CPGmatters: Kellogg Optimizes Promotions to Stimulate Brand Sales

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Sep 29, 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.

Kellogg is moving ahead with a custom TPO (trade promotion optimization) system which combines vendor-supplied technology as well as advanced analytics from an in-house team. As Kellogg escalates from its TPM (trade promotion management) foundation to TPO, it aims to build customer-specific calendars, simulate and optimize events and analyze post-events.

During a recent webinar, Amjad Malik, vice president of business analytics at Kellogg, provided an overview of the company’s transition to TPO. He said "having planning and analysis in one place helps your business processes and helps make sure promoted prices and everyday prices are aligned and executed the way headquarters wants you to execute."

His experience shows three elements are key to successful TPO practices:

  • integration with the TPM system;
  • advanced analytics and;
  • user-friendliness.

He considers integration the most important to "avoid dual entry, minimize inputs, work within one system, and reduce errors and complexity. … The account executive or trade planner … should be able to look at what the event is going to do. That’s one of the biggest keys to making sure we have the right TPO solution."

For its part, Kellogg has embedded advanced analytics to conveniently show base consumption, lift simulations and effects of sales cannibalization. With TPO, Kellogg can also properly shape consumption to shipments for more accurate forecasts and simulate the revenue, lift and profits that will generate from different promoted price points.

Mr. Malik also noted the post-event analysis capability "allows us to decompose volume into buckets like trade, coupons and base volume to understand what’s coming from where and what’s cannibalized."

The analytics team has "built all models for all the channels and categories we play in," he added. Variables are many, including: accounts with syndicated data, shipment-based data or POS data; product and customer attributes; profitability measures; and promotion frequency and track records (products promoted a lot or sometimes, new items with brief histories, future items with no histories, and special packs such as bonus or multipacks).  

"For TPM/TPO to fly, you can’t put in too many things.  If too complicated, people won’t use the system, which means they won’t use the advanced analytics," said Mr. Malik. "Restrict your thoughts to optimization activities which really add value. These could be your starting points. Then bring new levels of optimization into your tool. … It really is a journey."

Training also helps users to understand the system’s value, said Mr. Malik: "We share best practices. We work with user groups. We have modeling teams work with field teams to make sure we can leverage and build models to their advantage.  We use retailer successes as case studies."

Discussion Questions: What are the most important factors in achieving trade point optimization? What do you think of the potential of using advanced analytics and demand data to model trade promotion variables?

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5 Comments on "CPGmatters: Kellogg Optimizes Promotions to Stimulate Brand Sales"


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Dr. Stephen Needel
Guest
9 years 7 months ago

This does not represent very advanced analytics — we were doing this at Quaker Oats in 1981 (albeit with worse data than is now available). Nor does the lack of complexity represent a positive aspect of the system. If TPO is complex, it’s complex. To adopt a system that is less optimal because it is simpler is probably not the best business decision.

Doron Levy
Guest
Doron Levy
9 years 7 months ago

Promotions have 2 purposes: 1. to offer added value to the customer which will hopefully bring more customers in and 2. to track consumer behavior when presented with a specific deal type. Anything that can help harvest data from promotions is only going to help the merchant and producer. Kellogg is in a very competitive business with house brands slowing nipping away at its market share so for them to implement a high tech vehicle to track and stimulate sales, it makes perfect sense.

Max Goldberg
Guest
9 years 7 months ago

The more information retailers and manufactures can share about the effects of promotions, the better. But information about promotions will not necessarily lift sales. Retailers need to more beyond what happens in the store and reach consumers with meaningful, data-driven communication. Few are currently doing this, and they won’t break through until they do.

Zel Bianco
Guest
9 years 7 months ago
I agree with Max Goldberg. Any process that better aligns the retailer and manufacturer on the trade promotion side is a good thing, but it needs to go further. One of the pieces we are seeing some of our clients in the industry adopt are customized marketing/trade promotion calendars for each major retailer that can be drilled into to better understand the communication that is being used to get the consumer into the store, be it television, social media, etc, as well as what happens when in store to get the consumer to pick up the product and buy. Another critical area of course is taking the shopper insights that companies are spending a great deal of money and resources on but are not making their way into the hands of category managers and sales. Yes, it needs to be easy to use, but it must have the ability to combine trade with category analytics plus shopper insights to make sure what you are spending money on is carrying through the trade promotion activity, and… Read more »
Armen Najarian
Guest
Armen Najarian
9 years 7 months ago
When approaching TPO it is important to remember that you are driving effectiveness first, then efficiency. Once you have incorporated TPO into your business processes, I agree that TPO/TPM integration is important, but it is putting the cart before the horse to lead with it. A TPO system has to be adopted and integrated with people and process first. Otherwise you have a well integrated, efficient system that no one uses or more importantly trusts. That sounds more like overhead than results to me. I believe it is also important to differentiate between complex and complex to use. I agree with Dr. Needel; TPO is inherently addressing a complicated need. TPO is predicting consumer response; no small undertaking considering the subject. However, that does not translate to a complex user interface or lack of user friendliness. For example, when I walk to my car in the morning, I am able to remotely open my doors with my wireless key fob, even though I don’t understand exactly how it works. I put the key in the… Read more »
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