Key findings from our inaugural Revenue Growth Analytics Maturity Scorecard.

Two decades later, Promotion Effectiveness & Optimization is still a substantial business problem for companies; at least 50% struggle in this arena.

When we asked ~ 150 commercial leaders about their organization's Promotion Effectiveness & Optimization capabilities, the Consumer Goods industry emerged with a high score of 3.3 (a little better than Average). This is unsurprising since this is one industry where Promotional spending is routinely 15-30% of Gross Revenues and where the Trade Promotion Management, Effectiveness & Optimization (TPX) software industry grew the fastest.

The question we posed (after a host of more specific Promotion Analytics maturity questions) was:

"How would you rate your organization's overall Promotion Analytics capabilities?"

A score of 1 was "Very Weak," 3 was "Average," and 5 was "Very Strong." 

Industries like Distribution (average score of 2.1), Manufacturing (1.8), and Med-Tech (2.8) were well below or slightly below Average, and suggest there's a ton of opportunity to optimize Promotional and rebate spending in these industries to ensure they are actually "pay for performance." 

Our experience with these industries as executives and advisors confirms these lower maturity scores. A staggering 49% of all respondents said their Promotion Analytics capabilities were below Average. 

Why Does This Matter?

Promotions today have gone far beyond the traditional discounting model. They've evolved into strategic tools for customer acquisition, engagement (upsell/cross-sell), and retention. 

Promotion Effectiveness & Optimization is all about maximizing the return for every $1 spent on Promotional discounts and rebates. It's the underlying analytics, sales, and financial processes to ensure that every Promotional investment is as close to being accretive to the business as possible. 

At a high level, what can companies do to drive up maturity in this critical area?

1. Build a Pricing & Promotional Data Warehouse: Companies with their pricing and promotional data in order (easily accessible, well structured, etc.) are usually the best at maximizing Promotional Effectiveness.

2. Invest in Advanced Analytics: Buy turnkey solutions or build internal capabilities. Nowadays, open-source software (i.e., Python) or even BI tools like Tableau or Power BI can form an excellent foundation for Promotional Effectiveness & Optimization. 

3. Ensure Seamless Collaboration: Break down silos and ensure that Sales are aligned with Pricing, Marketing, and Finance regarding Promotion Management & Insights. Too often, I see disjointed, manual processes and reports from three teams telling me three different insights. Have a clear owner for Promotion Administration (typically Finance or Pricing), Measurement (Pricing or Analytics), and Execution (Sales or Marketing). If you have multiple owners, you have none.

In the past week, we have spoken with three ~ $1B companies (two retailers), each having ~ 1 person doing Pricing and Promotion Analytics work. Much of the Pricing & Promotional agenda is driven by merchandising teams who operate at tactical levels (e.g., what did we do at the same time last year, what is our competition doing), with no ability to quantify the impact of promotional investments.

Before you think these companies are the exception - they are not. This crucial capability and human capital gap is prevalent in private equity-held companies, where much focus has been on inorganic growth and operational / cost efficiencies.

However, much of the capability gap comes down to Senior Executive support. Based on detailed capability survey, senior leadership support for Promotion Analytics & Optimization efforts is clearly lacking:

• 21% of respondents disagree or strongly disagree that senior leaders support their efforts.

• 41% remain neutral on this topic.

But more importantly, there is a clear correlation between self-reported senior executive support levels and the organizations' overall competency in Promotion Effectiveness & Optimization.

For our surveyed companies across various industries, about 50% invest at least 10-15% of their Gross Revenues in Promotions, while another 14% allocate 15-20% or more of their Gross Revenues (mostly CPG and Retail). 

Why Senior Executive Support Matters

Companies often struggle with inefficiencies in promotional spending, leading to heavy margin leakage. In one case study we conducted, a company increased its promotional spending from 15% to 20% of Gross Revenues but faced eroding margins and minimal volume lift.

The company built in-house Promotion Effectiveness & Optimization capabilities to address this issue in under six months. It made Promotion Analytics a central focus of sales reviews and external customer meetings.

Phase 1: Deployed a purpose-built Pricing and Promotions data warehouse in MS Azure, along with in-house price elasticity and baseline demand models using aggregated retail data. The company's CIO championed this effort.

Phase 2: Built a Promotion Effectiveness & Optimization platform using Tableau through a collaborative and iterative process with the Pricing, Finance, Category Management, and IT teams. The EVP of Sales and the CFO championed this phase. 

Phase 3: Cross-trained the broader sales team on using the new Promotion Analytics tool, including robust what-if scenarios, and helped them incorporate insights into external customer conversations. 

As you can see, there was heavy senior executive support for the project, and these simple solutions yielded a +20% relative improvement in Promotional ROIs (beyond the ability to measure ROIs). For many companies, every 1% improvement in Promotional ROIs translates to $millions in incremental Operating Profit.