Anthony Bigornia of CAS on Optimizing Trade

It's an industry fact that hasn't changed much despite increased awareness and improved solutions: trade promotion dollars equal, on average, 15 percent to 20 percent of revenue for consumer goods (CG) companies. As commodity prices rise and consumer spending slows, this huge opportunity for savings becomes more imperative. Here, Anthony Bigornia, vice president of Product Strategy, CAS, talks about how trade can be optimized to better serve both manufacturers and retailers, and gives us a glimpse into how the digital world may affect promotions.


What should CG companies focus on to effectively compete in tight economic times?

Bigornia: Be laser focused on profitability, especially in regard to promotional spending. Now more than ever, CG companies need to strive to make every promotional dollar positively impact the bottom line. In an environment where CG companies across the board are lowering their revenue growth targets, it's simply not good enough to allocate 15 percent to 20 percent of revenue to trade promotions without understanding the potential impact of planned promotions on profitability, in addition to the traditional KPIs of basic revenue or volume lift. 

Most CG companies have already deployed some form of transactional trade promotion management (TPM) system to help automate planning, execution, tracking and settlement of trade spend. So, the foundation is in place for leading companies to move beyond transactional efficiency and focus on maximizing the return of every dollar spent on trade promotions. However, CG companies that effectively use predictive analytics to leverage historical point-of-sale (POS), syndicated and causal data to understand the true impact of past and, more importantly, predict the potential impact of future promotions at the product/customer planning node/tactic level will be best positioned to execute promotions that drive not only incremental sales or volume, but profits as well.

Win at the store: The best laid strategies and plans are necessary but not sufficient to realize competitive advantage. In fact, flawless execution at retail is where competitive advantage (and margins) are really won and lost. This is especially true in tight economic times when consumer spending is on the decline and the number of shopping trips is falling. Not only are consumers spending less, but manufacturers have fewer opportunities to engage and convert shoppers as they stroll the aisles. CG companies need to enable field teams to quickly and accurately capture merchandising conditions and other store-level data and then transmit that data as quickly as possible back to headquarters so it can be analyzed and leveraged to prioritize tomorrow's call schedule and task list. CG companies must reduce the latency between data capture, generation of insights and execution based on these data-driven insights. Only then can leading CG companies evolve from deploying field personnel based on the physical location of individual stores to deploying field personnel based on the relative profitability impact of visiting each store. CG companies that most efficiently and effectively capture, analyze and intelligently act on in-store data captured by field teams will be more likely to have products that are merchandised, replenished and promoted in a way that engages and converts shoppers. 


What are the top three "must get rights" for integrated data?

Bigornia: The challenge of integrating disparate, external demand data is the volume and complexity of the underlying data itself. These disparate external demand-data signals have varying formats, data models, measures and frequencies that differ by type (store POS versus loyalty card versus syndicated data) and source from one retailer to another and from one syndicated data provider to another. Therefore, CG companies must have a solution that can efficiently and effectively cleanse, harmonize and enrich the disparate data so that the integrated data set is usable and is leveraged across the organization. Cleansing the data entails the identification and correction of inbound data errors such as duplicate data and unauthorized product/location. Harmonization includes using business rule-driven tools to ensure that external data with multiple hierarchies and aggregation levels can be allocated to a common, consistent set. Enriching the data includes using advanced analytics to enhance quality by adding or combining data from one source to another to fill significant gaps or holes. Of course, these are the "get rights" associated with simply capturing and managing the integration of data. The real "must get rights" revolve around the best tools and processes required to generate actionable insights from the integrated data. It's these actionable insights that help drive innovation and build and empower brands.


What is the cost of not optimizing trade promotions ahead of execution at the POS?

Bigornia: Trade promotion optimization (TPO) should be defined as: The use of predictive analytics and advanced modeling technologies to identify patterns in historical data in order to predict the results of future promotions, so that a CG company can execute the promotion or combination of promotions that are most likely to achieve a set of predefined objectives. Therefore, not using optimization techniques decreases the probability of maximizing ROI. And, since trade spending accounts for such a large portion of total revenue for most CG companies, this is tantamount to leaving a huge amount of money "on the table." 

Moreover, optimization capabilities also provide CG companies significant soft benefits. For example, leading trade promotion optimization applications provide the predicted impact of a promotion or set of promotions on retailer metrics as well as CG KPIs. Therefore, armed with fact-based analysis related to both its own performance metrics, as well as that of its retail partner, a CG company can now engage in much more meaningful, collaborative dialog with its retail partners. At the end of the day, competitive advantage will accrue to those CG companies that can profitably provide differentiated products and services to their key retail customers, shoppers and consumers. Trade promotion optimization capabilities can help CG companies do just that - become more strategic partners to key retail customers while also offering more compelling promotions to shoppers.


Will digital trade promotions become a reality for CG companies and do they offer real opportunity for consumer relevancy?

Bigornia: Leading retailers and CG companies are continually searching for new, innovative ways to interact with shoppers, and the digital realm is the next new frontier. Consider the potential for digital marketing techniques, like location-based mobile marketing, in enabling companies to more specifically target segmented consumers and improve measurability of effectiveness. It's not a matter of "if" but "when" and "how."  A number of CG companies are working with Kroger and others to offer loyalty card holders special promotions via mobile phones. Another example is Wal-Mart's announced rollout of its in-store digital network. By 2010, Wal-Mart anticipates the chain-wide deployment of 27,000 TV screens on its new internal digital network that will allow for content to be distributed by screen/day/time-of-day. The opportunity to use such a network to drive targeted in-store promotions is significant and these examples are just the tip of the iceberg of possibilities.


What is the most important process to get right in the demand-side mix and why?

Bigornia: Each of the demand-side processes are critical, but must be viewed holistically to achieve real benefit. Demand-side processes are like gears in a high performance engine. Individual processes, like TPM, TPO, field sales management, retail execution, category management and strategic account management, can be viewed as individual gears that comprise the demand-side engine. If any gear is out of sync, the performance of the overall engine is sub-optimized. For example, the actual profitability of a promotion is driven not only by the quality of the analytics used in the planning process, but also by how well the promotion is executed at the store level. Thus, the level of integration and synchronization among a CG company's entire set of demand-side processes is most important.