In this second – and final – article in our series focusing on trade fund optimisation (TFO), we’re getting practical. Having already established why promotions are the perfect place to start with TFO, we’re now turning to the how, and explaining exactly what it takes to make mass, member, and personalised promotions work as one.
The problem with promotions: why so many retailers struggle with their mix
It goes without saying that, if it were easy, most retailers would have optimised their promotional mix already. So, before we look at how to do that, let’s take a moment to understand what makes optimisation so hard.
One of the main challenges is organisational complexity. Retailers can have very different organisational structures, with varying degrees of centralisation in promotional decision-making – so the route to a coordinated mix will differ from one business to another. In addition, it is common that within retail businesses, there are siloed ways of working, where merchandising teams tend to own mass promotions and member pricing, for instance, while loyalty and marketing teams typically have greater control over personalised offers and coupons. Naturally, those teams also tend to work to different KPIs. As a result, it’s not uncommon for them to optimise different promotion types in isolation. In the absence of a high-level, strategic view, promotions often end up overlapping with one another – causing confusion for customers in store and making it harder to prove ROI to brands. At its core, then, this is an organisational issue as well as an analytical one. Optimising your promotional mix effectively isn’t just reliant on better data science, but on a willingness to think differently about your approach – and that means taking four very specific steps:
Ensure that every promotional type has a strategic role
One of the biggest issues with optimising promotions in isolation is that the same products can end up appearing across multiple types of promotions. This results in double discounting, margin dilution, and customer confusion at the shelf.
The difficulty is that these roles aren’t always as clear-cut as we might like them to be: the same product can often “look” relevant to more than one promotion type. So, to ensure that every promotion type has a clear and distinct role, you need to start with the customer and business objectives, rather than the promotion itself.
In practice, that means using customer data to understand where the biggest opportunities are across acquisition, engagement, and retention. From there, you can define the role that each promotion type should play against those priorities.
Mass promotions, for example, are known to deliver greater reach and footfall to stores, growing market share. Member pricing has been shown to work well in encouraging loyalty programme sign-ups and driving repeat visits. And personalised offers help to retain a retailer’s most valuable customers and grow incremental share of wallet over time.
Align the business around shared and measurable objectives
If different types of promotions are there to do different jobs, they need to be measured accordingly too – but that can be difficult when the teams involved have different priorities, incentives, and measures of success.
Nonetheless, getting this right is key. The measures used for mass promotions – such as volume and short-term sales – won’t necessarily tell you if personalised offers or member pricing are doing their job, for instance. As a result, shared (and measurable) objectives need to be agreed across commercial, marketing, and loyalty teams, with each team jointly accountable for delivering on them.
Executive sponsorship is essential here, because the changes required cut across established budgets, incentives, and ways of working. Without that top-down mandate, behavioural change is likely to be that much more difficult to enact.
Measure performance to put strategy into action
Once those shared objectives have been agreed, the next step is to measure how each item performs against the defined objectives to identify those that are best suited to each promotion type. High-penetration products may work better with mass promotions, for example; products with greater relevance to loyal customers, on the other hand, may be stronger candidates for personalised offers.
This is where high-quality data science does become critical; not in driving the strategy itself, but making an agreed strategy workable in practice.
In fact, one EMEA retailer that we work with took this exact approach after launching its loyalty programme. With a target split agreed across member, mass, and personalised promotions, dunnhumby delivered a tool that grouped products against agreed customer objectives. That gave buyers a clear basis for deciding what should go where – and more confidence in their subsequent conversations with suppliers.
Ultimately, that resulted in a “win-win-win” scenario: customer insight helping retailers make better decisions, giving brands a clearer case for investment, and creating more relevant value for customers.
Test, learn and optimise
The final step is to test your assumptions out in the real world – and test really is the key word here. After all, no retailer or CPG is going to upend their trade promotions strategy and investment overnight.
The aim is to test a specific hypothesis based on the agreed roles and KPIs: take a category, brand, or group of products where the current promotional approach appears to be underperforming for instance, trial them using a different promotion type, and see whether that change delivers what you expected.
As you learn from the results and refine your strategy, you can also begin to factor in variables like seasonality, occasions or retail events, possible sequencing, and interaction effects. And, as customer behaviours, competitive pressures, and your business priorities continue to change, you’ll need an approach that is able to adapt with the fast pace of retail
Crucially, as you begin reallocating products and investment across different promotion types, you’ll also need to be ready to track funding more closely – both in your own budget and for supplier investments. In practice, that means linking spend back to the objective and KPI behind each promotion type so that everyone can see what their investment delivered (and make better decisions about what to do next).
Defining success: what “good” really looks like
With that four-step journey laid out, one question remains: how do you know that it’s working? While there’s no single definition of a good promotional mix – what works for one retailer won’t necessarily work for another, after all – the indicators of success do tend to be universal.
The hallmarks of a well-optimised promotional strategy include clearer decisions about where products and investment should sit, stronger evidence of what that investment delivered, and better customer outcomes over time. For brands, that also means having a clearer basis for deciding where to reinvest.
More than anything, though, success can be seen in having mass, member, and personalised promotions working as a single cohesive portfolio, rather than as individual programmes.
As we argued in our previous post, promotions are just one part of the TFO picture – but they remain an excellent place to start. Get things right here and you’ll have the foundations from which to build towards better decisions across price, media, loyalty and more.
