Promotion planning is the process of optimizing the use of strategies, marketing efforts and resources to promote products and services with the intent to shape and generate demand. But how do supply chain and operations specialists feel about promotion planning? And, more importantly, what do end consumers expect?
Small research of painpoints: promotion planning is present!
Together with prof. dr. Bram Desmet, I recently ran a workshop for a large group of operations directors in the manufacturing and processing industry, including food, FMCG, chemicals, pharma and agriculture. In preparation for the session, we conducted brief telephone interviews with four operations directors to find out how we could make the workshop as interesting as possible for them.
This revealed that all four directors had the same key question: how can we achieve the right balance between supply and demand? “Whether we produce too much or too little,” said one of the manufacturing directors,
“Sales and Marketing do what they want”. “What do you mean, campaign planning? Promotional campaigns are planned in without any consultation. And the forecast isn't accurate either, because the data Sales inputs into the system is unreliable.” I'm exaggerating and simplifying their comments a little, of course, but that was pretty much the essence of the operations directors’ criticism of Sales and Marketing.
Everyone in the industry knows that a promotional campaign usually creates the dreaded
cannibalization effect. In other words, a special offer generates explosive sales for one product, but immediately causes the demand for a more or less comparable product – such as the regular version of a product versus the light version of the same product – to slump.And let’s not forget the
pre-promotional and post-promotional dips. The beer category is a good example of this. The Netherlands’ two biggest and best-known supermarket chains have crates of beer on special offer literally every week. I won't mention any names, but anyone who pays the slightest bit of attention knows which beer brand will be on special offer in which supermarket and when. So smart consumers adapt their buying behavior accordingly, thus creating the pre-promotional and post-promotional dips.
Stereotype: the sophisticated promo-hunter....
My wife is a typical example of a supermarket bargain hunter; she makes a hobby of monitoring and studying all the special offers – and with considerably success, I must admit. She scrutinizes all the advertisements every week, resulting in her own finely tuned forecasting techniques. By the way, I must be honest, she has saved us a lot of money on our household budget. And I can always rely on a robust inventory of my favourite beer…Until recently, that is, when I received a big shock. Scrutinizing all the advertisements and going from one store to another to secure a bargain is very time-consuming, after all, so one of my wife's friends suggested that she should get herself a Bonus card (loyalty scheme by grocery retailer Albert Heijn).So she did. She finally relinquished her long-held resistance to providing personal data, and the Bonus card found its way into our family home – with major impact. Not only do we now receive emails containing personalized special offers, but we – my wife and yours truly – actually buy the products too. What an amazing effect.
The new reality: sensing and shaping needs!
Hallelujah! The Sales and Operations people at my favourite brewery must be happy. By giving our family an extra incentive they can influence the demand, making it easier to predict what must be produced and when. And that’s the trend: combining statistical forecasting with demand sensing and demand shaping – needless to say aided by software, but that should come as no surprise to you. If you don’t buy our S&OP software, I won’t be able to drink my beer!
What are the best practices regarding promotion planning?
Read our next blog: “How do you cope with promotion planning in your supply chain?
