Drivers of Value

Faced with increasing commodity price volatility, channel complexity and the persistence of sizable trade budgets (up to 20 percent of gross sales), many consumer packaged goods (CPG) companies are looking to fundamentally change or upgrade their trade promotion management (TPM) capabilities. Most are focusing these efforts very narrowly against improvements in two areas:

1. Promotion Planning: Creation of detailed promotional events through user-friendly templates with easy to manipulate calendar views; and
2. Financial Control: Ex-ante approval of individual promotions before commitment by the sales teams to the customer and ex-poste authorization of customer invoices/deductions.

However, equivalent if not greater value can be derived from linking these efforts to the broader sales planning process, from initial sales volume planning through to post-event analytics.

Industry best practices include:

• Sales Volume Planning: Many of the leading CPG firms develop templates and algorithms to conduct total sales volume planning (consumption to shipments), with promotion planning volume layered onto the base plan in one unified system.
• Trade Fund Deployment: Several advanced tools facilitate the initial budgeting of trade spend and its allocation down to individual customer teams, all through the same TPM systems used for planning.
• Streamlined Work Effort: The shift from manual entry into multiple offline and often unconnected systems, many Excel or Access-based, to working in one unified system of record dramatically reduces administrative workloads, primarily for sales.
• Demand Planning (S&OP): Procurement accuracy and service levels both benefit as supply chain teams receive greater transparency into critical assumptions underlining promotions; this is particularly critical since most CPG companies now sell 30 percent to 60 percent of their volume on-promotion.
• Retail Execution/Sales Force Automation: Improved integration between HQ planning and store-level execution, such as coordination and deployment of merchandise teams for shelf resets and delivery of point-of-sale (POS) material targeted by store cluster.
• Post-Event Analytics: Robust ROI on promotional spend requires two additional steps beyond core TPM efforts — warehousing of POS data in a homogeneous and extractable format and alignment of this data against planner information with robust visualization tools.

Not every TPM program should try to tackle all these “drivers of value” at once. Which ones and in what sequence are critical scope considerations, the answers to which will vary by business.

Trade promotion optimization (TPO), or scenario development of different promotional types, is, of course, another large and related driver of value. TPO is, however, best viewed as a separate undertaking, one requiring other forms of technical and organizational valuation (e.g., inherent predictability of a business’ categories, familiarity of front-line sales teams with scenario planning) before proceeding. Experience suggests, moreover, that TPO only be considered deployed once the core TPM foundation has been laid — this would represent a separate effort.

A more holistic, integrated approach to TPM can help to drive greater consistency in sales planning, reduce time deployed against highly manual efforts and facilitate greater collaboration across sales, marketing and supply chain teams.

Our experience suggests that these efforts (inclusive of post-event analytics, excluding TPO) can also yield sizable benefits of 3 percent to 5 percent absolute percentage points in savings on trade spend. Most companies also see short-term reductions in effort (FTEs) of 10 percent to 20 percent across those functions directly impacted, though these efficiencies are often redirected to more value-added activities.