Rules of Attraction

In trade promotions management technology, integrated analytics tools that provide for precise tracking of promotions dollars are currently drawing the most attention from consumer goods (CG) companies, analysts say.

The interest is motivated by new federal accounting rules as well as a self-interested desire to get a better fix on trade promotions ROI. The confluence of those two factors may lead to a big year for trade promotions technology in 2005, says Rob Hand, CEO of Hand Promotion Management.

"I see 2005 as a watershed year in trade promotions management automation," says Hand. "You've got two very powerful forces affecting IT decisions."

A Regulation Change
One major source of buzz around trade promotions management is the Sarbanes-Oxley Act, which implements new rules concerning the accounting of promotional expenditures. As a result of Sarbanes-Oxley, many CG companies still using spreadsheets for promotions tracking are being forced to switch to centralized systems that provide up-to-the-minute information on promotions spending.

Automation for the People
Sarbanes-Oxley requires companies to automate certain processes in order to create an audit trail. However, preparation for compliance with the new rules has been lacking in some cases, even among leading companies, Hand says. Interest in this aspect of trade promotions management has grown significantly among CG companies from what it was just a year ago.

However, for starters, CG companies will look to trade promotion solutions to track promotions numbers -- how much is being spent, and how effective those dollars are.

"You're probably thinking, 'you mean we don't know that?'," says Hand. "Absolutely. The planning systems have been so poor. Deals are being made in the field and not tracked."

As surprising as that may sound, it's a reality for many CG companies. Technology that does the basic job of providing financial visibility and reconciliation for promotional dollars is a current focus of the CG industry, as well as technology that helps measure profitability and ROI, says Christine Overby, senior analyst with Forrester Research.

"It goes without saying that people want promotions to be profitable," says Overby. "That's not always the case today. People don't know what they're spending because they don't have the data."

Lifting Away from Excel
Many CG companies still have no centralized application to collect promotional data, Overby says. Instead, field sales personnel record this information on Excel spreadsheets.

Right now, these companies are investing in tools to create central applications to manage promotions, Overby says. They're also getting the analytics in place that allow CG companies to look at profitability and promotional lift.

Another focus of trade promotion technology is promotions compliance by retailers, Overby says. Often, it's a slow process for promotional dollars to get to consumers. CG companies want to make sure that the promotional money they spend goes into consumer promotions.

Race to Comply
In any case, 2005 looks to be a banner year for trade promotions technology vendors, Hand says. In 2004, investment in this technology was slower than expected, but that was mainly because companies took a wait-and-see approach to Sarbanes-Oxley. Now, many are scrambling to comply.

According to Hand, vendors are expanding their offerings. One trend is a movement by vendors of all sizes to focus on improving their analytics offerings.
However, increased interest by CG companies in automating the entire promotions chain should give an edge to small, third-party service firms, that rarely get coverage in the trade press and have not been very present in the CG world until now, Hand says. Still, these smaller firms have an edge in experience and technology and may be able to offer quicker implementation times for compliance with Sarbanes-Oxley.

One factor that may hold trade promotions technology investment in check is that CG companies will have a lot of other IT worries in 2005, Overby says.
As a result, many may look to do more with less, by upgrading or by implementing smaller best-of-breed tools that can be quickly implemented, and putting off comprehensive solutions until later.

"CPG companies have a lot on their plates," Overby says. "A lot are looking for ways of taking existing systems and upgrading rather than buy a totally new system."

Another upcoming trend in trade promotions management will be technology aimed at retailers, Hand says. Up until now, most of the technology solutions available have been aimed at manufacturers.

TPM Growth Drives Demand
Over the years, the growth in trade promotion spending has been driven by the demands of big-box retailers, Hand says. Smaller retailers got the short shrift while the big-box stories got better deals. Those deals stretched the boundaries of the Robinson-Patman Act, an anti-trust measure, but the Federal Trade Commission has looked away for years, Hand says.

That could change soon, and the feeling among retailers is that, due to increased accounting visibility from Sarbanes-Oxley, there will be a need to work more closely in cooperation with CG suppliers. Retailers will need to catch up technology-wise, and new vendors will emerge as a result.