Building Advanced Analytics into TPx

With the pandemic somewhat in the rearview mirror, consumer goods companies are forging ahead with digital transformations, especially to glean insights and analyze trade promotion data for better decision-making. But even with digitization, trade promotions remain somewhat of a black hole, and CPG companies cannot always gauge their effectiveness due to a lack of transparency on their impact on sales and profitability. They need processes and analytical capabilities to actively manage their trade promotion programs. Learn how TPx has evolved and how consumer goods organizations can build advanced analytics — and the necessary teams — to maximize their promotions’ effectiveness. TPx has evolved from relying upon CRM and SFA systems and “guesswork’’ in the late 1990s to being “more quantitative and integrated to ERP,’’ George Lawrie, VP and principal analyst at Forrester, noted in an interview. But there is a learning curve. The main challenge with TPx is figuring out how to plan “the best portfolio of tactics to meet the CPG and retailer objectives, market share, revenue, margin,’’ Lawrie says, “then to calculate the uplift and place promo inventory ahead of demand.” From there, systems should accrue for, validate and settle the retailers’ claims, he says. This is a critical time to develop meaningful trade promotions. With more incentives, promotions, and discounts being offered through multiple channels, brand loyalty is declining and consumers hold greater purchasing power than ever before. Just as digitalization offers manufacturers more data transparency, it is also giving consumers greater visibility into pricing and the ability to compare prices more easily. CPG leaders need advanced promotions analytics to get more granular data that can be leveraged to develop insight into consumer behaviors and segment shoppers. TPx data helps companies improve forecasting so they can plan, execute and analyze promotional activities more successfully. This will result in companies not only getting visibility into their trade promotion programs but better returns on their promotional investment. This, in turn, will enable them to tailor their spending to drive sales and grow customer loyalty. Further, deploying advanced analytics means CPG companies can become more flexible, cooperative, and innovative. This allows them to grow revenue and defend shares. An example of an advanced analytics data set might be segmenting shoppers with similar behaviors and preferences, such as those who were regular shoppers in their categories compared with those who weren’t. Here are some steps to make the most of TPx and the power of advanced analytics. #1 Gauge the effectiveness of promotional spend programs Without real-time visibility into the performance of promotional spend programs, companies cannot determine how effective they are. This was the case for food company Mrs. T’s Pierogies, which was also losing revenue due to inaccurately recorded billback accruals and errors in claims processing. The company didn’t have the ability to eliminate the overpayment of claims because it was using manual processes to manage a complex web of trade spend program data with time-consuming, error-prone manual processes. Couple that with a rigid legacy system, which didn’t have the capability to support marketing initiatives. Mrs. T’s Pierogies turned to TPx, deploying a trade spend management system that would provide accurate, timely, and measurable data, eliminate revenue leakage, and enable the company to get the most out of its promotional programs. Some benchmarks to consider analyzing in promotions programs and campaigns could include profitability, accurate sales forecasting, estimates on promotional spend, profitability, and product pricing. #2 Form advanced analytics teams focused on more than just data proficiencies Momentum for advanced analytics in TPx is growing. A 2022 study on trade promotion by Hand Promotion Management finds that with an increased focus on the consumer, CPG companies this year adopted new analytics platforms specifically to measure trade promotion. Since January 2022, 34% of respondents added or updated their analytics tools, while another 36% added new analytics capabilities since January 2021, according to the study. Respondents cited numerous reasons for the investments, including a need to better track promotion ROI across multiple metrics, doing away with spreadsheets for funding with better analytics tools, and a desire for strong analytics functionality. Getting to that ROI, however, requires skilled data analytics professionals who can analyze datasets efficiently and effectively. This will yield valuable insights to create better target promotions. Companies must build advanced analytics teams that can use the data to drive informed decision-making. When building a data analytics “dream team,” roles that will be crucial include data engineers, data scientists, data translators, knowledge engineers and ontologists, advises MIT Sloan. Beyond this, Lawrie says that other skills should include “humility and [a] willingness to trust the data typically embedded in AI and ML. You don’t necessarily need modeling skills,” he adds, “but you need to respond to messages about model drift.” Leadership should also ensure there are change management strategies in anticipation of any resistance to using TPx systems. It is critical to educate employees about the benefits of using data and analytics for prescriptive insights. In addition to conveying the overall value of AI for driving results, it’s important that “teams trust the AI by understanding how the analytics engine works and why inputting accurate data is at the crux of its functionality,’’ notes Kantar. “By incorporating this into your change management program, you will clear the air of any doubts and pave clear next steps forward for your teams.” Companies should be prepared to invest in finding talent, which may come from other industries than CPG, such as engineering, for example. #3 Develop a strategy and framework that prioritizes transparency Having a comprehensive overview of existing promotions and data transparency is absolutely vital, according to a Deloitte report on trade promotion optimization. “CPGs must develop an analysis framework with relevant KPIs that enables them to generate standardized evaluations for each individual promotion.” Indeed, a recent CGT survey of consumer goods executives found that more than a quarter of CGT companies (27%) have started a major upgrade in their TPM/TPO technologies, while nearly a quarter (24%) intend to start one within the next year or two. When planning a promotion strategy, the first step is to create one repository of all promotions. A best practice is “to link the data on promotions projections versus actuals, integrate plan data with customer and category teams and align the data with financial and operations planning,’’ Deloitte states. The availability and visibility of data provide the foundation for analytics. To improve transparency and build the capabilities needed to measure the success of trade promotions, companies must also incorporate historical and third-party data. AB InBev, for example, leverages a range of internal and external data sources within its automated models to compute price elasticity, including market research data and information from Euromonitor, income data from World Bank, COVID info from the University of Oxford Government Response Tracker, and sports-related data from national sports websites. All data must be consolidated and cleansed so it can be more closely aligned with processes and better optimized for individual retailers. PepsiCo leverages predictive analytics within its Pepviz data science practice, and Chad Matthews, chief commercial officer for PepsiCo Beverages North America, noted that “new data” is just one piece of the puzzle. “The other part — equally if not more important — is how we integrate all of the disparate data we have to draw out really meaningful insights,” he said to CGT. #4 Evaluate promotion performance with concrete metrics Powerful analytics tools are indispensable for extracting data insights. Once analytics are in place, the trade promotion strategy should be adjusted often to inform the field in real-time to support decision-making at the local level, Deloitte advises. What’s more, overall success also requires linking strategy to execution: “Monitoring analysis and forecasting of promotions should inform the strategy and therefore inform the budget allocation for each customer.” Kraft Heinz, for example, has tracked numerous successful impacts on promotions from their data analytics investments. Specifically, the company has been using AI to maximize its promotional budgets. “What is better in New York in the convenience store is not better in California in a Hispanic supermarket, right?” said Miguel Patricio, Kraft Heinz CEO. “And so, by analyzing all the data that we have, we can maximize this budget in a much better way and a faster way. … We could get there [but] it would take much more money, much more time.” Manufacturers that prioritize data and AI analytics as the cornerstone of their TPx programs “experience unprecedented control and precision over trade promotion management levers and performance,” notes Kantar. Companies should also automate processes, which will allow them to maintain control over vast amounts of data and reduce the high cost of inefficient, labor-intensive administration. It will also reduce duplication and errors that come with manual processes and, of course, save time. Each promotion’s performance should be evaluated using a number of metrics, such as how well it was executed and communicated, sales volume, customer response, cost-effectiveness, and ROI. The holy grail is to help CPGs identify the promotions that pack a punch, and for which specific SKUs. By understanding which ones work, analytics teams can provide actionable recommendations on the best promotions to run. There is huge potential in using advanced analytics in trade promotions to help CPGs translate data-driven TPx insights into action and help them thrive in today’s ultra-competitive market.

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