UpClear was asked to consider what tips Consumer Goods Executives can employ to effectively and efficiently optimize the trade promotion management process.
Rajeev Prabhakar, Client Services Director – Americas, presented and expanded on 5 key ideas:
It is frequently claimed that only 40% of trade dollars deliver a positive ROI, so optimizing trade spend efficiency is vital to keep consumer goods companies from misspending the other 60%. Here are five tips that, from my experience, should be considered to ensure that the investment isn’t squandered.
- Define Consistent KPIs – Have the basics in place to calculate ROI – CG companies need to understand, for example, what their base volume is (i.e. how much of a product would sell if it wasn’t on promotion); pricing, both promoted and non-promoted; the allocation of trade spend into defined “buckets” and how to allocate invoices from customers to specific promotions and then correctly into the P&L. Once these building blocks are in place, then the ROI of trade investment can be calculated.
- Focus on Measuring – Accurately forecasting spend and volume prior to an event drives good decision making, enabling potentially poor activities to be modeled better. Similarly, good Analytics and reporting of ‘Actual’ performance, post-event, feeds back into the learning loop, again driving better decision-making for the future.
- Create a Data ‘One-Stop-Shop’ – Bringing all the available data, from internal metrics to 3rd party inputs, together into one place for the sales teams makes both of the first two points so much easier. Companies that can manage, control, and report on their trade spend within a single solution that integrates data from across the business are shown to be more efficient, make better decisions, and capture more value.
- Think ‘Win-Win’ – Use the insights that this data gives to then have collaborative conversations with customers. In an ultra-competitive market, having a fact-base which can prove revenue can be profitably generated without “racing to the bottom” will help drive effective promotion management. If you can clearly demonstrate, for example, that a 25% price promotion will generate almost as much uplift as a 33% discount with both parties retaining that additional margin, it is a win-win.
- Remember the 4Ps – Don’t look at trade promotion management in isolation: it is but one of the “4Ps”. Copying and pasting the 2018 promo plan into 2019 is a useful start, but how long is this sustainable given cost price pressure, changing consumer behaviors, and a dynamic retail environment? Also consider whether the product is correct for the channel, is the pack meeting consumer needs, and does the pricing give room for headline growth? Once these questions have been answered, only then can the promotion strategy and the processes delivering it be optimized effectively.
Given that trade spend is often the second largest line in the P&L and that promotion management touches practically every part of an organization, ensuring the process is optimized is vital to long-term sustainability. Only by managing this investment effectively and efficiently can CG companies ensure that their dollars are not wasted.