In CPG industries, whenever a promotion is planned and executed, there are several measures or KPI’s with which we can track the performance of promotion. For ex. ROI of the promotion, Incremental Units sold, Incremental Profit or Incremental turnover etc.
Normally when we talk about the turnover of promotion in CPG, the first impression that comes to our mind is sales and spend. Turnover is nothing but a real picture of sales. To summarize this, we can think of turnover as net sales of the product after deducting spend of the promotion.
Whenever a promotion is planned, spend is associated with it which is nothing but Promotional Spend or Incremental Spend. Basically, the Promotional Spend is the investment by the company to promote the product which is above the base spend. Not to confuse between both things, Base Spend is nothing but the money invested by company irrespective of whether a promotion is planned or not.
Think of a situation, where to have a good repo with customers and to improve their buying experience, a CPG company has already given a 5 % discount on the price of a product for an entire year. This is nothing but Base Spend. In retail terms, this can be some discount or rebate given on top of the price of product or EDLP by retailer etc.
Promotional or Incremental Spend is the money invested by the company during a promotion for a particular product aiming for increase in sales of the product. For ex. A company can give 1$ discount per product during a promotion. Hence 1$ per product is spent during the promotion which we call it as Promotional or Incremental Spend.
Now why turnover is an important factor to track the performance of a promotion, we can consider one example.
There is a Promotion “Promo-A” is planned for “Product X”. Other details of this promotion are below:
|Product Price||5$||Base Quantity||800|
|Base Spend||200||Total Quantity||2000|
|Base NSV||3200||Incr NSV||4800|
The base turnover of Promotion will be nothing but Base NSV – Base Spend. Similarly, the Incremental turnover will be Incremental NSV – Incr Spend.
|Base Turnover||Base NSV-Base Spend||3000|
|Incr Turnover||Incr NSV- Incr Spend||3600|
NSV is actually dependent on product price and quantity. Hence lower the spend, turnover will be good and in turn the Profit and the return of the promotion.
When we talk about Base Turnover, to improve the base turnover the base spends can be reduced. Similarly, in the case of incremental turnover, the promotional spend can be reduced.
To improve turnover, the promotion planner needs to plan optimally so that NSV is increased by providing the discount and at the same time, spend is kept at such a level that turnover is not decreased or gone in negative. Otherwise, the Profit will go in negative and finally, the ROI of the promotion.