CPGmatters: How to Tackle Trade Spending

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May 25, 2011
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Through a special arrangement, presented here for discussion is a summary
of a current article from the monthly e-zine, CPGmatters.

Today’s reality has brand marketers at all stages of trade promotion sophistication.
They span from the least invested, running the same events year after year
with few structured plans for growth, to the most progressive, leveraging
processes and technologies across their enterprises, and using business intelligence
and robust analytics to run predictive models and collaborate with retailers
to maximize event planning and trade spend performance.

Why become best in class? Three reasons, observed Rob Bois, former director
of product marketing, MEI, citing an Aberdeen TPM Benchmarking Survey:


  • The best way to perform post-promotion analysis is with granular data.
    Best-in-class CPG companies are 1.5 times likelier to have access to shelf-level
    promotional data.
  • Twice as many best-in-class companies (35 percent vs. 18 percent) manage
    trade promotion funds at the SKU or unit level and store level, rather than
    at the region or banner level.
  • Nearly twice as many best-in-class companies (33 percent vs. 19 percent)
    capture and measure promotion effectiveness with profitability and ROI measures
    as opposed to looking at pure lift volume.

Mr. Bois shared his insights on a recent webinar, “Tackling Trade Spending
in the CPG Industry,” which he hosted with Don Lanham, director-consumer products,
Clarkston Consulting, and Bill Schamp, also a director-consumer products at
Clarkston.

“You can’t get to any of these three without having a dedicated strategy
around process improvement and technology adoption,” added Mr. Bois. “It’s
about improving how you collect data, at what level, and how to assimilate
it throughout your organization through a demand-signal repository or a TPM
tool that helps you automate and analyze promotions after the fact.”

But CPG companies need to get “their house in order” before committing
to TPM (Trade Promotion Management) software. “TPM as an enterprise software
category is a lot different than the types of software implementations CPG
may have done in the past, such as ERP, financial, supply chain or demand planning,
Those are fairly disciplined processes,” explained Mr. Bois. “Because
TPM spans sales, marketing, finance, trade finance, supply chain and demand
planning, it has to meet the needs of many different parts of the organization
[with] different goals and business processes in place.”

Some critical gaps exist between the “importance of trade promotion technology
features” and the “effectiveness of current-system performance,” according
to the same AMR study.  The reporting function showed a 15-point gap (77 percent
importance vs. 62 percent effectiveness), as did system of record/fund management
(72 percent importance vs. 57 percent effectiveness).  Spend control showed
an 11-point gap (73 percent importance vs. 62 percent effectiveness).

“Yet this isn’t a reflection on any of the TPM applications used. Technology
could be vital in fixing the first two issues. Good process disciplines could
help improve the third,” said Mr. Bois.

Discussion Questions: What are some best practices for vendors in managing trade promotions? What do you see as the barriers to TPM (trade promotion management) software adoption?

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7 Comments on "CPGmatters: How to Tackle Trade Spending"


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David Biernbaum
Guest
9 years 11 months ago

The challenge for niche and specialty brands is that many retailers offer only the types of price promotions that typically provide lift for big brands and commodity items. In the case of smaller brands, the retailer and brand marketer are lowering temporary costs only to borrow business from the future, and unnecessarily so, at the expense of the manufacturer and the retailer’s own margin and productivity.

I prefer that retailers use niche and specialty brands as destination producers and leave the promotions to the manufacturer to deploy with TV, radio, and social media advertising.

Dan Frechtling
Guest
9 years 11 months ago
How can something that weighs nothing be such a heavy burden on organizations? New software, especially marketing measurement like TPM, faces resistance from the start: 1. Opposition can be firm. Constituents like sales and trade marketing don’t like exposing favorite programs or disrupting horse trades with retailer merchants. Opponents will find flaws and keep those managing the system on the defensive. 2. Processes may not be mature. Data feeds are critical, needing one system of record for spending and sales outcomes. Planning must be proactive rather than reactive. The budgeting/allocation/execution/review processes needs to be mapped. 3. New habits take time to form. People go back to spreadsheets when no one’s looking. Turnover requires retraining. Software use needs to be ongoing, not episodic. Implementation is the battle not the war. Software systems demand cultural change. This requires a senior leader in the organization, not cascading delegation or complete transition to IT. Change also requires a vision of gain, not just pain. This is absent the article above. What sales gains does TPM make possible? How are… Read more »
Camille P. Schuster, PhD.
Guest
9 years 11 months ago

Acquiring a new software system is not necessarily an easy sell. Getting buy-in from at least five different functional areas is a huge hurdle. Having employees in all these areas with the skills to analyze this data is not likely; training employees in all these areas to have the skills to analyze this data is expensive and time consuming.

The CPG article demonstrating good returns may provide a good reason for making a change for some companies. Those companies making the change to develop a more structured and disciplined trade promotion management system will have a competitive advantage. When enough competitors have this advantage a lot more companies will begin making the change.

Bill Bittner
Guest
Bill Bittner
9 years 11 months ago
I think the real challenge in Trade Promotion is that there are very valid reasons that companies will have different strategies, ranging from the category characteristics, to the customer demographics of a particular retail banner, to the physical distribution channel of a particular manufacturer. I always remember sitting with the VP of Merchandising at an EDLP retailer who had just been acquired by a hi-low retailer. Both retailers overlapped in several market areas. The EDLP retailer had extracted the best everyday cost he could achieve from all his suppliers. The hi-low retailer unwittingly lived with a higher cost so they could achieve their banner objective that required steep promotion discounts. When everyone got to see each others’ costs it was a revelation for them all. The supplier practices used to support these different retail banners were not necessarily the best for them. They were trying to meet their retail customer’s requirements. On the other hand, supply chain driven promotions such as the preseason deployment of seasonal items are driven by the suppliers need to get… Read more »
Alison Chaltas
Guest
Alison Chaltas
9 years 11 months ago

Further adding to the challenge of managing trade promotion in today’s environment is the growth of shopper marketing as a discipline–with often blurry lines between the two. No longer can manufacturers compartmentalize activities into those that build awareness and brand equity and those that drive volume. Importantly manufacturers must clearly think through the role of traditional trade promotion activities in concert with shopper marketing programs in achieving objectives overall objectives with key customers.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
9 years 11 months ago

TPM software solutions could be useful, but only if

1) CPG are disciplined enough to use it

2) The data is available at a granular level, by store, SKU and day

3) Most important, the CPG is willing to use the information to make changes at retail.

The last one is the toughest. If a CPG team has been successful at driving volume year over year with a promotion, how do you explain to them that it is not as effective as other promotions and they need to make a change? Even harder, how do you explain to the retailer that you need to change a promotion they have liked for years and replace it with something else?

Software is only as good as the information you feed it and what a human does with the end results. If you can’t load the correct information or are not willing to make changes after you learn what the data means, don’t bother investing in TPM software.

Matthew Keylock
Guest
Matthew Keylock
9 years 11 months ago

There are a number of challenging dynamics here that some of the comments have identified.

The fragmented retailer landscape is also not easy to execute across. It is one thing to have a strategy for a brand, but another to be able to execute it across all retailers. Plus, a strategy today needs to take account of factors that are fairly new–such as new shopper data and new measures of success like segment-specific loyalty metrics. Retailers have different approaches to these!

These additional factors are making an already complicated landscape even harder to navigate. Software can certainly be an enabler to this, but it’s better to introduce software to scale and turbo-charge a working approach than to use it as the new answer.

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