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Having accurately calculated base volumes is the absolute foundation of evaluating any promotion plan.
And as most commercially orientated professionals will tell you, the promotion plan is a key pillar of the buyer-seller relationship, and a key driver of account (and therefore overall business) performance. We define base volume as the sales you would expect to see in-store in the absence of any consumer activity such as price discounts or multibuys, coupons, gifts-with-purchase or above the line campaigns.
Having a good understanding of base sales, unlocks the ability to improve your analysis into areas such as promotion uplift, incremental profit and share, display effectiveness, and retailer execution. These insights allow account teams to far better apportion their promotional spend to maximise return on investment for the business. Yet a very high number of CPG companies still persist with trying to understand their promotional plans in the absence of base volume data– or choose to avoid the topic entirely. This is often attributed to a volume-focussed mindset rather than value, something we strongly advocate against.
However, getting accurate base volumes is often tricky. In many categories and markets, promotional intensity is extremely high with few true ‘base’ weeks. And where those true base weeks do exist, you are likely to see volume impacted by promotions in another area of the product portfolio and/or post-promotion dip.
If you’re lucky enough to be without such impacts on volume, how do you account for external factors like seasonality, competitor activity, product life-cycling or distribution changes? These challenges mean no calculation will ever be completely accurate. But this is no excuse not to try!
As a starting point, try isolating some weeks with reduced activity and see what number this gives you. As a second stage you may want to run some simple analysis; for example, reviewing how a 20% discount and a 40% discount usually differ in volume, then using this to work back to what a 0% discount or base volume might be. By reviewing the shape of your total business or category across the year, you can overlay a simple seasonality trend and quite quickly get to something from which you can base analysis.
Or, you can bring in the experts.
At Acumen, we are frequently engaged to support CPG companies to better understand their current promotion performance, as well as to support them to identify improvement opportunities.
Our work in developed markets throughout Europe and Australia was formerly heavily reliant on collecting base volume information from our clients, while our work in developing markets like Asia was frequently obstructed by a need to calculate this data ourselves. Over the past 18 months we have perfected our own automated models to calculate base volumes quickly and accurately. This new technology can now be made available as a stand-alone project, or incorporated into a wider scope of work as needed.
Get in touch with the Acumen team to find out more about our work enhancing the effectiveness of your promotions.