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Driving Manufacturer Gross Profit through Promotion Effectiveness & Optimization – Case Study

In this case study, we explore how a $1.5B privately-held Consumer Packaged Goods manufacturer successfully navigated the challenges of a competitive market. Facing declining market share and profitability, the company struggled with ineffective promotional strategies, leading to eroded gross margins in the face of increased promotional spending. The company collaborated with Revology Analytics to develop the Promotion Effectiveness and Optimization platform using the client's existing tech stack. This included the development of a Pricing & Promotions data warehouse in Azure and Diagnostic and Predictive Analytics capabilities for Pricing & Promotions using Tableau and R. The case study offers valuable insights into overcoming obstacles in planning and profitability, showcasing the significant improvements in retail buyer engagement, gross profit, promotional ROI, and market share.

Enhancing promotional effectiveness to improve gross profit and market share for a $1.5B Consumer Packaged Goods manufacturer.

SITUATION

A $1.5B Consumer Packaged Goods (CPG) manufacturer faced market share and profitability losses due to competition from small/niche and large global CPG companies.

Despite increasing promotional spending, the company saw minimal volume lift and erosion of gross margins due to a lack of a data-driven framework for promotional investments.

The client struggled to maintain its market share and profitability in a highly competitive market. Over the past few years, the company increased its promotional spending from 15% to 20% of gross revenues.

However, this increased expenditure did not translate into a significant volume lift, and gross margins continued to erode.

The company operated across multiple channels, including grocery, convenience, and food service, each with unique pricing and distribution challenges.

Despite heavy investments in promotions, the company lacked a data-driven framework to plan and measure the impact of these investments.

Without a robust platform to track performance at a granular level, the company found it challenging to optimize promotional strategies and justify the increased spending to stakeholders.

Automotive promotion KPIs infographic showing key metrics for profit and sales impact.
Visual overview of promotion effectiveness KPIs including sales lift, profit, and promotional metrics for auto manufacturers.
Data architecture for pricing and promotion analytics in automotive manufacturing.
Visual overview of foundational pricing and promotion analytics data architecture for automotive manufacturers.

OBSTACLES

The company faced challenges in planning price promotions, declining gross profit despite increased promotional investments, and an inability to demonstrate the impact of price investments on retailer category growth.

The CPG manufacturer encountered several obstacles in its efforts to optimize promotional effectiveness. Firstly, sub-optimal planning due to a lack of understanding of various market dynamics made it difficult to strategize price promotions effectively.

This inadequacy led to inefficient use of promotional budgets and missed opportunities to drive incremental sales.

Secondly, the company experienced a decline in gross profit despite increased promotional spending.

No empirical analysis of promotional return on investment (ROI) was conducted, which resulted in ineffective promotional strategies and further erosion of gross margins. The absence of a data-driven approach made identifying and addressing the root causes of declining profitability challenging.

Lastly, the company struggled to maintain its category leadership with top retailers. The inability to demonstrate the impact of price investments on retailer category growth led to lost leadership positions and weakened relationships with key retail partners.

This decline in category leadership further impacted the company’s market share and overall competitiveness.

ACTION

Partnered with Revology Analytics to build an in-house Promotion Effectiveness and Optimization platform, developing a comprehensive data warehouse and analytics platform for promo ROI analysis and scenario planning.

To address these challenges, the company partnered with Revology Analytics to develop a comprehensive Promotion Effectiveness and Optimization platform. The collaboration followed a structured approach, starting with developing a Pricing & Promotions data warehouse in MS Azure SQL.

This data warehouse integrated internal and external data sources, providing a unified platform for analysis.

Revology Analytics then created a Promotion Analytics Platform on Tableau Server, which included capabilities for event-level promotional ROI analysis, macro-level promotional analytics, and scenario analysis. This platform enabled the company to evaluate the effectiveness of promotional events in real time and make data-driven decisions.

In addition, we restructured the legacy rebate program for the convenience channel into a growth-oriented, pay-for-performance program. We conducted iterative stakeholder alignment sessions and executive roadshows to ensure organizational buy-in and alignment.

A robust demand model was built using multiplicative regressions and Random Forest algorithms. The final production version of the Promotion Analytics Platform was launched on Tableau Server, making it accessible to the sales team on laptops and iPads. We evaluated the solution’s effectiveness 90 days post-launch to ensure it met the company’s needs and delivered the desired results.

Promotion analytics platform showing promotion spend, sales, and distributor data.
Visual overview of promotion analytics platform covering 90% of promotion spend and key data points.
Promotion effectiveness analysis for automotive manufacturers and retailers.
Data-driven insights on promotion ROI and metrics to boost gross profit in the automotive industry.

RESULTS

The company faced challenges in planning price promotions, declining gross profit despite increased promotional investments, and an inability to demonstrate the impact of price investments on retailer category growth.

Implementing the Promotion Analytics Platform resulted in significant improvements across various metrics. Sales teams were able to engage more effectively with retail buyers, leveraging real-time scenario analyses on price investments. This capability enabled more robust, insights-driven conversations and stronger relationships with retail partners.

Overall gross profit increased by 8%, with a notable 13% increase for anchor brands. This improvement was attributed to the data-driven approach to promotional planning and execution, which optimized promotional budgets and drove incremental sales.

The trade investment ROI improved from 80% to 92%, representing a 15% performance improvement. This increase in ROI highlighted the effectiveness of the newly implemented promotional strategies and the value of the analytics platform in optimizing promotional spending.

Additionally, the company achieved a 6% unit volume and a 4% dollar market share gain within one year. These gains were driven by improved promotional guidelines and enhanced analytics capabilities, allowing the company to understand better and respond to market dynamics. The Promotion Analytics Platform positioned the company for sustained growth and competitiveness in the CPG market.

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