Making the Most of Your Budgets
By Jonathan Banks, Client Director, ACNielsen

Jonathan Banks, Client Director, ACNielsen examines how KAMs can prevent annual budgets slipping off the rails by undertaking more effective promotion evaluations and thinking differently about new product development.

Many KAMs I’ve met have quite often found themselves behind budget as their financial year unfolds. Those of us who have benefited from a Brian Moore finance course will understand the need for businesses to keep the share price moving upward by growing their top and bottom lines. As a result, KAMs can find themselves spending too much time examining the ‘explainable variances to budget’ - and too little time implementing corrective action. Your problem then grows and ‘all of a sudden’ you’re running out of months in the year to play catch-up.

So how can KAMs resolve this issue? Most of you reading this will be familiar with many (if not all) of the measures available to you that help you analyse your business. A shortfall on any of them can scupper what looks like an otherwise sensible forecast. In my experience there are two areas, more than any other, that offer more conclusive evidence and can be understood better by most when it comes to accurate business evaluation and forecasting: They are promotions and NPD.

Making the most of promotion evaluation

How many KAMs can put their hand on their hearts and tell their finance directors which promotions for their products offered your business, and the retailer’s, most bangs for the bucks? Could you create a graph for your retailer(s) (see below) that shows for each promotion type net volume growth, value growth or profit uplift? Will you be surprised to see how many times profit uplift turns out to be a negative number when you do the arithmetic?

All too often, KAMs find themselves in the frustrating situation of trying to solve a volume shortfall versus budget without knowing what the cause of the problem is. Knowing the uplifts achieved by your retailers for particular promotions of different products in your category means you can plan achievement of your budget, and demand a bigger share of the promotional pot. Quantifying your (superior) Return on Investment gives you a very strong argument. And whilst we’re talking about promotions - do you have seasonal products in your portfolio? Can you extend their usage to other times of the year? Since it’s Christmas, I suspect most of us will be putting a turkey in the oven for the annual blow out lunch. It’s economical and tasty yet how many of us choose to eat turkey at any other time of the year? How about driving sales through promotional activities - feature displays, in-store communications such as recipe cards, store magazine ads and loyalty card mailings are just a few ideas to throw into the ring.

Make the Most of NPD

And what about NPD? When budgets are being formulated for the next financial year, NPD is often the ‘x’ factor that closes the gap between your ‘bottom up’ and the MD’s ‘top down’ figures. You’ll know just how testing it is when you have carefully number-crunched those volumes and values of each of your products when targets are merely generalised at a given percentage increase. KAMs can manage expectations better by analysing the effect of NPD on overall sales and profitability. Measuring category cannibalisation, for example, is an often an overlooked and underestimated concern.

My advice to KAMs is not to leave NPD to your marketing or innovation colleagues. Your understanding of your category will be subtly different to theirs because you empathise with the retailer’s point of view. You should therefore be able to formulate different ideas for your products which don’t have to be radical, just variations on a theme. For example, here’s a few things you can reduce: saturated fats; carbohydrates/sugar; salt; artificial colours; preservatives; pesticide residues; packaging; serving size; caffeine; additives; cholesterol; alcohol; preparation times; waste; food miles; and third world exploitation. Some of these will impress your finance colleagues too, since they stand a good chance of costing less to produce!

NPD for your products can include new uses. Take a look at baking soda, for example. A rather limited market you might think - but then manufacturer Arm & Hammer discovered that their product was great in fridge deodorants, toothpaste, stain remover and bee sting cures!

First Mover Advantage Works

Of course, the risk for branded suppliers is that having spent millions on developing something seriously sexy, retailers (and your competitors) copy you with a me-too product. To console you, first mover advantage really does exist in real life and not just the textbooks! I’m sure you have examples in your own categories, be they large or small - e.g. favourites in my household include consider Uncle Ben’s microwaveable rice, McCain Oven Chips, Baileys and Muller’s Corner Yogurts, Dairylea lunchables, and Red Bull which which despite being copied retain clear leadership years after their launches.

But if you’re an own label supplier, are you thinking about them as brands in their own right, rather than just own label ranges? And are you ticking all of these boxes for your products? (see below).

NPD needs long-term advertising and promotion

We all know that NPD is not merely just about the product…it doesn’t matter what is developed if consumers are unaware it exists. Most NPD has lower volume in year two than year one. I bet your targets (and priorities) don’t reflect that! It is an easy trap to fall into because the time given for NPD to breakeven gets increasingly shorter - typically, the end of year 1. All too often, manufacturers ease back on TV advertising and reduce promotional spend after the first year which means that products don’t get the chance to achieve their potential. Sales and Marketing Departments should therefore be prepared to treat new products as new for up to three years. By understanding the key performance indicators of your NPD you will be able to take the right corrective action and quantify the costs and benefits involved. For example, if you know you’re not generating enough trial you won’t waste time and money running a multi-buy.

Evaluating NPD

Whatever form your NPD takes, it really helps to evaluate your activities against category benchmarks. Aside from market share, the most important key performance indicators are distribution, trial and repeat purchasing.

ACNielsen has a wealth of tools that make understanding these KPIs quick and easy. So why not make one of your New Year resolutions to understand the drivers of your business better? You’ll add more value to your customers, your category, your business and, more importantly, yourself.

And then you will have… a Happy New Year!

For further information, please contact:
Sue Kilner, ACNielsen, Tel. 01865 732324
Email: sue.kilner@acnielsen.co.uk
www.acnielsen.co.uk

Date article published: 06/01/2004