Smart Promotions: It’s About Timing

You have crunched and analyzed the data. You have homed in on an assortment of specific products to offer to targeted customers with a defined set of attributes. You have built a promotional campaign with introductory prices to entice these customers to purchase items from you that you are confident they are currently buying elsewhere. You even have prepared attractive sales collateral emphasizing the products’ attributes you believe are most closely aligned with the customers’ needs and preferences. But there is still one important piece of the puzzle you have not put in place: When is the right time to make the offer? Predictive science can help sales and marketing decision makers improve the likelihood of launching promotions to coincide with a customer’s willingness to change his or her current buying habits and accept your offer.

When are your customers most likely to change their buying habits?

Habits and Decisions

Habits are much talked about in sales and marketing circles these days. In a recently released book “The Power of Habit: Why We Do What We Do in Life and Business” New York Times reporter Charles Duhigg approaches this subject from the interaction between habits, decision making and the human brain. Our brains are constantly working to convert active decision making exercises into habits, writes Duhigg, because it conserves energy to do so. Decision making requires a great expenditure of time and mental effort. Even what we think of as relatively simple activities, such as backing the car down the driveway, require the fine-tuned calibration of many complex parallel processes running in the brain (think about the first time you actually backed a car down your driveway, before it became an ingrained habit). In the world of business this argument extends to the way people make purchasing decisions – in short, wherever possible we convert the energy of active decision making into passive habit. Once comfortably set in these habits we are reluctant to change them.

Breaking the Habit

With this in mind we come back to the problem of timing when we go out to customers with enticements to get them to buy products from us that they are currently buying elsewhere. We have to assume that these customers are comfortably set in their current purchasing habits and therefore that it will be hard to dislodge them under most circumstances, even with incentives like price discounts. We look to the data to see if there are clues as to when the optimal time might be. In other words, for any targeted product promotion to a particular customer we try to identify a set of factors than can best predict when the customer is likely to be most open to changing his or her current purchasing habits.

Seasonality – It’s Not that Simple

Seasonality may play a role – many products are seasonal by nature and purchasing incidence will logically be brisker during the peak season. Does that mean that the height of the busy season is the right time to launch the promotion? Perhaps it does not mean that at all. Think again about habits and decisions. Better yet, put yourself in the shoes of a purchasing manager for a catering business that specializes in holiday events. You can imagine that in the week before Thanksgiving this purchasing manager is buying lots of cranberry sauce. How receptive is she going to be to a promotion you launch at this time, with price discounts and other incentives to purchase cranberry sauce from you?

Before you say “very receptive” and rush to launch a cranberry sauce promotion, think about what’s going on in her life. What this purchasing manager probably cares about more than anything else right now is having lots of cranberry sauce and other seasonal items stocked on the shelves so that there will not be a shortage on Thanksgiving Day when they will be rushing around from one catering venue to the next. Put another way, she does not want to have to think about whether she is getting the best deal from her current supplier – she knows that in the past the supplier has met the organization’s needs to have plenty of cranberry sauce on hand. Using the same supplier this year is just one less thing to worry about during a time when plenty of other stressful decisions will be placing demands on her brain cells. So in fact it may be a very bad time for this promotion.

Let the Data do the Talking

If this is true, then how can you make smart decisions about promotional timing other than relying on lucky guesswork? At Sentrana we believe that the best way to approach questions of timing is from the ground up – let the data point the way rather than imposing a preconceived intuition into the model. In situations similar to that of the hypothetical purchasing manager in the previous paragraph, we have discovered a tendency for first-time purchases (i.e. when a customer buys a product from a supplier that he previously obtained elsewhere) to occur around two months before peak seasonality. So going back to the previous example, if you were to approach the catering purchasing manager in September with a promotional campaign for cranberry sauce, including an introductory price discount and some well-crafted supporting collateral (such as recipes or suggested uses) then you may well get her attention and be better positioned for a successful outcome.

The data are out there – you have extensive historical sales records from which to obtain useful insights about things like the relationship between first-time purchases and seasonality peaks. Let the data do the talking, and focus your own efforts on connecting the dots that will help you build a promotional calendar with a higher likelihood of aligning the right products to the right customers at the right time.

Subscribe   |  

Increasing Demand in a Flat-Growth Environment

certain products go together

At Sentrana we believe that companies can increase sales, even in tough economies, by understanding their own demand environments at the most detailed level possible – in other words, to be able to predict what products to offer to what customers, and to use insights from available sales data to make targeted recommendations around pricing, promotional activities and timing. In foodservice hundreds of thousands of products pass through any given distribution channel every day to hundreds of thousands of restaurants and other operators. To meet this challenge effectively manufacturers and distributors need to contribute their respective insights about products and customers onto a common platform from which to obtain a full picture of demand. Recently this has motivated prominent industry players to collaborate in managing performance across key product categories. Read the rest of this entry »

Subscribe   |  

Working Back from the Point of Sale

Solving Three Key Challenges to Profitable Category Management

Managing product categories for optimal performance in foodservice presents three key challenges that category partners need to solve: how to manage data reporting and analysis, conduct effective selling logistics, and close the sale. This post examines these three problems and identifies practicable solutions for manufacturers in collaboration with their distribution partners.

Data Reporting, Management and Analysis

Manufacturers often do not have regular, dependable access to sales data. Transaction information typically resides downstream, so the manufacturer must negotiate with its distribution partners to establish a mechanism for information sharing. Assuming such agreement is reached, the process may give rise to a variety of data problems. Data integrity issues are prominent among these. It is unlikely that the manufacturer will receive specially prepared sales reports – information more probably will come in the form of raw data untreated for accuracy, correctness or clarity. Readers of these reports will find it hard to obtain insights in them from which to take action on a timely basis. Read the rest of this entry »

Subscribe   |  

Category Management: An Antidote to Trade Spend

Trade spend outlays continue to dominate the sales & marketing budgets of foodservice manufacturers. This is despite a persistently high level of dissatisfaction with the cumbersome administrative burdens of trade spend programs and the lack of measurable results. Manufacturers want a clearer understanding of how targeted trade promotions influence downstream demand, but instead they become enmeshed in unproductive administrative paperwork such as resolving and processing duplicate claims.

The current trade spend paradigm also does not work in the best interests of distributors. While they do benefit in the short term from the financial impact of the trade dollars they receive from their suppliers, distributors do not obtain insights from current trade spend practices that could help them more effectively grow demand across products and categories. Of more benefit would be product and assortment education from their suppliers, enabling them to identify tangible ways to tap into new sources of sales growth.

Category management, a standard practice in many retail sectors that is now gaining currency in foodservice, can be a way to attain this knowledge, use it to effectively drive growth for both manufacturers and distributors, and ultimately to phase out the unproductive aspects of the current trade spend paradigm. Read the rest of this entry »

Subscribe   |  

Managing the Category Beyond SKU Rationalization

SKU proliferation has been a fact of life in foodservice much as it has been in other industries in recent years. Proliferation creates considerable pressure throughout the value chain to make tough decisions about SKU assortment across numerous product categories. In foodservice the problem is not shelf space as it is in retail; rather, it is the limited amount of product information that a sales representative can manage in his or her head in order to match the right products with the right customers on a daily basis in real time. As managing assortment has grown more complex, manufacturers and their downstream partners have looked to SKU rationalization to reduce streamline product offerings and manage inventory costs for improved category performance. While SKU rationalization can address these challenges to some extent, it does not get to the core of the problem. The most effective way to improve category performance is to increase demand for products in that category. In turn, the best way to grow demand is to seamlessly match unique customers with the products whose attributes they most highly value. This requires a holistic category management approach, supported by robust data analytics that can take into account the key levers of demand – assortment, promotions, pricing and purchase timing. Read the rest of this entry »

Subscribe   |  

Analytics for Intelligent Category Management

Collaboration between distributors and manufacturers is the cornerstone of category management in foodservice. For a given product category a manufacturer is selected to be category captain, with responsibility for improving category performance. This post addresses some key data and analytical issues with which manufacturers should expect to deal as category captains.

So you have been asked by your most important foodservice distribution partner to be a category captain. What happens next? As captain you are tasked with managing the assigned category for optimal performance. That entails the following:

•    Analyze all products across the category (not just your own brands)
•    Augment the data provided by the distribution partner with your own internally generated insights
•    Provide structured, actionable recommendations based on intelligence obtained from the data

These recommendations relate to product assortment, pricing policies, promotional activities and other important demand levers for driving profitability. At the same time you need to educate your distribution partners, both at corporate headquarters and in the field, about the product characteristics that can help increase demand. This requires an intelligent approach to data analytics.

What insights about products can help drive category sales?

What might a good analytics model for category management look like? Let’s consider the key tasks we identified in the previous paragraph. Read the rest of this entry »

Subscribe   |  

Before You Build, Ask the Right Questions

An Approach for Robust Data Management

Building a robust data management environment is in many ways like building a house. There are three components to building a good house. First of all, there are some fundamental questions you need to ask before doing anything. Why are you building the house in the first place? What are the important goals and benefits you want to enjoy? What other things are you willing to trade off to realize those benefits? Asking and answering those questions will help with the second component: building a model, or architectural blueprint. There are many different ways to build a house (or a data management system). Not all of them will be right for the needs you have in mind. There are efficiencies to designing and building in certain ways – and, as always, there are trade-offs with any given choice. Finally, once you have established a workable model, it’s time to build out the infrastructure. That starts with the plumbing. Nothing else in the house is going to work well without good plumbing which, seamlessly and unobserved, harnesses the flow of water (or data, in our analogy) to efficient uses as and when needed. Then comes the foundation – the platform to support the house according to your model. Think of the plumbing and the foundation as the transmission pipes, the controls to regulate the flow of information, the storage repositories and the other critical supports for your data management platform.

robust systems need good blueprints

Asking the Questions that Matter for You

It’s hard to imagine that someone would build a home without first asking and answering some basic questions about what purpose the home is meant to serve. But all too often enterprise managers think of their data intelligence needs in terms of generic, one-size-fits-all products and solutions. They may be driven by the perceived urgency of getting immediate results, so they do not put the extra time into thinking through all the details that have to be in place in order for a solution to best meet their targeted needs. They build up organizational IT resources but fail to adequately integrate these resources into business decision-making processes so that business goals and technological capabilities are aligned. By not asking the right questions up front, managers increase the likelihood that their IT investment will fail to achieve the specified goals. Read the rest of this entry »

Subscribe   |  

Want to Know Your Competitors’ Prices?

You May Already Have the Information

intelligence on competitors' prices may be close at hand

If only you knew what your competitors are charging. How many times on any given day does that phrase get uttered in a corporate boardroom, on a sales call or in a marketing strategy meeting? Knowing what your competition is charging would take so much of the guesswork out of your daily pricing and marketing decisions. It may come as a surprise, then, that critical information capable of revealing competitors’ prices may be very close at hand – in your own purchase history.

Is there a “Market Price” for COGS?

Since you do not have direct access to your customers’ prices, the challenge is to model likely competitor activity based on incomplete information. A good place to start is with costs – specifically cost of goods sold (COGS). This is typically a key input in pricing models. Knowing a competitor’s COGS would provide critical intelligence in determining what prices they are offering in the market.  The trick is to accurately infer the “market” price a competitor pays for their inputs (i.e. their COGS) from the information contained in your own transaction data. Read the rest of this entry »

Subscribe   |  

The Changing Landscape of the Foodservice Industry – Part 2

This is the second installment in a two-part series on major changes taking place in the US foodservice industry. In the first installment we looked at some of the key challenges, deriving from traditional industry practices in sales & marketing that impede optimal performance by manufacturers, distributors and operators in the sector. This second installment will take a closer look at converging technologies that are poised to shake up the industry, and look at ways for industry players to benefit from these developments with intelligent, coordinated approaches to technology-driven solutions.

For manufacturers of foodservice products an important and often elusive goal is to gain visibility into the factors shaping and influencing downstream demand. The view from upstream is obscured by one or more layers of intermediation separating products from their end customers. Manufacturers typically set aside the largest part of their sales and marketing budgets for payments to trade partners, but evidence suggests that these expenditures do little to improve their understanding of actual downstream demand. Whether on their own or in collaboration with trade partners, manufacturers need to make better use of the data that can provide accurate intelligence about what is happening downstream. The good news is that the data are available, and new technologies are converging to enable manufacturers to capture information from which to make better sales & marketing decisions. The challenge is to get around the obstacles that are preventing this from happening. Read the rest of this entry »

Subscribe   |  

Doing More With Less: A Scientific Approach to Holistic Trade Management

For foodservice manufacturers trade spend is typically the largest expense line item, apart from cost of goods sold, on their income statements. Despite its oversized economic importance, however, trade spend is hard to pin down as an organizational function. Traditional sales and marketing activities like pricing, advertising and sales force management tend to have clear organizational mandates, departmental structures and dedicated resources. Not so trade spend, which is less a singular discipline than it is a hodgepodge of activities scattered across different departments. The lack of a holistic approach to the many divergent strands of trade spend activity can make for suboptimal results, duplication of efforts, and inability to measure and evaluate the performance of trade spend decisions.

To be more effective, managers need to break down the organizational barriers, bring their diverse trade activities, information and processes onto a common platform, and mobilize the vast amount of data available from their purchase history records to the task of analyzing opportunities for more precisely targeted trade campaigns with a higher likelihood of success. This can provide the foundation for a holistic approach that helps foodservice enterprises achieve that objective much talked about but not often achieved – turning trade spend into trade investment.

Trade spend needs to target the right products and the right customers

This holistic approach starts at the beginning, with a broad-based trade budget which managers plan across different product platforms, trade vehicles and customer types. How is the budget initially divided up? As a practical matter there is a fundamental problem here: manufacturers often end up sending most of their trade dollars to their largest customers – who are often the ones who need these dollars least – rather than the ones who could potentially grow their business and expand their product sales more aggressively. A better way to spend trade dollars is through disciplined quantitative analysis and economic scenario testing that ultimately reaches a very granular level of detail: what combinations of products and customers are likely to be the most receptive to trade initiatives? The goal is then to build a trade program that can effectively reach these target audiences, to execute campaigns with precisely defined messages and incentives, and to measure the results so as to have a plausible quantitative measure for return on trade investment (ROTI). Read the rest of this entry »

Subscribe   |