Is Your POS Marketing an Expense or an Investment?

Many beverage alcohol distributors see point-of-sale (POS) marketing as an expense instead of an investment.

If you and your company’s management team consider POS simply as an expense — nothing more than signs and displays you produce and place at-retail to counteract your competitor’s POS placements — you absolutely need to read this blog. 

On the other hand, if you consider POS as an investment — using POS to build brand awareness for the beverages you distribute — you may want to learn more. Such things as making sure you’re getting the best return on your marketing budget possible; or that you are recovering the maximum available marketing assistance dollars from your suppliers. If identify then this blog is for you also.

An Oldie . . . But, a Goodie

About three decades ago now, POPAI (Point of Purchase Advertising Institute — Note 1) published the results of their study of retail shoppers’ buying habits. At that time, they discovered that 70% of purchasing decisions (speaking primarily of Consumer Packaged Goods — CPGs) were made at the point-of-sale. Terms like “unplanned purchase” and “impulse buy” were coined and used to describe shoppers’ behaviors.

After so much water under the bridge, during the passage of decades, that is, we’ve witnessed the “birth” of the Internet and the death of TV (Note 2) and “. . . where your advertising goes to die.” (Note 3) We’ve also witnessed not one, but two updated studies on shoppers’ purchasing habits regarding the place where they make purchasing decisions.

In 2012, POPAI released the updated results of their decades old shopper behavior study and revealed that 76% of buying decisions were made at the point-of-sale. Two years later, POPAI again updated their study and published their 2014 Shopper Engagement Study results showing that now 82% of purchasing decisions are made at-retail.

Additional 2014 findings included that over one-third of shoppers enter a retail store with no shopping list. As important as this finding is, it is even more significant because just two years prior (2012) those without lists accounted for just 13% of shoppers.  

The trend is clearly moving in the direction of retail shopping being dominated by impulsive shoppers making unplanned purchases. At-retail promotions (POS) have been repeatedly demonstrated to retain current customers and grow sales. Apparently, POS marketing truly is an investment and can and will increase sales of your beverage alcohol products even in an ever more crowded market. 

How Far We’ve Come

Today, the evidence that POS marketing will produce impressive and positive results (Note 4) if treated like an investment is clear and compelling. As beverage alcohol distributors, you can no longer afford to simply produce or purchase generic signs indicating the price of your product, stick them up in the aisle and hope for the best (if nothing else, your competitors will eat you alive.) 

Here’s one reason why what worked pretty well then probably won’t work well at all, now: Today there are some 20,000 beers and over 110,000 wines vying for US retail shoppers’ attention and dollars. Your POS marketing must first be planned then Tracked, Measured and Managed, not simply produced and placed.  

According to the Path to Purchase Institute (Note 5), managing your POS is the best approach to achieve the “4 C’s” of Effective POS (Note 6):

1. Command Shopper's Attention
2. Connect with Shoppers (e.g., what ABI calls the Point-of-Connection)
3. Convey Persuasive Information
4. Close the Sale

In addition, POPAI’s 2014 study found that 17% of brand purchases are made when a sign or display of that particular product is present at-retail. Again, the conclusion is: To effectively compete using POS — you must Track, Measure and Manage the investment, not simply produce and place signs and see what happens.

In our previous blog, “Determining the Return on Investment (ROI) for OnTrak’s POS Tracking Software,” we demonstrated how deploying a digital tool, like SignTrak or MenuTrak in your graphics marketing department or sign shop could decrease the costs associated with POS production and simultaneously speed POS materials’ time to market by sharply reducing the wasted time that can accompany the ordering, production and placement of POS (signs, displays and beverage menus, for example). In addition to constraining and reducing out of control POS ordering, production and placement costs, using a digital tool, like SignTrak, also will facilitate measuring the impact (ROI) of your POS investment on sales when POS data is correlated with data from your Order Processing system.

Testing Your POS ROI

Our previous blog depicted three pages of an Excel spreadsheet and when populated with your POS Ordering and Production data (Tracking inputs), we were able to essentially present a “before and after” look at your POS department’s costs and using a formula that divided dollars of cost saved by use of one of OnTrak’s digital tools by the cost of the tool producing an ROI showing the cost reduction (in dollars for every dollar spent on an OnTrak application.) In our real-world example, for every dollar a beverage alcohol distributor spent on SignTrak, they enjoyed a cost reduction or savings well in excess of $4.00.

A sales correlated to POS spending formula (which measures the ROI of POS based on its impact on revenue or profit) is different from the POS cost reduction performance measurement and is also different from other key performance indicators (KPIs), such as  gross margin, net profit and EBITDA. Determining POS ROI requires a formula that divides revenue or profit changes (hopefully increases) by the cost or investment made in POS. Collecting revenue data from one time period to the next is typically easily accomplished with the basic analytical and reporting tools provided by distributors’ Order Processing systems (generally a standard feature or function of virtually all contemporary route accounting or back office systems.)

Getting complete and accurate POS data without a digital tool, on the other hand, would be time consuming and highly prone to errors.  Indeed, it is the difficulty in collecting POS tracking information (including cost and chargeback data) that makes measurement, management and the claiming and collection of suppliers’ marketing allowances — designed to offset POS costs — nearly impossible. This difficulty in collecting POS costing data has, of course, led to POS and distributors’ in-house print shops prone to developing the reputation of being a “black hole” by most beverage alcohol distributors.  

The POS ROI Formula

Assuming you do have a digital tool to help you with your POS budget, let’s look at how we can calculate the ROI of your POS. The following calculations will take information from your Order Processing and POS Management systems to produce a percentage. You can use either the change in revenue or profits in the formula (generally I would think you would want to use profit) that occurred during the time period of one of your POS Marketing Campaigns.  Assuming you know your profit before you embarked upon a new POS initiative you would simply subtract your new profit to determine the profit that you will correlate with your spending on your POS to arrive at ROI. This can be done for one customer or multiple customers as you get more experience with the formulas; and as your confidence in the veracity of the data improves. In the following, I will simply use the term “numbers” to indicate a change in profit.

If, for a certain subset of 5 customers, during a specified period of time, four weeks, for example, your numbers — after the implementation of a new POS marketing program — increased by $5,000 (data from your Order Processing System) and you knew your POS signage costs (data from your POS Tracking System) were $500 per store (or $2,500) you could determine your ROI with this formula:

ROI = ($5,000 — ($500 x 5) = $2,500 / ($500 x 5)) or 100%

Just remember to use this data in this formula that represents the change in sales (and profit) produced during the time a POS sign or display was deployed. The formula, in English, is: 

ROI of a POS Campaign = Profit from the Increase in Sales during the time period when POS was deployed minus the POS cost then divided by the POS cost.

You will find that validating your results will be easier and produce results more quickly if you apply these formulas to small sets of customers, rather than “all C stores” in your customer master file. You can also test the effectiveness (ROI) of different POS promotions by deploying one set of POS materials at 5 chain stores and a different set of POS materials at another 5 stores during the same time period. 

Like any formula, the accuracy of the results is determined by the quality (and quantity) of the data that is available. The good news is that you probably already have an order processing system that will help you gather the revenue and profit changes during a given time period and for one, several or many customers. If you are not using a digital POS tracking tool, however, you will need to begin using one so that you can not only increase the efficiency of your in-house or out-sourced POS department, but also to help you increase the effectiveness of the POS itself.

Such POS analytics have become significantly more important as each year passes since there is now an incredible amount of data that can be captured and utilized to measure and manage your at-retail marketing performance.

Notes:

1. POPAI: http://www.popai.com
2. Advertising Age; May 16, 2016; p. 36; “The Snoozefronts: TV is Dead!!!”
3. Advertising Age: http://adage.com/current-issue 
4. POPAI Study: http://www.popai.com/Research%20Library/popai-mass-merchant-shopper-engagement-study.pdf
5. Path-To-Purchase Institute: http://www.P2PI.org    
6. DOT “Design of the Times” Event and Contest: https://dot-awards.com