Insights -- August 2004

For over three decades, the trade promotion management practices of CPG companies have differed from those of other consumer durables manufacturers. The differences are so comprehensive that they span the very workflow and financial structure of trade promotion between the two industry sectors. Consumer durables include categories such as apparel, footwear, appliances, high tech, automotive aftermarket and consumer electronics.

Settling the Score
The most significant components of the Trade Promotions Management (TPM) variance are planning and settlement. For CPG, due to the nature of the more robust sell-in and the absence of fixed co-op advertising and other promotional programs, the promotions spring from individual agreements with trade customers made on a deal-by-deal basis, necessitating a strong planning and forecasting workflow. Consumer durables often depend upon fixed co-op, MDF and rebate programs with specific rules, guidelines, terms and conditions that govern what promotional activities, timing and products are executed. For CPG, the cost of the promotion is negotiated. For durables, it is usually based on net cost of advertising and/or promotional activity, with some manufacturers allowing reasonable increases for internal retailer-incurred production and/or overhead. Settlement, for CPG companies is based on the trade customer's deduction from the manufacturer's invoice. For durables, settlement is typically based on the audit of documentation and proof of performance submitted by the trade customer in the form of a claim to the manufacturer or their agent.

Complex Contribution
These differences have contributed significantly to TPM vendor growth and solutions. There is a more complex and lengthy workflow involved in consumer durables TPM, hence the development of system technology and process management has been limited to internal I/T shops and TPM outsource vendors. That is not to say that the commitment-based approach to planning and the problems in deduction management found in CPG are any less worrisome; but without the centerpiece of claimed proof of performance audit and compliance verification of durables, this complex requirement for TPM is not typically an issue for CPG.

However, there are key issues and problems that face both CPG and durables manufacturers equally that are beginning to drive TPM toward a common workflow, process and system technology requirement. The quest for ROI, profitability by account and analysis is the biggest single issue facing all manufacturers in both segments today. Durables suppliers and CPG companies now have the exact same need for analysis-driven modeling, forecasting and promotion planning. Likewise, the venerable claim-based settlement process in durables is being replaced by deductions at an alarming rate. The chart that appears below depicts the growing deduction issues for consumer durables companies, forcing more traditional deduction management system functionality along side of their more traditional audit and payment settlement applications.

Durables companies will neither abandon nor even accept the deduction as a viable method of settlement; but dealing with the category killers of the world leaves them little choice. Making one of these large resellers document all proof of performance today is almost an impossibility; and already substitute practices of "sample ads" and "certification of publication" for multiple advertising media are being grudgingly accepted as "proof of performance." But the trend is evident; and we will no doubt see the future bring a more common TPM practice across all consumer products industries. Analysts, press and major consulting firms will have to adapt to this new consumer durables workflow and process, and begin to embrace more than one form of TPM.