Driving Manufacturer Gross Profit through Promotion Effectiveness & Optimization - Case Study
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.
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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.
Sample architecture for integrating internal and external data with ML models
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.
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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.
Sample Promotion Analytics module built in Tableau
Critical Promotion Effectiveness KPIs
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.
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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.
Final Promotion Optimization Solution covered 90% of Promo spend
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.
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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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