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.
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Sally, excellent points in this post. Well covered and with clarity (because, it can get real confusing very quickly). An interesting side conversation to cover in a future post may be the impact of promotional and/or incremental volume on FUTURE base volume and how that is calculated (for infrequently purchased items and for commonly purchased items). Well done coverage of an issue that crops up often in discussions with retailers, sales, marketing, analysts, and even finance.
Thanks David! What do you think is important for analysts/data users to know about trade promotion’s impact on future base volume?
Sally
What is your perspective on looking at Base vs. incremental by channel? Meaning if a channel is impacted by channel shifting due to distribution gains in another channel- that impacts base, correct? I prefer to look at the all outlet level to understand the health (base) vs. the incremental over a longer time period (52 weeks) & not shorter periods. Thoughts?
Hi Bala,
Base volume in one channel could be impacted by distribution gains in another channel. But we suspect it would be challenging to separate out that impact. There are so many factors impacting base volume (distribution changes within the channel, price, trade promotion, advertising, consumer promotion, general economic trends, changes in consumer tastes, etc). that the effect of distribution changes in ANOTHER channel would probably be tough to see. Distribution changes in anther channel might not even have a negative impact if it increased overall brand awareness. Panel data would be a better data source for understanding the impact of channel shifting.
One additional note: in the longer run, factors impacting base volume will also impact absolute incremental volume (similar lifts will be off a smaller base).
Longer time periods are definitely best for strategically focused analysis of base and incremental volume. Shorter periods are more tactically focused and therefore most useful at the account level. Therefore, looking at base and incremental in the all outlet data definitely doesn’t make sense for short periods. The question is whether it is even helpful for long periods since base vs. incremental is most relevant for Grocery retailers and is irrelevant for Walmart. It might be most helpful to restrict base vs. incremental analysis to channels where incremental volume is an important factor and just look at total volume in the all outlet data.
Can you offer any information/insights about “Non-Promoted Incremental Volume?”
This is a very good question and I don’t have a good answer! It’s odd that there is a whole set of facts around something that (theoretically) shouldn’t exist because, in Nielsen/IRI, incremental volume is supposedly only attributable to trade promotion. It’s essentially capturing error in the baselining technique. Maybe the measures are there because Nielsen/IRI do try to have every piece of the puzzle covered. Neither Robin or I have ever used these measures in an analysis. However, one might theoretically look at these measures to see where/when/how much the baseline deviated from what it “should” have been based on past history. Might help quantify the impact of other short term effects other than trade promotion. I’m going to ask around about this metric and will post more if I get more helpful info.
Can you post on how to evaluate promotions and different types of promotions – feature w/Display, TPR, end-caps etc,?
We have quite a few posts on pricing and promotion (which are frequently tightly linked). I suggest you browse through these pricing and promotion articles and if you don’t find what you need, please provide me with more specific questions regarding what your specific questions are. Thanks for reading!