Trade Promotion Effectiveness: June 2006

While improving trade promotion effectiveness has long been a key goal for consumer goods (CG) companies, a number of factors are pushing this business basic onto the front burner. With a fragmented consumer market that's difficult to reach via brand advertising, along with increasing pressure from big box retailers and private label products, CG companies are seeing the importance of using trade promotion dollars to improve not only volume but product profitability and overall ROI. In addition, new and more integrated technology solutions are now available that allow CG companies to monitor and modify their trade promotions for maximum effectiveness.

Exchanging TPM Insight

"Trade Promotion Effectiveness" was the topic of Consumer Goods Technology's first CGT Connects event on April 25, 2006, in New York City. CG executives from a range of companies heard presentations from Nick Handrinos, principal, Deloitte Consulting, and Tim McCreery, director of International Sales, Category Management & Sales Planning, Beech-Nut Nutrition Company, who shared his real-world "success story". In addition, attendees posed questions and shared their own experiences and best practices in a roundtable discussion. Among the many topics discussed were:

Moving trade dollars from fixed activities to live accrual, performance-based activities: Tying trade promotion spending to actual volume movement with a live accrual measurement system is fairly common in other industries, but is only beginning to be used on a widespread basis in the CG arena. Advantages include the ability to more easily aggregate trade promotion spending to the corporate level, as well as gain a better understanding of which promotional activities (advertising, price reductions, displays) are having the greatest impact at the consumer level.

Getting buy-in throughout the organization: Efforts to reshape trade promotion activities, and the dollars that go with them, will encounter resistance from both within and outside the enterprise. Brokers and field sales forces will dislike having their discretionary trade funds aggregated to the corporate level, especially if they feel the dollars are not being reinvested in other trade promotions. Attendees agreed that any trade promotion improvement program requires buy-in and consistent support from the company's top management both to deal with internal issues and to support possible retailer backlash.

Data and communication requirements: Clean, reliable data is a "must-have" for a trade promotion improvement process. It's not that data isn't available, but that too often it must be cleaned and mapped to be useful. Presenters praised the use of pre- and post-event scorecards that track a number of key performance indicators (KPIs) to assess the success of any given trade promotion. Simplified scorecards using KPIs that are relevant to retailers are a solid method for explaining trade promotion changes to retail accounts.

Spending smart: The goal of a trade promotion event should not be simply to increase the volume of goods sold, but to improve profitability. Some roundtable participants noted that there are situations when profitability can increase even when volume decreases. CG firms need to structure compensation and incentives for their field sales forces to encourage them to reach not only volume but profitability goals -- and provide them with clear measures of each.

Reaching out to retailers: A key goal for trade promotions is gaining the ability to jointly plan events with retailers. Accessing retail point-of-sale data can help CG companies gain a better understanding of which promotions consumers are actually responding to.

Changing the Status Quo

Participants agreed that improving trade promotions, which represent CG companies' second-largest product-related expense, is no small task. However, they noted that given their importance, it's better to take action rather than stay with the status quo.

While as recently as five years ago, a CG company might have been advised to build its own IT solution to handle the many aspects of effective trade promotion, today there are a number of "off-the-shelf" solutions that can be adapted to the specific business needs of each company.