Slicing Into Trade Promotions

For consumer goods companies, especially those in the grocery industry, trade promotions can be vital to maintaining a competitive edge. But how does a consumer goods firm determine which promotions to offer? How can a company best manage its trade promotion funds? And how does it determine which promotions are most effective?

For many companies, trade promotion management (TPM) technology is the answer.

Kneading the Dough

Listed on the New York Stock Exchange, Missouri-based American Italian Pasta Company is North America's largest and fastest-growing producer and marketer of dry pasta, with the brands Mueller's, Pennsylvania Dutch and Anthony's.

After the company finalized its acquisition of the Mueller's brand from Bestfoods in 2000 and completed the acquisition of seven additional pasta brands from Borden Foods in 2001, American Italian Pasta Company (AIPC) recognized the need for trade promotion management technology. As Dan Rennell, the company's vice president of trade marketing puts it, "We needed a system to help us market the acquired brands and better manage our trade funds."

With strong senior management support -- "Our CEO Tim Webster was on board with the project from the start," says Rennell -- the company went live in August 2002 with a TPM solution from Vista Technology. Rennell reports, "The system allows us to capture financial liability data for our promotions, to manage the approval process and to do post-event analysis to discover the most effective promotions."

Vista Flexibility

Using Vista, AIPC is able to authorize its field sales force to work with brokers to offer customer-specific promotion deals. The field sales manager approves the promotion, and if the customer accepts the terms of the promotion agreement, then the deal is live and AIPC is liable to provide the agreed-upon trade funds. If the deal is rejected, the funds can be allocated elsewhere. Vista helps manage the overall process and enables AIPC to keep track of its fund allocations for trade promotions.

Vista was chosen for its flexibility according to Rennell. Vista allows AIPC to track promotion offers to customers against rate-per-pound information on a live accrual basis and to gain the visibility needed to answer such questions as: Has the manager approved the promotion? Has the customer accepted the promotion? What was a previous promotion's profitability per pound?

Customized to Fit

Some promotions involve every-day-low-price (EDLP) scenarios, while others may involve prices that fluctuate. Rennell points out, "The Vista trade promotion management system allows us to offer maximum flexibility to our customers, and to customize plans to their needs. Our field sales managers or brokers can quickly adjust plans to meet their needs as well."

The Vista system is integrated with the company's BPCS ERP system and information is passed back and forth between Vista and BPCS. As a result, says Rennell, "We've eliminated a lot of tedious paperwork. Because Vista is integrated with BPCS, our BPCS system can now automatically generate, on an invoice, a deduction for promotional expenses such as advertising. This information goes to the broker who can then easily recognize the information and clear it online. In the past, there was a lot of confusion that surrounded matching and reconciling these deductions, but now much of the confusion and the paperwork have been eliminated."

He continues, "A second major benefit involves cost avoidance. With the Vista trade promotion management system, we now have high visibility into offers, so we can more easily recognize our financial liability and make better business decisions. For example, if a customer is not meeting volume goals, or not accepting offers, or spending too much on promotions, we can recognize the situation immediately and make the adjustments needed to meet our profit objectives."

AIPC's future plans include improving the company's ability to do annual planning and to perform trade promotion forecasting based on data captured with the Vista system. "We're also looking at ways to better automate the post-event analysis process," Rennell reports. "Today, in performing the analysis, we use financial information from Vista, consumption data from our Nielson system, and shipment information from BPCS. We want to fully integrate all this data, and we're investigating ways to do this."

Rolling It Out

With retail-grocery brands that include Tony's, Red Baron and Freschetta pizzas, the Schwan Food Company, headquartered in Marshall, Minnesota, is the largest branded frozen-food company in the United States and the second-largest privately held company in the state.

When Schwan's Global Consumer Brands business unit evaluated its total IT systems not long ago, it determined that trade promotion management would deliver a substantial benefit. Cliff Adel, vice president and financial controller of Schwan's Global Consumer Brands, recalls that the project had senior management support for TPM from the beginning. "Our COO/division president was 100 percent behind us on this, and our parent company's senior management were all for it."

The company is implementing a TPM solution from MEI. "We initially sent RFPs to nine vendors," Adel says. "We brought in five for presentations and we selected MEI because of references supporting their ability to deliver on time and on budget."

The MEI system is what Adel calls "a closed-loop solution." He explains, "With MEI, Schwan can do initial planning, communicate data to our sales force who plan and execute the promotion, authorize payments, resolve deductions, manage reports and evaluate promotion effectiveness."

Maximum Benefits

The company is in the beta phase, testing the closed-loop solution with several large national chains, says Adel. As of April 2003, Schwan will implement a full roll-out. At that time the company will be able to engage in: headquarters planning, account planning, retail-chain-level execution, retail planning and execution at the store level, post-promotion reconciliation (including authorization of payments and deductions), and post-event evaluation to determine which promotions had good and bad ROI.

After the April roll-out, the company will consider expanding TPM to include its overseas operations in Europe. Schwan chose the MEI solutions for its ability to handle multiple languages and currencies. "We're buying cutting-edge functionality," Adel says. "We have a great opportunity and we want to be on the front edge."