Trade Promotion Management in Consumer Packaged Goods (CPG) business
What is Trade Promotion Management (TPM)?
A simple definition is a set of processes that aim to manage promotional spending so that it maximizes sales up-lift, brand awareness, market share, and return on investment.
Why is improving trade promotion management important?
Trade promotion management is the second largest expense in CPG businesses, and on average it represents 12-17% of revenue according to benchmark studies by the Trade Promotion Management Associates (TPMA). Yet most CPG companies acknowledge that their TPM activities are not effective at generating incremental sales volume and return on investment. Survey respondents indicated on average only 61% of trade promotions generate incremental volume, only 62% of promotions are being fully implemented at all locations, and promotions increase out of stock incidents 2.3%.
· The three kinds of promotions are:
o Corporate Promotions are company-wide promotions of a product or a brand in which accounts can participate. They are run for a specific time period and contain the objective of the promotion, suggested tactics, and other information. For example, a beverage company decides to promote a new product by running a corporate promotion with the recommended tactics of a temporary price reduction (TPR) and in-store displays.
o Discretionary Promotions are promotion templates that can serve as the basis of an account promotion. After a discretionary promotion has been created, it is saved as a template. Other key account managers can use templates of existing promotions when establishing promotions at their accounts.
o Account Promotions can be based on a corporate promotion or a discretionary promotion. A plan is a group of account promotions that depicts the aggregate results of account promotions, such as spending and volume.
How do you improve trade promotion management?
· Measure and analyze post program results – companies need to understand why different trade activities are successful or not. By measuring and analyzing results companies can better understand the impact of various factors such as placement (checkout stand vs. end of aisle), spending type (off invoice, bill back, scan-based, etc), distribution channel, frequency of promotions, seasonality, and brand/category, on incremental volume and profitability.
· Focus program spending – companies need tend to spread trade dollars evenly across brands and categories instead of focusing on those with the highest trade returns and greatest growth prospects. Brands with high market share in premium categories generally merit high investment, whereas brands with low market share in value categories tend to be poor opportunities for trade investments.
· Link promotions with stock planning – companies need to ensure products are on the shelf during promotional events. Improving trading partner collaboration on forecasting and replenishment logistics helps maximize sales/margins by reducing out of stock incidences. It also helps improve customer satisfaction, loyalty and traffic during future promotions.
The next frontier in the evolution of trade promotion management will involve the collaborative use by the retailer and manufacturer of the technology available today to manage trade promotion spending in real-time for mutual gain. Implementation of the technology is only scratching the surface; the real focus has to be on the words collaborative, mutual and paradigm shift. The combination of these powerful and attainable ideas could bring us back 180 degrees, to as time long ago when trade promotion resulted in mutual incremental sales volume and profit, for both concerned parties.
In the next blog I will talk more about as how SAP is helping organizations in TPM space.
Trade promotion management is the second largest expense in CPG businesses, and on average it represents 12-17% of revenue according to benchmark studies by the Trade Promotion Management Associates (TPMA). Yet most CPG companies acknowledge that their TPM activities are not effective at generating incremental sales volume and return on investment. Survey respondents indicated on average only 61% of trade promotions generate incremental volume, only 62% of promotions are being fully implemented at all locations, and promotions increase out of stock incidents 2.3%.
· The three kinds of promotions are:
o Corporate Promotions are company-wide promotions of a product or a brand in which accounts can participate. They are run for a specific time period and contain the objective of the promotion, suggested tactics, and other information. For example, a beverage company decides to promote a new product by running a corporate promotion with the recommended tactics of a temporary price reduction (TPR) and in-store displays.
o Discretionary Promotions are promotion templates that can serve as the basis of an account promotion. After a discretionary promotion has been created, it is saved as a template. Other key account managers can use templates of existing promotions when establishing promotions at their accounts.
o Account Promotions can be based on a corporate promotion or a discretionary promotion. A plan is a group of account promotions that depicts the aggregate results of account promotions, such as spending and volume.
How do you improve trade promotion management?
· Measure and analyze post program results – companies need to understand why different trade activities are successful or not. By measuring and analyzing results companies can better understand the impact of various factors such as placement (checkout stand vs. end of aisle), spending type (off invoice, bill back, scan-based, etc), distribution channel, frequency of promotions, seasonality, and brand/category, on incremental volume and profitability.
· Focus program spending – companies need tend to spread trade dollars evenly across brands and categories instead of focusing on those with the highest trade returns and greatest growth prospects. Brands with high market share in premium categories generally merit high investment, whereas brands with low market share in value categories tend to be poor opportunities for trade investments.
· Link promotions with stock planning – companies need to ensure products are on the shelf during promotional events. Improving trading partner collaboration on forecasting and replenishment logistics helps maximize sales/margins by reducing out of stock incidences. It also helps improve customer satisfaction, loyalty and traffic during future promotions.
The next frontier in the evolution of trade promotion management will involve the collaborative use by the retailer and manufacturer of the technology available today to manage trade promotion spending in real-time for mutual gain. Implementation of the technology is only scratching the surface; the real focus has to be on the words collaborative, mutual and paradigm shift. The combination of these powerful and attainable ideas could bring us back 180 degrees, to as time long ago when trade promotion resulted in mutual incremental sales volume and profit, for both concerned parties.
In the next blog I will talk more about as how SAP is helping organizations in TPM space.
