BrainTrust Query: P-O-Inted Observations on Collaborative Promotion Optimization
Through a special arrangement, presented here for discussion is a summary of a current article from Getting Personal About Business, the blog of Zahn Consulting, LLC.
"This is hard stuff!," Dr. John Stanton, professor of Food Marketing at St. Joseph’s University animatedly admitted in a keynote address starting off the 4th annual POI (Promotion Optimization Institute) Joint Business Planning Summit held in Chicago in early November.
"We are all self-interested parties with our own objectives, metrics, tools, and evaluation criteria," he continued. "So what works for sales may conflict with marketing; what operations values differ from IT, what sellers pursue may be in contrast to what buyers or procurement seeks; and shoppers are often forgotten in the discussions held between retailers and manufacturers."
With the theme of promotion collaboration established, the conference attendees debated many of the hurdles facing such partnering while also hearing examples of progress:
- Pam Brown, director of trade promotions, Del Monte Foods, discussed how her company approached its three-year journey to move up the ladder from Trade Promotion Management (TPM) to Trade Promotion Optimization (TPO). In advice also heard from other presenters, Ms. Brown stressed the importance of establishing clear goals, securing senior executive backing, and creating the training and support necessary for people to harness the power of the tools and processes to improve their performance.
- Trevor Barrett, SAP CC Lead at Premier Foods, discussed how his firm was able to migrate to a unified TPO system across numerous customers (retailers), categories, countries and acquisitions of brands, each with their own nuanced way of doing business. The complexity of being able to retain a consistency of approach was facilitated by a reliance on SAP applications that allowed Premier to track, manage, monitor and correct trade performance across categories.
- Kevin Kroymann, national trade marketing manager at Hormel Foods, detailed how Hormel’s success against bigger competitors was in large measure the result of the ability to collaborate more effectively with retailers based on more skillful use of insights, trade promotion analytic capabilities and fluid communication.
- Steve Jankauskas, VP of business development for Annie’s Inc., shared examples of how Annie’s has been able to collaborate with their retail partners to maintain or even raise prices based on the insights derived from the research on shopper price tolerances and the impact on purchase behaviors.
- Brian Fox, VP of category management at Ralcorp (formerly American Italian Pasta Company) discussed how the introduction of LEAN techniques allowed his company to go from inefficient spending due to poor forecasting, inventory management and poorly planned product launches to a company that retailers now rely on in developing strategies.
Discussion Questions
To what degree is collaboration between trade partners hampered by self-serving interests? Which emerging technologies (price, promotion, assortment, etc.) promise to particularly improve collaboration?
Collaboration isn’t a mechanistic process built on metrics, SAP, LEAN, analytics or any of that kind of stuff. My eternal dream is that some day we’ll move beyond that mindset to understand what nature has been trying to teach us about how integrated and aligned systems really work. Basically collaboration of any sort is a spiritual or, if you prefer, an energetic connection.
Commandment #9 of my “11 Commandments for an Enthusiastic Team” is “Whatever you want…you must first give away.” We are a self-interested culture, a culture of takers. The brutal reality, however, is the more you take the less you have.
This commandment says that the only way to get someone to smile at you is to smile. If you want love, be loving. If you want people to trust you, be trusting first. If you want collaboration see what you can give to those with whom you want to be aligned.
As much as self-serving interests hamper collaboration between any two parties, it is imperative for trade partners to understand the new digital environment and its implication to both of their businesses. In the new world of the digitally empowered shopper, both brands will suffer if trade partners do not set aside years of fiscal ‘tug-of-war’ and mistrust. Your customers will simply pass you by and find what they are looking for elsewhere.
It is a brave new world where many of the conventions, processes, methodologies and status quo belong to the ‘analog’ history books. Too many of these ‘analog’ practices are being converted into their digital equivalents and they simply do not work. Replacing long standing adversarial friction between trade partners with collaboration is the first step to designing and developing innovative, useful solutions for the shopper.
I believe relevant and localized product mix and assortment can provide inspiration to shoppers. This can only be successful if trade partners collaborate. Sharing in a common strategy where there will be mutual benefit in its successful implementation will provide the foundation for further trust and collaboration. In the end, it is good for the shopper and that, in turn, is good for all trade partners.
Collaboration can work. I recently completed a three year fellowship working with the International Foodservice Distributors Association (IFDA) and the International Foodservice Manufacturers Association (IFMA) to deal with the number one relationship issue, namely, lack of trust.
A pilot collaboration study involving key distributors, e.g., Sysco and Unipro on the distributor side and CongAgra and Heinz on the manufacturer side, provided some outstanding results. All of the metrics indicated that collaboration works. Overall sales growth rates of the collaborators averaged in the high teens to mid 20% and were 10 to 15% higher than overall growth rates during the same period the year previous. In addition, the total promotional lift with partner over the pilot period ranged from modest gains to almost a 20% increase.
The model I developed with industry input was designed to be easy to understand and implement. The model included five components:
Understanding how your channel partner works;
Agreeing to share information intensively but selectively;
Identifying and agreeing to the dimensions of collaboration;
Developing model metrics, and
Engaging in a systematic post-mortem of the results and process.
If potential collaborators are serious about engaging their partners, the above steps are critical to the process and its ultimate success.
I would be happy to share my findings and the published IFDA report titled, “Collaboration Works! Distributor – Manufacturer Pilot Yields Increased Sales and Supply Chain Efficiencies.”
This collaboration or potential collaboration has everything to do with data…”Big Data.” When you understand the consumer signals that drive demand, you can model your trade promotions to help optimize results. To do this, you need information about consumer behavior and the capability to run advanced statistical models against that information. The challenge is that because there are so many data sources, understanding what is happening at the consumer level can be very difficult. A demand signal repository (DSR), leveraging great technologies available today can help you solve this by integrating data from many sources to help monitor consumer behavior. The DSR can help you recognize activity and monitor out of stocks to enable improved demand forecasting. This integrated view can also help you optimize your supply chain. With pre-, in-flight- and post-event analysis, you can adjust future trade promotions to help optimize your trade spend and ROI. And your product development organization can also leverage this consumer-based insight to help identify product enhancements.
Another challenge to enabling TPO involves dealing with multiple fixed sources of funding. In addition, most organizations will want to control their individual budgets once they have been allocated. However, when you have so many funding sources, this can result in the promotion being selected based on who has the funds to run that promotion. Changing the CPG’s funding structure is a key concept to help enable a successful TPO transformation. But it is also a tough one to implement. You generally need accrual-based funding in order to get to true optimization. Accrual-based funding is based on everything that a retailer sells with a small portion of the CPG’s sales placed in a fund that can then be spent on future promotions. This is different from traditional funding models. If you run a better promotion that sells more volume, the additional sales will result in more funding. The more you sell, the more your promotion funding increases. This model provides incentive to sell more volume and not just achieve a monetary goal. Retailers realize that the money they make as a result of running promotions can help increase their funding. That is the key concept of accrual-based funding. This one change in how CPGs do business can significantly increase retailer motivation.
If organizations could instill more transparency from the top down, we’d have more effective promotions across the board. Too often customer teams hide facts from marketing, who doesn’t fully disclose to sales, who twists things for the retailer, who keeps the real need close to the vest. And so on.
In our increasingly omni-channel world, mobile technology will force us to be more transparent and more collaborative. We can see competitive promotions real time, measure the immediate purchase impact, and talk with shoppers 24/7 across a wide range of devices at home, in-store and along the way. All of this will help more transparent companies with strong brands shine — together.
What retailers tell me most often is that manufacturers still insist on imposing cookie-cutter promotions for everyone. And retailers still see a lack of actionable consumer insights (data taken one step further), with innovative programs built around them.
The beauty in the discussion is just how different the responses were and what was seen as “the core” of the issue. Each of the comments approached it somewhat differently, and passionately laid out their case. Therein lies a huge opportunity — what do we mean by collaboration? What are the limits? What are the tools? Etc.
Thank you all for sharing your views and contributing to the dialogue.
I have been teaching a version of Richard George’s model for about 10 years. The process works, but is difficult and time consuming. The attitude of participants needs to change, new skills need to be learned, data to support the process is critical, and a willingness by both parties to participate is essential. Commitment, skilled employees, and appropriate data are necessary for success within and between companies. Results can be amazing.
To the degree that people can’t see past their short-term interests toward their long-term interests. I think social media will have the biggest impact as everyone realized that the consumer is — in fact 00 King and Queen.