PROMOTING EFFICIENCY

It's a chicken-and-egg puzzle. Do efficient promotions engender Efficient Consumer Response perfection? Or do streamlined promotions hatch from a mastery of the other components of ECR?The ECR architects say the biggest share of potential cost savings -- an estimated $11 billion -- lies in the elimination of damaging promotion practices, specifically those that lead to forward buying and diverting.Brand

It's a chicken-and-egg puzzle. Do efficient promotions engender Efficient Consumer Response perfection? Or do streamlined promotions hatch from a mastery of the other components of ECR?

The ECR architects say the biggest share of potential cost savings -- an estimated $11 billion -- lies in the elimination of damaging promotion practices, specifically those that lead to forward buying and diverting.

Brand marketers say they are pursuing the efficient promotion payoff through activities in three main areas. The consumer portion is concerned with couponing strategies and in-store activities. The trade portion focuses on improving relations with retailers and recognizing

co-marketing opportunities with retailers. The technical and logistical portion emphasizes projects such as electronic data interchange and continuous replenishment.

"Obviously, the easiest way to get into ECR is continuous replenishment. It was our first step," says Frank Krum, president and chief executive officer of Golden Cat Corp., South Bend, Ind.

"We have done a couple of things [with efficient promotions], and we're feeling our way along. But the promotions side is by far the most contentious because you're dealing with profit flows that have become institutionalized."

Frank Tataseo, vice president of sales at Pillsbury Co., Minneapolis, has another view.

"Personally, I think that getting to ECR requires breakthrough changes in promotions -- in particular, how you manage trade. Right now, a lot of inefficiencies are driven by trade practices as they've developed over the years. So unless you do something on the pricing and promotion simplification front, I don't think you could ever get to ECR," he says.

Pillsbury has discontinued off-invoice allowances, leading to the creation of its Customer Development Fund. The fund, which will be introduced Oct. 1, is really a flexible account that generates monies based upon a customer's purchases from Pillsbury.

Says Sue Phillips, Pillsbury's vice president of strategic customer service, "With the way we're laying out the CDF approach, there is no incentive for the customers to forward buy. None whatsoever. It's to their advantage not to."

Reynolds Metals Co., Richmond, Va., is using Spectra Marketing Systems to geodemographically target its consumer coupons while at the same time perfecting its redemption process.

"We've done a lot of streamlining with our clearinghouse to reduce the level of deductions we experience with our distributors, and we have reduced deductions significantly in the past year," says Stephen Rosser, vice president of national sales at Reynolds.

Rosser insists, though, that couponing is only a market-by-market strategy. "In some situations, we've found that promoting with our customers in a trade promotion can be more efficient than a consumer promotion or couponing. In some markets we've eliminated couponing activities and used those monies for retailers to generate retail sales," he says.

Ken Harris, a partner at Cannondale Associates, Evanston, Ill., says the greatest risk companies face when streamlining their promotions is lost volume. Companies realize that all too often their promotion dollars do not reach the consumers, but they are hesitant to make changes for fear of the consequences.

"It's sort of like a drug. You've been doing it for a long period of time, and if, in fact, you decide to cut back on trade spending, what's going to happen to your volume? Are there going to be reprisals?" Harris asks.

Tom Sullivan, general manager and executive vice president of Customer Marketing Resources, Darien, Conn., a division of Information Resources Inc., Chicago, says brand marketers need to analyze their retail promotions, pricing and merchandising support to better understand their resulting effects on sales volume and profits. Such knowledge of promotion efficiency, he says, is fundamental to being able to identify optimum deal structures.

"If I'm going to get this price point and it will result in a certain profit per unit of sale for the retailer, then I can do a comparison for what he would make on this promotion vs. what he would lose forward-buying the product on an off-invoice allowance," Sullivan explains.

Karl Gnau, senior vice president of retail and broker information services at Nielsen North America, Northbrook, Ill., also stresses the need for a more accurate, meaningful read on promotion effectiveness. Such a goal is often challenged, he says, by the sheer magnitude of information to be tracked.

"The data ocean is increasing. It's going to continue to grow. Our battle cry is no longer we're going to provide more information, but more recommendations," says Gnau.

Companies that appear to have faced the potential risks and taken the lead in implementing ECR are, in many cases, nonfood manufacturers that have had experience complying with the demands of mass merchandisers.

Krum of Golden Cat says delivering optimal efficiency has been the price of doing business with the likes of Wal-Mart. The company now guarantees customers in all retail channels they will never have more than five days' worth of inventory, they will never be out of stock and they will turn their inventory 40 to 50 times annually -- about five times the average for grocery items, he says.

In contrast, Pillsbury, like many manufacturers in the food business, has not had extensive interaction with mass merchandisers. Phillips estimates that about 25% of its prepared dough products are on continuous replenishment so far. That capability will be extended to the company's frozen and dry product categories this fall, she adds.

When DowBrands, Indianapolis, set out two years ago to re-engineer its trade promotion process, it established several goals for itself, says Mike Cooper, corporate account executive with DowBrands.

"We wanted to reduce process man-hours by two-thirds. We wanted to be able to forecast our liabilities and expenses to an accuracy rate of half a million dollars. And we wanted our customers to rate us among the best in responsiveness, flexibility and accuracy.

"One of the things we are trying to do by moving our promotions closer to our customers is pay-for-promotions based on consumer movement," Cooper continues. "And that's having various stages of success as various parts of the trade are able to do that, and that's certainly cut down on a lot of that forward-buy and diversion."

Simplifying or clarifying the order process has also been a goal of brand marketers. Kellogg Co., Battle Creek, Mich., has redesigned its order management process. For each customer, Kellogg now designates a key contact person at headquarters to handle inquiries for the entire order process, says Karen MacLeod, director of communications.

DowBrands is developing an on-line service to allow its sales force to more effectively serve customers. "We can track and measure what the real deal is between us and our customers. Once you figure out what the real deal is, you go a long way toward reducing invoicing errors. Our goal is to invoice our customers the way they thought they bought the product from us," says Cooper.

One of the largest obstacles brand marketers say they face in trying to streamline their promotion strategies is the inability of retailers to upgrade their own technological standards. With only a handful of supermarket and drug chains able to take advantage of manufacturers' EDI and continuous replenishment capabilities, opportunities are limited. Some industry observers say that situation will not change dramatically in the near future.

"Nothing is going to happen on the efficient promotion end until the food business learns that it can make more money on selling merchandise than it can on buying merchandise," says Chris Hoyt, managing director of Reach Marketing West, Manhattan Beach, Calif.

"Can you imagine the resistance to changing the organization, hiring different types of people, raising the education level, training those people differently and having manufacturers contribute to that? That's going to take 15 to 20 years."

Faced with those limitations in the trade, manufacturers say creativity and exclusivity can be the keys to retailer acceptance of revised promotion strategies and decreased trade allowances.

Golden Cat entered a four-week-long co-marketing program with Target Stores, Minneapolis, that generated donations to local humane societies, among other activities.

"They used Garfield as a focus," says Krum. "Garfield is the spokescat for one of our products, so we focused in and did some promotions with them."

To curb the improper use of merchandising funds, Reynolds provided its sales force with extensive training last year to help it more effectively coordinate consumer promotions on an account-specific basis.

"We're getting more passed through to the consumer than ever before. Our retail sales have increased as a result. We're really encouraged by that," says Rosser.