Spar InfoTech, Inc.
Changing Sales to Consumption
The output from all systems to evaluate Trade Promotions is Incremental Sales during the Promotion Period. But Incremental Sales usually includes either (or both) Trade Forward Buying and Pantry Loading. If you are using Scanner Data then it is only Pantry Loading. If Factory Shipments are used then both Pantry Loading and Trade Forward Buying are included in the Incremental Sales during the promotion. But Incremental Sales is not Incremental Consumption. Sales during a promotion can come from:
To understand the value of a Promotion to a Retailer and/or a Supplier consumption needs to be calculated. The allocation of Incremental Volume between these various buyers will vary greatly by the category and type of Promotion. For example, a Price Promotion in a Retail Chain for a highly consumable product (e.g. Soft Drinks, Candy, Snacks) will be heavily weighted toward Incremental Consumption from Loyal Consumers. Incremental consumption from Loyal Buyers would be low for an Advertised Promotion for a Category where Incremental Consumption is not likely (e.g. baby food, diapers, soap but Chain Switching and Pantry Loading would be high. Incremental Sales can be the same for a soft drink Promotion and a baby foods promotion. But for soft drinks much of the Incremental Sales will be Incremental Consumption while for baby food most of the Incremental Sales come from Brand Switching, Chain Switching and Pantry Loading and very little from Incremental Category Consumption.
The allocation is important because some of these consumers generate Increment Consumption (which is included in Incremental Sales) and some don’t. Consumers who switch Chains to buy on a Promotion are Incremental Volume for the Retail Chain but are not Incremental Volume for the Supplier since that Consumer would have purchased the Suppliers Product but in a different Chain. If the Incremental Volume comes from Brand Switching in the store than it is Incremental Volume for the Supplier but not Incremental Volume for the Retail Chain. Each Group of Consumers generates Incremental Volume for the Retailer or the Supplier or both.
All systems for evaluating Trade Promotions calculate Incremental Volume. But if the Source of that volume is not considered many Promotions that appear to be profitable based just on Sales volume will actually be unprofitable. If the Source of the Incremental Volume is from Pantry Loading running more promotions can be a bad decision. After generating the Incremental Sales Volume from a Promotion the Source of that volume needs to be allocated by type of Consumer to get the best insight into a strategic Promotion plan.