JTPP: Changing the Game in Trade Promotions Planning and Analysis

Sep 17, 2009

By Todd Bortel,
Senior Consultant at Cannondale Associates

a special arrangement, presented here for discussion is a summary of
a current article from The
Journal of Trading Partner Practices
the official online publication of the Vendor Compliance Federation
(VCF), Trade Promotion Management Associates (TPMA), and the Federation
of Credit and Financial Professionals (FCFP).

Most industry
observers would agree that if the practice of trade promotion today isn’t “broken” it
is at least seriously flawed. Far too much time is spent negotiating
deals and running the treadmill required to put together the weekly ad.
Far too little time is spent evaluating promotions that have been run
and using the information to put together more effective plans for the
future. The result is inefficiency.

Our research
indicates that, with few exceptions, the three most applicable descriptions
for current practices are “simple,” inconsistent,” and “biased.” These
findings were shared during the July, 2009 Trade Promotion Management
Associates conference in San Francisco. During this same session, DemandTec
introduced a recommended action plan that consumer products manufacturers
should consider to improve their own success.

Excerpts from
this joint presentation are included in the paragraphs that follow.

Both retailers
and manufacturers have roles to play in overcoming organizational barriers.

For retailers,
however, the first step is to eliminate the significant inefficiency
caused by inconsistency within the organization. By establishing internally
consistent approaches to planning and analysis, retailers can simultaneously
raise both the quality of work being done and the productivity of the
managers doing that work. Once internal consistency is established, retailers
can then move on to the larger task of establishing consistency with
their vendors.

Second, retailers
must recognize that whatever their concerns about the lack of objectivity
from their vendors, collaboration remains a huge opportunity, and is
a risk worth taking. For collaboration to work, there must be equal participation,
and equal control by both parties, and that work must be based on explicitly
stated mutual goals.

During the
joint TPMA presentation, DemandTec offered up a tangible example of how
manufacturers are seizing this opportunity. To drive even greater value
with retail category buyers, leading manufacturers are now developing
trade plans that highlight total category performance metrics versus
simply focusing on the impact on the vendor’s own portfolio. These more
objective plans call out the source of gain for items on promotion, including
other national brands and even private label items. Time-starved category
buyers appreciate the greater objectivity and comprehensiveness of this
approach to trade planning.

Third, retailers
need to be more aggressive about leveraging vendor resources (tools and
knowledge) with respect to trade promotion planning and analysis. But
it should also be noted that manufacturers have much more to offer; they
can be a way to overcome organizational barriers as well. Vendors can
be a valuable resource in improving the quality and quantity of work
done by retail category managers by assisting with capabilities enhancement
and process improvement efforts. Only by making fundamental changes in
the work process and approach for their line managers can retailers hope
to truly “change the game” for the future.

Discussion Questions:
What should retailers be doing to improve the efficiency of trade promotions?
What challenge does collaboration around trade promotions present versus
other shared practices?

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10 Comments on "JTPP: Changing the Game in Trade Promotions Planning and Analysis"

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John Boccuzzi, Jr.
John Boccuzzi, Jr.
11 years 7 months ago

This topic is so important to address since the opportunity for both the retailer and the CPG Manufacturer is so great.

By collaborating, both parties can make better use of the trade dollars being offered to invest at retail. It is hard to argue that the retailer and CPG manufacturer goals are not always the same at the lowest level. That said, both groups are reaching for the same overall goals.
1) Create value for the consumer.
2) Drive volume.
3) Increase profits.
4) Grow their respective businesses.

There are clearly great technology solutions available as the article mentions, but both parties need to understand and trust the process before using technology to make that process more efficient. Why get to a result and insight quicker and more accurate if neither party is going to either believe the results or move forward with the recommendations.

David Biernbaum
11 years 7 months ago
Trade promotion funding is what many retailers depend on to make their bottom line. Some retailers make more profits on the buy side than they do on the sell side; meaning that revenues collected from vendor partners are more profitable than profits earned from selling products off the shelves to consumers. It would seem that in the accounting departments this approach makes good enough “dollars and sense” but in truth this mentality severely cripples the enterprise system for the good of the consumer, the manufacture, and the retailer: • Entrepreneurial innovation is discouraged because smaller manufacturers cannot afford to get into the game in the first place.• Manufacturers have less money to spend on traditional forms of advertising, marketing, and public relations. • Retailers are choosing vendor partners more for what they can contribute to the bottom line in promotional funding, rather than which products offer the most innovation, variety, and overall appeal to the consumer. The reality here is that retailers are trying to compete with Walmart and other discount leaders by keeping retail… Read more »
Ben Sprecher
Ben Sprecher
11 years 7 months ago
This article hits the nail on the head–retailers and brands that collaborate around real data stand to gain tremendously. Kroger (with its partner, dunnhumby USA) has demonstrated this conclusively in the grocery space, and CVS has done the same for drugstores. A while back, I spoke with one salesperson for a brand manufacturer who said that, in the regions where Kroger operated, his brand shifted virtually 100% of their marketing budget for the region into targeted promotions and marketing through Kroger. It was simply the most effective way to spend his money. And guess who loses out when that happens? All the other chains who are jealously guarding their data, and in doing so, are missing out on the brand’s marketing spend. So, why haven’t other chains been as quick to adopt? The answer comes down to technology. The system to support this type of collaboration is not simple–at the very least, it must (1) allow sharing of key sales data and metrics with outside brands *without* any incremental labor at the chain, (2) allow… Read more »
Bill Robinson
Bill Robinson
11 years 7 months ago
Promotion postmortems should be as vital to a retailer’s DNA as the Monday morning and the season review. Yet few retailers have developed the discipline. It is an opportunity to view the business from every point of view: logistics, customer service, store operations, merchandising, and marketing. Promos are an opportunity for continuous improvement. Some promos are bummers. Why? Some are successful. Why? Some stores do well at promos. Which ones? Some don’t. What can be done to improve their performance? The key is to set up the metrics that evaluate the promo. This means a sales analysis during the exact promo interval, not for the week as is the common practice. How did the customer mix change? What was the impact on sales of non-promoted brands? What was the overall margin of promo goods as well as non-promo goods sold in the same transactions? How many out-of-stocks resulted in lost sales? Look at the promo results in comparison to non-promo periods. What percent of overall transaction where sold on promo? What was the promo’s impact… Read more »
Max Goldberg
11 years 7 months ago

For trade promotions to maximize their effectiveness there must be open cooperation between manufacturers and retailers. Objectives need to be established, information should be shared and the effectiveness of tactics frankly discussed.

Both retailers and manufacturers want to impact consumer choice. Both want to increase profits. And both want to make consumers happy. With such strong, mutually beneficial goals, why should it be so difficult at times to work together? If progress is going to be made, the mutual distrust needs to give way to better cooperation.

Bill Bittner
Bill Bittner
11 years 7 months ago
The retail promotion environment is the Credit Default Swap environment except instead of talking about millions of dollars, we’re talking about pennies on the dollar. In both cases, the complexity of the negotiations can lead to terms that are misunderstood and open to multiple interpretations. The simple way to clean up the whole promotion area is to develop a standard format for expressing the deal terms. By expressing free goods, promotion incentives, and cost reductions consistently across all manufacturers, all the players will be able to work together with a common understanding of what is being negotiated. The challenge is that not all retailers want the same thing, so there has to be a way to trade off cost discounts against bill backs, increased ad support compared to cost discounts, and in store displays for flat money deals. The “master deal” has to be a combination of all these things with an option for the retailer to accept one from column A, another from column B, etc. This way the retailer can fit each individual… Read more »
Sandy Miller
Sandy Miller
11 years 7 months ago

All good ideas. But the missing program is systematic visual promotion at the time and place where shoppers make their buying decisions.

James Tenser
11 years 7 months ago
A collaborative trade promotion planning process that focuses on driving overall category performance is certainly the right idea. Shopper marketing insights deliver great potential to support productive promotions. But fancier, more targeted planning alone won’t deliver the outcomes the industry needs. Trade promotion performance may be greatly affected by factors that are outside the plan itself, such as store compliance, cross-town competition, and the reliability of the demand data used as a planning input. Trading partners need real-time tools embedded into their trade promotion workbenches that incorporate realistic forecasts not only of sales potential but also of the likelihood of effective in-store implementation. Ultimately, the retailer must come to the table with a clear set of marketing objectives, well-supported by facts, that offset the pressure to fall over for the easy money of trade allowances. If the size of the up-front check is the only reliable data point available in the negotiation, then the resulting deal terms are likely to have little to do with expected performance. When it comes to trade allowances–there is good… Read more »
Michael L. Howatt
Michael L. Howatt
11 years 7 months ago

How long are we going to beat this dead horse? No amount of data points, deals or negotiation is going to change this situation. The ENTIRE CULTURE of the industry has to change and that won’t happen for some time to come. Wal-Mart will have to take a hit, CPG manufacturers have to become more reasonable and category focused, and hell will need to freeze over. Until some kind of national collective bargaining agreement is implemented the situation will continue to be hopeless.

Ralph Jacobson
11 years 7 months ago
The operative word in all of these comments is “information.” Too many retailers and CPGers don’t trust their information. This leads to being reactive to promotions and executing them on not much more than gut feel. A survey stated that only 4% of food and beverage manufacturers, as an example, regard themselves as highly effective in analyzing and evaluating trade promotions. This has everything to do with information integration. The ability to infuse insights into your business. Period. Trade promotions management can help you improve promotion analysis and increase profitability with: • Greater control of trade funds.• Faster planning cycles.• Accurate invoicing.• Faster deduction resolution.• Increased forecasting accuracy.• Increased collaboration for higher compliance. It is actually not that complicated to execute with a few of the great tools available on the market today. The problem is that it is not culturally easy. One the corporate culture begins to embrace information management in more of a business sense, rather than viewing it as a technology issue that needs to be managed, the benefits will start generating… Read more »

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