Baselines: The Foundation for Analysis and Planning

When we sit down with consumer packaged goods manufacturers, we learn about their frustrations that led them to seek out a promotion management and optimization solution. CPG manufacturers are looking for

  • less manual post-event analysis
  • a way to quantify promotional ROI
  • a more controlled and profitable planning processes
  • accurate baselines

The problem: Most CPG companies rely on syndicated baselines to measure promotional performance.

 

Baselines are often inaccurate because:

  • In many cases, syndicated providers baselines go up dramatically during a promotion – projecting what a loyal consumer would have purchased at full retail.
    • This is a great measure to depict pantry load by a loyal consumer, but an extremely inaccurate way to measure the true incremental volume and profit generated by the promotion. In this instance, most promotions would generate no incremental profit due to the increased baseline.
  • Syndicated data can be contaminated by various data anomalies that impact the accuracy of a baseline for an inordinate amount of time before being detected by the syndicated supplier or the CPG manufacturer.

The definition of a baseline is what the consumer would purchase in the absence of a promotion.

 

 

To maintain accurate baselines, CPGs should have a monitoring system that can identify data anomalies that contaminate baseline integrity.

Contaminated baselines result in inaccurate post-promotion analysis and future planning. As a result, many trade marketing and sales planning departments approach post-event analysis with skepticism. Most have resorted to planning under the assumption that these baselines are inaccurate and therefore their forecasted plans are incorrect. The cycle of unreliable and ineffective trade promotion tactics goes on.

 

Why Do We Continue to Rely on Baselines that We Don’t Trust?

In today’s CPG business, there’s greater scrutiny on organizational spend and a strong demand for data-driven competitive strategy. Accepting a “close enough” understanding of trade promotion performance is a real risk to your organization and puts you at a disadvantage.

Today’s CPG leaders can no longer shrug their shoulders when it comes to quantifying base business. Instead, you should take control of your promotional information by automating the harmonization of consumption, spending and shipment data to build their baselines as an accurate reflection of in-store activity.

 

Blacksmith TPO: Baseline Functionality

 

Example 1:

We’re looking at a specific account and product group for the past two years:

The dotted line represents the modeled base provided by Blacksmith’s TPO.

The solid dark line imported from your syndicated data shows the difference between data source.s The new base model (dotted line) provides a smoother and more accurate indication of your base.

This is how a baseline should look – smooth. Not like a roller coaster.

 

Example 2:

Let’s dig deeper into base volume and peek at the TPO Master Calendar. The Master Calendar shows all aspects of how our brand did over a period of time:

Looking at the bottom half of the calendar, we see a week by week view of our sales and how those sales break out by base and incremental volume – giving us a type of crystal ball into what portion made up each week and what the driving forces were.

For the most part, our base volume is relatively smooth, but notice the slight increase around the weeks of September 16 and 23.

There are very few instances that would cause your base volume to go up or down:

  • Regular price increase or decrease
  • Increase or decrease in the distribution of an item
  • The presence of consumer events such as radio, television, billboard advertising
  • Special coupons or demonstrations to draw consumers to try product

(When these instances are present base volume can increase.) If these instances aren’t captured in your data, it leads to questions and an inaccurate assessment of your business.

 

Now, take a look at the top half of the Master Calendar. This portion of the calendar shows key information on the same account and timeline selection.

See when consumer events have taken place. Notice the orange sell for the week of September 16 — it indicates the presence of a consumer event. In this example, a special consumer coupon ran, which drove base volume up at the retail level, even though the specific event wasn’t tied to any kind of specific promotion at this retailer to promote.

 

With quantified baselines, companies are not just prioritizing accuracy, but also intelligence.

Using a comprehensive trade promotion optimization solution directly impacts your business in 3 ways:

 

1) Quantify ROI and KPIs

ROI and KPI

When you know where you started, calculating how far you have come is much easier. With a baseline built with a holistic picture of your business, calculating the incremental volume, revenue, profit, and ROI of promotional activity is both automated and repeatable for all customers.

 

 

2) Analyze Seasonality and New Products

shopping basket

Controlling your baseline view relative to time periods allows for a more thorough post-event analysis during more active, competitive or tenuous times. For example, a 26-week baseline may be acceptable for mature brands with little volatility. However, a 4-week baseline will indicate more significant shifts during a holiday. The ability to focus on these intricacies through a trusted baseline will better inform planning decisions during these times and when launching new products.

 

 3) Ushering in the Future

warning

For too long, historical inaccuracies of baseline volume set the foundation for next year’s plans. Today, you can apply predictive analytics to plans for a more definite forecast of promotional lift. These predictive outcomes are built on the actual performance. Furthermore, organizations now can use features of their trade promotion optimization solution to simulate a future baseline based upon current trends, anticipated lost and new distribution. The TPO application’s predictive capability provides you with a dynamic future baseline versus (the all too common) static baseline for systematic future planning.

 

As trade marketers and sales, if you’re ready to ignite change in baselines at your organization, you need the data intelligence to see where you started as a catalyst to create better results. To date, the elusiveness of accurate baselines has hindered understanding and opportunity. This is why, if the consumer goods industry is going to evolve to address such opportunities presented with shifting retailer demands, rising e-commerce presence, and changing consumer preferences, perceived loyalty cannot be the only underpinning of our business understanding.

 


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