6 TRADE PROMOTIONS IN 10 FAIL TO GENERATE PROFIT FOR BRANDS

06 July 2017

While promotional activity continues to increase, profitability seems to be winding down. A study by Nielsen reveals areas where brands may improve their performance.

While promotional activity continues to increase, profitability seems to be winding down. A study by Nielsen reveals areas where brands may improve their performance.

Is it still worth playing the promotion game? Figures are bleak: 60 percent of trade promotions in FMCG category are not profitable and the situation only seems to be getting worse. According to Nielsen’s three-year trend analysis, promotions account for annual expenditures of nearly USD500bn worldwide, with CPG manufacturers investing as much as 20 percent of their revenues in trade promotions. The question is, does it still make economic sense?

What do the figures say?

Nielsen analysed performance of 76 million trade promotion events in seven countries, including US, UK and France, totalling USD750bn in retail sales. Here is one of its most eye-opening findings: the most effective trade promotions appear to be seven times more profitable than the least effective ones.

Both brands and distributors have been trying to outdo each other when it comes to offering best deals to consumers. This fierce competition has been fuelled by a desire to generate more volume and increase their market share. It could also be perceived as an attempt to consolidate margins. But has this strategy worked?

The analysis leaves no doubt: for a large majority of product categories, trade promotions fail to be profitable.

Facial cosmetics and spreads lead in promo profitability

In France, the survey of nearly 200 categories revealed that among the best performing trade promotions in 2014 were promotions of spreads, oils and cosmetics for facial care. As much as 50-60 percent of them generated profit.

The least profitable were promotions of sugar substitutes, pre-wrapped salads and kitchen paper. Only 25 percent of them turned out to be profitable.

In an unprecedented effort, Nielsen used global data to demonstrate to what extent our investments in trade promotions are profitable. Analysing in-store sales per each category, we can better assess the potential for most effective trade promotions before we make necessary investments. Understanding what works and what doesn’t will allow us to help our clients place more focus on strategy rather than tactics and generate more profit from their investments in trade promotions.

Source: http://www.e-marketing.fr