis: • includes categories with sales over $100MM and promotional frequency of at least 5% • excludes tobacco, alcohol, eggs, milk and bread • examines all promotional events discounted at least 10% across 75 banners from

Food, Drug and Mass (excluding Walmart)