Trade promotion evaluation is a big selling point for Nielsen and IRI data. Both vendors provide a key piece of the promotion evaluation puzzle: estimates of Incremental Volume. Incremental Volume tells you how much extra volume you sold due to trade merchandising. Here are a few things you should know about this important but sometimes confusing measure. The first two are useful for anyone involved with CPG data. The third one delves into detail that only an analyst would love.
1. Incremental volume captures the impact of only a few specific activities
Incremental volume doesn’t take into account all in-store promotional activities. It considers only shelf price reductions, secondary displays and retailer feature ads/coupons. And Nielsen and IRI define these activities narrowly.
Everything else you do is captured in the Base Volume measure. This includes manufacturer-sponsored coupons (e.g. FSIs, Catalina, and instantly redeemable coupons), in-store TV or radio, sampling or demonstration, your everyday price, distribution, consumer advertising (TV, print, radio, digital), online activities, physical changes to products or packaging and anything your competitors are doing.
2. Incremental volume can be small even if you do a lot of trade promotion
You might sell 50% or more of your volume to your retail customers on trade promotion. But that doesn’t guarantee incremental volume in Nielsen/IRI. First, retailers may not pass the promotion along to their shoppers. (You can take a look at % of sales on promotion or another promotion presence measure to gauge the level of promotion provided to consumers.) Second, even when you do receive trade merchandising at the shelf, consumers may not significantly change their buying habits, leading to subsidized volume.
3. Incremental volume can be negative
Incremental volume can also be greater than promoted volume. And you can have incremental volume in weeks with no promotion. Weird, right? Counterintuitive results occasionally occur because of the way the measure is calculated. This usually only happens in periods with very little trade promotion, so focus your analysis on specific promotion periods and/or examine longer time frames. If you are still seeing odd results (such as negative incremental volume or merchandising efficiency greater than 100%), then you probably have overall low levels of promotion and the Nielsen/IRI incremental volume methodology is not sensitive enough to give you accurate results.
Want to know more about how incremental volume is calculated and why that can lead to negative values or other anomalies? Stay tuned. In a few weeks I’ll be posting more on this topic, with an article focused on the nitty-gritty details. In the meantime, CPG data class is dismissed.
Have questions about base and incremental volume? Leave a comment below or send us an email.
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