As the US and the world economies encounter a downturn and firms look to scale back, Marketing is often one of the first places to face budget cuts.  Forrester reports that many companies expect to cut their marketing budgets by 3%.  But how do you maintain or grow your customer base and revenues when consumers are spending less and your message isn’t getting into the marketplace as loudly?

We think the use of online coupons deserves a harder look.  Emailing your customers and prospects with newsletters, product updates, and coupons is certainly nothing new, but it’s now well-positioned for even greater success:

• Companies are getting good at it. After dabbling in techniques like SEM and direct email, firms have gotten better at driving profitable growth from these methods, and many are increasing their focus on online advertising as a cheaper way to spend their marketing dollars. 
• Consumers want more of it. During these uncertain times, consumers plan to increase their use of coupons to save some money.  Sending these options straight to their inbox or mobile phone accomplishes that goal and positions you as a preferred provider.
• Consumers who use it are attractive prospects. Compared with consumers who only use offline coupons, Forrester reports that users of online coupon tend to have higher incomes, shop online, like to try new products, and influence peers.  Younger consumers also use coupons, and they can be a good avenue to get the word out about your product.
• More data is available to help you win at it. More firms sell marketing lists (or can help you run campaigns to get new lists), segmentation data helps you understand consumers’ preferences and desires, and syndicated data helps you understand purchase behavior.  Combining this data gives you incredible insight into consumers to tailor unique marketing messages.

You don’t just want to throw promotion dollars at existing customers to give them discounts on things they were already going to buy; rather, you likely want to use those dollars to deliver positive returns and achieve business goals – such as acquiring new customers, increasing market share, or increasing wallet share.  Doing this requires targeting offers to customers based on their stage of the customer life cycle:

1. Acquire. Coupons can be a good tool to help consumers overcome the risk associated with trying a new product; if a new product is cheaper than the one they normally use, the savings might be worth trying.  You can use them to attract entirely new customers to your firm, or to get your existing customers to try a new product line.  Targeting early adopters can also help generate buzz, as they will influence friends and family to buy the product as well.
2. Grow/Stimulate. Once you’ve acquired a customer, you want them to maintain or increase their purchases.  Two ways of stimulating usage are encouraging them to try a different variety (e.g., color, size, flavor) or showing them new uses for the same product (e.g., using Q-tips for craft projects in addition to hygiene).  In this stage, the focus should be on the marketing message, the coupon being used to help seal the deal and drive the customer to the store.
3. Manage. In this stage, your customers are steady-state users, and couponing may not be required to retain them. However, these consumers present a good opportunity to test new offers on an already loyal customer base and measure the response before using them on the general public.  You might test them using different demographics, layout, or wording, perhaps even running controlled experiments to determine which of two offers is more effective.  We’ve done some research on the use of Behavioral Economics to improve offer design, which might be helpful in performing this testing.
4. Reclaim. If customers reduce their consumption or begin to try competitors’ products, you can use targeted offers to reintroduce your product and retain them as customers.  However, depending on their needs and your product pipeline, you may otherwise opt to move back to the beginning of the life cycle and acquire them as customers of another of your products.

This strategy requires a high level of customer insight to understand preferences and stages in the life cycle.  You can gain this insight by applying segmentation schemes to your lists of customers and prospects, and by analyzing your customers’ history of purchases and coupon redemption.  Applying a rigorous testing approach will help you identify the most effective offers for each customer and stage.

Applying this framework to understanding your customers and targeting coupons will deliver several benefits, including:

1. Strong ROI potential.  Campaigns that are more effective and lower-cost, targeted at attractive customers, have a stronger potential to deliver a positive ROI.
2. Better data to analyze results. Results of online campaigns are easier to track and measure than traditional campaigns, particularly if your coupons lead customers to purchase from your own website.  Analyzing results from campaigns that involve multiple partners may require a different approach, as Vishal outlined in his earlier post on trade promotions.
3. Better customer relationships. You can use the insight you’ve gained about your customers’ behaviors, preferences, and purchase history to continually develop targeted offers.  This level of personalization will help you deliver the right offers to the right customers at the right time, and ensure that your promotion dollars are spent most effectively.

Trade promotions represent a significant part of the cost of consumer packaged goods (CPG), and an important part of a go-to-market strategy, it is the second highest expenditure after COGS and represents two thirds of marketing spend. Yet, there is little visibility into where this spending actually goes, or how effectively it increases revenues, expands market share, or creates brand awareness among consumers. The irony of the system stands affirmed with the fact that extra pressure generated over the supply chain for immediate deliveries is borne by the end consumers which has pushed the actual monetary benefits reaching the end consumers down to 50% over the years.

Trade promotions have taken various forms and attained different levels of complexities as the markets and available technology have matured over time:

1. Slotting allowance: reward paid to a retailer for the retailer’s shelf space
2. Case allowances: reward offered to a retailer when merchandise is purchased by the case; greater the number of cases, greater the discount
3. Account specific promotions: reward for specific big/small accounts (retailers)
4. MDF or market development fund: a lump-sum payment made once or twice per year which the retailer may (or may not) spend on marketing the product
5. Scan back promotions: reward for higher sales, where the retailers are required to submit paperwork as a proof of the sales, to qualify for the trade promotion allowance

Data at the most granular level is required for effective management of trade promotions, but most of the time it is not available or is highly fragmented and inconsistent (at times the most granular level data might be available in segregated laptops !). Combined with the differences in geography and final pricing at the retailer level, firms are most of times unable to break down trade promotions in sub-processes. Given the level of complexities involved, the market essentially lacks standard meaningful metrics to rate a promotion at an absolute or even at a relative level within the firm (*more than 70% of the trade promotions are not evaluated properly and less than 30 % are considered profitable). Eventually, many firms end up taking the outcomes of the promotions rather than the whole process as a proxy for the performance metrics, thereby making continuous improvement a challenge if not impossible.

One way we have approached the analysis of Trade Promotions is performing the following steps:

1. KPI Identification: Identifying the key parameters involved within the system will crucially determine the effectiveness of the whole procedure. Some common metrics include:
• Time periods i.e. the average active period of a promotion and the time difference that may be involved to measure its effect.
• The expected increase in the sales volume.
• Consumer growth.
• Discounts reaching the customer or customer pass-through.
• Increase in the shelf space.
• Increase in revenue/profit/profit margin for every dollar spent in trade promotion
• Increase in the no. of cases sold per dollar spent in trade promotion
• Increase in brand value over the specific demographics
2. Data Gathering and Quality Audits: Gathering the data from sources that may include invoice history, third party/syndicated data (e.g. IRI/Nielsen), retailer level sales data or POS data, and even individual laptops.
3. Data Preparation: Involving processes like missing value treatment, data anomaly treatment and creation of the final data set with maximum level of detail possible with respect to the KPIs.
4. Analytical Modeling: Applying analytical techniques to connect these disparate data sources to quantify KPIs
• Linear Regression at the retailer-product level to attain coefficients (symbolizing the dependence of sales over the KPIs) of attributes for the time duration of specific promotions (which may be around 2-6 weeks).
• Predicting the future values of the coefficients and product-sales using a beta algorithm based on Markov Chains and Monte Carlo simulation, developed by Diamond for this purpose.
5. Recommendation Developments: findings from the data modeling to determine most profitable promotions -e.g.
• Retailer-product combination
• Geography
• Specific time of the year etc.

Although the lack of a centralized TPM system within CPG firms will be the biggest obstacle for advanced analytical analysis of the same, it’s still possible to gain valuable insights for better implementation and to improve the process on a whole.

*Sources: ACNielsen Survey of Trade Promotion Practices (2005), Cannondale Assoc’s, DCI Assessment

It appears that utilizing ATMs as a sales channel is not even a near future thing as we thought it was, it has already arrived.
Last Friday on my way home, I decided to withdraw some cash from an ATM of one of the larger private banks in India.  When I was almost done with the transaction and was about to collect the money, there was a surprise waiting for me in the screen! The ATM offered me a reasonable amount of home loan and requested me to click a radio button written “Y” if I want to avail or click a radio button with instruction of reminding me later if I want to think about it later or click “N” in case my answer was an outright no.
But then neither am I the only one, nor India the only country where it’s happening. One of our blog readers, a few continents away from my city, has already come across and availed one such offer from Chase!
Things surely are fast nowadays!