How AI-driven promotions outperform every other promotion form
Let’s state the obvious: today’s battle for a consumer’s attention and share of wallet in the grocery retail industry is still fought with outdated price promotion tools like circulars, coupons, FSI and the like. Tools that were invented in the last century and have neither been adapted to the capabilities of modern technology nor the successful performance-based business models used by today’s digital leaders like Google. Instead, these tools are so blunt and ineffective that globally 60% of the money grocery retailers and FMCG brands spend is wasted – according to a Nielsen study from 2015. Yet they remain the most widely used promotion forms and all CPG players combined throw 500 bn US dollars at these inefficient price promotions every single year – with rising tendency – due to the lack of a working alternative.
How much budget have you wasted today?
The major failure of outdated price promotion tools is their lack of efficient targeting and the ignorance of or inability to utilize smart technology and available data. You, dear brands and retailers, shouldn’t mistake efficiency for the creativity of “solution” providers in labeling their super-duper targeting. They all claim to have found the holy grail of zero stray losses and maximum efficiency. But the truth is, applying today’s available targeting tools is like driving with your foot on the brake. Yes, you move forward, but slowly and wastefully. Consumers, for the most part, will continue to react with disinterest to your offerings, because they don’t suit their needs.
Incremental uplifts are rare. Substitution is king.
And the ones standing on the sidelines laughing are the solution providers, thanks to their view-based monetization models. They love stray losses – because all risks and budgets wasted are on you, the advertisers.
Let’s say you, as a brand or retailer, want to promote your product with a 20% discount. Would you spend money on distributing this offer, if you knew that your targeted consumer
- would never buy it (e.g. because of the smell, taste, packaging, design, ingredients, etc.),
- had already purchased it the day before,
- would not find it in-store (either it is not listed or currently out of stock),
- had put it on their shopping list anyway,
- wouldn’t try it if the discount was less than 30% off
- would have decided to switch brands even with a 10% price off
Programmatic, AI-driven price promotions – let smart data win
Finally, the time seems ripe to catapult the efficiency of price promotions to new highs, thanks to big data, the digital revolution, and modern technology like artificial intelligence. Smartly combined, these three could significantly boost your share of wallet by programmatically optimizing consumer spend, frequency and reach – at much lower cost.
Forget about targeting 29-49-year-old, urban female gatekeepers with one child who like to watch Grey’s Anatomy. Forget about simply targeting a category buyer to try out your product next time. There are still manifold reasons for failure, like wrong timing, wrong price off, or misinterpretation of preferences.
Instead, think of a new, modern tool, that could truly understand what an individual consumer wants, at what time, at what price, and at whatever place he or she shops.
Think of a precision tool based on artificial intelligence, one that would decode a consumer’s unique and even latent preferences, as well as their product related willingness-to-pay, along with their purchase probability at a given time and place. And think of an easy-to-use tool, that would autonomously manage your top and bottom line results, while also considering your objectives and restrictions.
A tool like that could solve a bunch of challenges, couldn’t it?!
Think Google Adwords for retail
All that would be needed is an intelligent tool that would combine today’s existing data in real-time: like line-item data from a retailer’s till with (even anonymous) loyalty card and household panel information. If you now added a performance-based monetization model to pay only for verified sales rather than views, you would have created something powerful like Google Adwords for retail.
The good news is, these AI-driven promotions are closer than you might think. In nearly 500 German grocery stores, they have already proven that they boost promotion efficiency, showing 5 times higher redemption rates, baskets growing by 13%, and 44% higher margins (via reduced discounts).