Business Intelligence and FMCG Glossary: #promotionalROI

Promotional ROI

What is the promotional ROI?

In the context of promotional evaluation, ROI allows comparing different types of mechanics (3×2, 2^nd unit at 50%, price reduction), visibility (folder, gondola head, island), “on pack” promotions  (10% free, + 25% volume, etc.), actions via the retailer’s loyalty card,  and thus help make decisions for future investments evaluating which projects are more effective and profitable.

For a manufacturer, calculating the promotional ROI means that the following elements are available:

• Sell out data per store with a frequency at least weekly and if possible, daily.
• Sales elasticitye. additional sales generated by the promotion
  • Comparison of sales during the promotional period with the baseline or reference level of sales that would have occurred without promotion.
• Additional product costs linked to the implementation of the promotion
  • Manufacturing surcharge for a specific promotional SKU
  • Cost of the gift if gift promotion
  • Cost of visibility: display boxes, advertising material in store /head of gondola
  • Other costs linked to the promotion: in-store promoters, advertising etc.
• Discounts on the price of the product
  • Price discount
  • Redemption in the case of multi-buy with discount: 3×2, 2^nd unit at -50%, 2^nd unit at -70%
• Commercial cost paid to the distributor
  • Commercial cooperation to the promotional plan
  • Participation to the cost of presence in the distributor’s brochure or advertising campaign
  • Presence on heads of gondolas or agreed in-store extra-visibility
• Calendar and location (brand, cluster, store) of the implementation and execution of the promotion

Calculating the promotional ROI is not a simple task because of the complex calculations that must be carried out (algorithms for calculating the baseline and promotional elasticity) but also because of the large amount of data involved, especially if it is carried out at the most detailed level of store / day that allows the most interesting conclusions to be drawn.

In addition, other elements can influence the sales generated such as promotional distribution, promotional out-of-stocks or the impact of external events such as the weather, the calendar of local holidays or sporting events that can positively or negatively influence sales.

It is the reason why it can be interesting to work together with an external consultant specialized in these topics that will allow to boost efficiency in the definition of the project and organize its integration into the company both at the level of systems and organization.