SymphonyIRIs Recommendations

Effective planning and up to date knowledge is the anchor for promotional success Promotions, seen as common currency in FMCG, are a pervasive and ever increasing fact of life Whilst pressure exists to increase promotional spend to sustain sales levels, it is even more vital to track and measure the impact of promotions to ensure the best balance is struck between short term gains and long term brand profitability Access to robust, consistent data and analytical modelling techniques facilitates a deep understanding of which promotions work best for a category Insight into promotional mechanic trends supports innovative market responses For a complete assessment of the impact of promotions, it is important to fully appreciate the horizon of shopper communication Trends in promotional mechanics change over time and staying abreast of the types and depth of deal offered across the category is key to staying ahead Understanding mechanic performance provides valuable strategic insight for effective promotional planning Efficient implementation and compliance is vital for success

Ensuring planned promotions are implemented as agreed is essential for profitable success Flawless execution demands on-time deployment of secondary stocking and in-store promotional materials with ensured availability throughout the promotional period Such factors can be verified at the store level through observation Issues can be quickly identified allowing necessary intervention to ensure the promotion is as successful as possible from an implementation perspective

SymphonyIRI Snapshot Report

Can you keep your promotional strategy from running adrift and into the deep?
As the FMCG market continues to be kept afloat by incessant promotional activity, it is vital for manufacturers and retailers to understand how they should align their strategies to support the most efficient and cost effective campaigns to ensure sustainable category and brand performance.

SymphonyIRI solutions to keep your promotional strategy afloat:

Promotional effectiveness and trends Using measures derived from both observed promotional information collected in store each week and sales data, promotions can be tracked and their effectiveness evaluated with a complete assessment of the levels, mechanics and impact of promotional activity in the market.

Snapshot report highlights

Generally, managing down the deal depth whilst optimising the frequency is a good start to making the most of the current pricing and promotional challenge. This marks the beginning of a promotional strategy, however, it is critical to understand the category specifics, including the true impact of individual mechanics on brand share and profit. This knowledge unlocks significant prizes. Rod Street, EVP Consulting, SymphonyIRI

Levels of trade promotion activity have continued to increase in FMCG, reaching their highest levels in April 2011.

Price and Promotion analysis

Make better pricing decisions by understanding a brands base and/or promoted price elasticity and its sensitivity to competitive price changes. By understanding the impact of everyday influences e.g. seasonality, long term trends & price on product performance, promotional impacts can be fully assessed and acted upon.

Promotional de-escalation is front of mind for many manufacturers but there is a concern that reducing promotions will cause sales to sink.

Promotional execution and on shelf availability

Using retailers daily sales data and in store observation, track and optimise on shelf availability both on and off promotion, and promotional commitments to enable optimum promotional lifts to be achieved.

Levels of promotion vary significantly across grocery product sectors. This means that promotional de-escalation has to be approached in different ways and with different expectations of the outcome.

Pricing structure and promotional strategy

Pricing and promotional objectives, policies and metrics, derived from analysed retail performance and elasticity's, provide organisations with the best guidance to achieve market strategy and financial targets. Discount Curves show exactly which promotions work best for the category.

Some brands are already benefitting from a strategy of reducing levels of discounts offered.

To discuss this report in more detail arrange a meeting with SymphonyIRI. Contact your account representative, call the new business team on 01344 747 856 or email SnapshotReports@SymphonyIRI.com

The data in this report was extracted from over 200 categories continuously reported from March 2010 to May 2011. The categories have been amalgamated into industry groups for ease of interpretation. Industry groups included : Food & Drink inc. Pet Food, Confectionery, OTC & Health, Personal Care, Household. Only products with at least 10% distribution were considered. To be included in the change groups in this study, brands / own labels will have changed their % volume sales on deal by more than +/-3%, changed their deal depth by more than +/-1% and sold at least 50,000 packs in the 12 w/e May 11. New or discontinued products have not been included. Those outside the change limits have been included in the Volume on Deal (VOD) and Deal Depth bands analysis.

Nearly half of all brands including own label have reduced deal depth
During a period where a majority of commentators anticipated a softening of consumer purchasing resulting from current pricing and recessionary pressures, promotions in FMCG have continued to be top of the agenda, achieving their highest level ever in April 2011. Deal levels vary enormously across product groups Whilst promotional levels are high across the FMCG sector with some 14% of brands seeing a staggering 80% plus of their sales resulting from promotion, there is noticeable variation across product groups. Chart 1 By far the highest level of promotions occur in Personal Care, where 61% of brands see more than 60% of their sales coming through promotions. Alternatively, Food and Drink brands see less than 60% of sales coming through promotion. Where a brand is continuously and heavily promoted, shoppers will expect to always be able to buy it on promotion. The result is that when it is not promoted, sales plummet with a devaluing impact on the brand overall. Depth of deal is coming down over time Despite ever present promotions, the average level of deal depth has been falling slowly over the last 18 months. This trend has been most evident across Food and Drink categories. Brands that had been

Reducing deal depth adds to value sales and improves value share
The group with the reduced deal depth therefore saw an improved profit performance on the additional 5% volume sold on deal relative to having carried out promotional activities with deeper discounts. In the group where volume on deal (VOD) was reduced, both value and volume share suffered as a result and the group with reduced deal depth came off worst on value and volume sales. Here the volume price index moved up by 7%, so these products bore the brunt of price elasticity working against them and volume sales (adjusted for distribution) fell by 14%. Chart 4

Chart 2 - Deal depth is being reduced

Chart 3 - Impact of increasing VOD with higher or lower deal depth

offering an average of a 26% price discount were only giving away a 20% price reduction a year later. Household categories still seem to buck this trend. Chart 2 Deal depth varies enormously across product groups The lowest levels of deal depth are seen amongst brands in the Food and Drink sector, where the average is 18%. Conversely Personal Care brands were on offer with an average of 31% price reduction. Almost 60% of these were selling at 30% or more below the base selling price. Despite the number of brands already selling at very deep levels of deal, half are going deeper over time. More interestingly half are actually reducing their levels of deal depth.

This picture is fairly consistent across the sectors, although promotional offers in OTC and Health are tending to go deeper more rapidly than in other categories. Building a strategy that can push value down to the bottom line and provide additional funds for badly needed innovation has got to be the ultimate goal. Key questions What happens when promotional levels are increased or decreased? Is there an optimal strategy?
Chart 4 - Impact of decreasing VOD with higher or lower deal depth

As prices rise faster than earnings across almost all areas of private consumer expenditure, an increasing proportion of shoppers are experiencing an on-going recession which is likely to last for the foreseeable future Tim Eales, Strategic Insight Director, SymphonyIRI

What is the best way forward? Brands that increase the number of promotions but at the same time reduce the depth of deal being offered, typically see the greatest improvement in value share. After removing the general impact of distribution gains, a value sales increase of 4% was registered whilst the volume price index remained virtually unchanged. Where brands increase promotions and provide a deeper deal depth, a marginal improvement in value sales performance is yielded with a 12% increase in volume sold with their volume price index decreasing by 4%. Chart 3

Make trade promotions work harder and better The complex dynamics of how promotions work requires an in depth understanding of what is happening at the brand and category level within specific store groups. Knowledge about the impact of the range of mechanics used in specific store situations can yield significant opportunities. Whilst deeper price cuts may result in the greater product volumes being sold, it may not be the best mechanic for the benefit of overall category value sales e.g. a 2 promotion offering a 30% price reduction can have a greater impact on category value sales

than a half price promotion which may sell more volume but the depth of the price cut impacts value sales less favourably. Chart 5 Off shelf positions for promotions may provide greater sales uplifts but costs more to implement.

These profit equations are fundamental for both retailer and manufacturer alike. Getting the balance right in ever changing trading conditions is key to achieving optimal promotional performance.

Chart 1 - Deal levels vary across product groups

Chart 5 - Discount Curves show which promotions work best for the category