Discover the approach PepsiCo Benelux took to optimize the immediate and long-term impact of its promotions.

While short-term impacts on cash flow are often front of mind for the fast-moving consumer goods industry, after-sales dips and other aspects of sales recovery can prove detrimental to a brand’s financial health in the long run. Shopper insights managers looking to develop a promotions strategy with sustainable impact on sales and revenue growth, must be equipped with market research insights that address both the short-term and long-term impact of promotions.

This was the challenge PepsiCo Benelux faced with its savoury snacks, nuts and cereals categories, all of which are under constant pressure from competition.

While they often conducted market research to re-evaluate if its offers met the needs of consumers, the company lacked insights on the long-term impact of promotions.

Since my team has worked with PepsiCo Benelux’s insights teams for portfolio optimization over the years – including product pricing, sizing, promotions and packaging research – the company approached us to help them solve this short-term, long-term business dilemma. Leonie Barelds-Cramer, PepsiCo’s Shopper Insights Manager and Business Analyst, Savoury Benelux, specifically wanted to identify the immediate and long-term impact of specific promotion types on SKUs, brand, and market size, and to assess both the immediate and long-term impact of new future promotions

Prefer to listen to the webinar? Access the full on-demand recording here.

An exciting opportunity for research rigor

While we understood the business question and pricing principles at hand, we did face an analytical challenge: no single methodology existed capable of covering both long and short term as a different source of data.

For nearly 40 years, this has been our sweet spot at SKIM – applying our critical thinking to solve a business question within a complex research scenario. And we were excited to deliver a new solution to PepsiCo. To our knowledge, this methodology hadn’t been applied before. The data-fusion solution was 1. a custom model and analysis of three years worth of historical sales data to determine the long-term impact of promotions combined with 2. a conjoint study to test new promotions.


Data fusion research for promotions strategies

Considering PepsiCo’s long-term business objectives in study design

In designing both aspects of this promotions study, it was critical to take into account PepsiCo’s business considerations from a branding and financial perspective:

  • Brand preservation: A promotion frequency that was too high could condition consumers to buy during sales periods only (stocking up behavior and the “learning to look for promotions effect”), while promotions that were too deep risked shifting consumer focus to price over the brand value the products offered and emotional attachment. The short-term impact of any promotion might draw consumers to PepsiCo’s brand, but the long-term damage of running ongoing, multiple, or deep promotions risked damaging the brand’s financial health.
  • Pricing sensitivity: Were consumers switching on price, were they sensitive to the promotion, and was it any offer or specific offers only? Pricing observations would enable us to better understand the value consumers were attaching to the products and predict how they reacted to thresholds, which could be used to optimize the long-term pricing strategy going forwards.
  • Product cannibalization: Product cannibalization is an important element to consider as well: is the additional volume for the promoted product cannibalized from other products in the line up, or does it come from competition? By taking cannibalization impact on both short and longer term into account, the right promotions can be selected to create potential to grow the market in long-term promotion strategies.

Curious to learn about how other brands are integrating different data sources  for more holistic decision? Get more real world examples by downloading the  paper.

Short- and long-term promotion strategy insights

As a result of our data-fusion study, PepsiCo was able to say with confidence that the following five truths stood to impact the effectiveness and return of the promotion strategies across their portfolio.

  1. The short-term volume impact measured tends to be overestimated if compared to the initial volume impact in the long-term view
    In the case of one SKU, the impact measured by the short-term model was two to three times as high as the impact coming from the long-term model. The vector can differ between products and it is also dependent on whether one SKU or many SKUs of the same brand are on promotion, but the trend is there that the short-term model overestimates the immediate impact versus the long-term model.
  2. Deeper promotions like the second for free don’t always have more impact than less-steep promotions
    Initially, deeper promotions see a higher volume per purchase, so a higher ‘spike’ in sales in the short term, but in the long run the SKU or brand volume may stabilize to a lower total level than for other promotions. This has an adverse effect in the long term, actually leading to a loss in volume.
  3. The best promotion type for one channel was not necessarily also the best promotion type in another channel
    Often the promotion that has the highest impact is determined by the type of channel, the type of promotions that consumers are used to in that channel, and the type of consumers that go to that channel. For instance, if a channel focuses on everyday low pricing in their communications, it’s likely that consumers attracted to it would prefer the lower price points or the price-cut promotions over multi-buy offers.”This was also very relevant to us because we could now, in addition to our internal view on retailer differences, really add the shopper view to it specifically related to promotions,” said Leonie.
  4. Having a higher promotion frequency than the frequency of consumers purchasing the product does not make sense
    Based on this, Leonie believed she should aim to decrease the current high promotion intensity as consumption will not increase by it.
  5. The best promotion type in the short term may actually be the worst in the long term
    In one instance, a “two for X euro” promotion in the high-low channel had the best impact on initial volume, however a price-cut promotion worked better in the long term. Having insights into both short- and long-term impacts is therefore crucial in order to formulate an effective promotion strategy combining different promotion types and create a plan that incorporates both.Leonie said “With the new insight into which promotion works best, we have the tools available to adapt or schedule promotions for the rest of the year, taking into account the impact on both volume and revenue, but also cannibalization on the rest of our portfolio. Our plans for next year and beyond will now be better following shopper behavior and we can really build a long-term promotion strategy.”

Drawing from our deep expertise in pricing theories

The best promotion for one retailer is not necessarily applicable to other retailers. Working with our clients on pricing insights, we see this every day, driving home the importance of a methodical and data-driven approach to promotion strategies and the wider pricing and portfolio work we do for consumer brands.

Many brands are challenged with planning and implementing such complex research and analysis, especially in instances such as this, when no framework existed to support it. Our clients trust us for our critical, whole-brained smarts and our ability to convert tough questions like those asked by PepsiCo into actionable answers. This is where our value lies, empowering brands with predictive, even groundbreaking, pricing modelling that reveals the insights they need to drive business growth.

Is it time to rethink your long-term pricing and promotions strategy? Contact us - we can help!

This article is based on a webinar I co-presented with Leonie last year. To discover more details about how PepsiCo optimized its long-term promotion strategy, download the webinar below.

Download SKIM PepsiCo promotions webinar