Why 20 KPIs is all you Really Need in TPM
Teachers know all about cognitive overload: students presented with too much information are unable to process what they’re hearing and end up learning less rather than more. This is a lesson that consumer packaged goods (CPG) companies could absorb as they monitor the performance of their trade promotions.
Results certainly matter. The proportion of the marketing budget allocated to trade promotion has more than doubled over the past 15 years, according to research from MIT Sloan[1]. CPG businesses are determined to study the returns generated by such investments – to be sure they’re getting value for money, but also to adjust future trade promotions on the basis of what works best.
However, more information does not necessarily deliver greater clarity. The rapid development of trade promotion management (TPM) software platforms gives CPG companies access to a remarkable array of data. But, while it may be tempting to evaluate results on as many key performance indicators (KPIs) as possible, the danger is cognitive overload.
The main issue is the number of moving parts in trade promotions today. There’s the question of time – not only the different periods over which promotions are running, but also the aggregate performance over months, quarters and years. A time also requires KPIs for what was planned and what actually happened and revised forecasts.
There’s also the question of how promotions are structured – is the idea to sell more 12-pack variations of my product line, or to sell more package varieties of the same product? Then there’s the question of point of view – while volume, revenue, margin, and profit all play a role in the TPM process, retailers and manufacturers look at these values differently, each from their own perspective, based on a combination of in-store sales, shipments, and relative price points.
For any given promotion or account plan, KPIs must also enable like-for-like comparison. They must establish a baseline, measure incremental growth, and express that volume in common terms. The number of units or cases sold may be misleading for a business looking at, for example, sales of 2-litre bottles versus a 12-pack of the same product.
Equally, KPIs should relate to targets. How close did one promotion come to achieving what was planned for (i.e. did it exceed or fall short of the targets during that timeframe) and how do those results impact the target achievement of the account as a whole?
CPG businesses trying to manage all these variables quickly find that formalizing one KPI creates many more, as they try to take into account time, dimension, point of view and comparative performance. While TPM software makes it possible to generate accurate data for almost any KPI, CPG businesses studying 50 or 60 KPIs cannot hope to generate actionable insight. They may even make poor decisions based on a lack of focusing on the big picture.
In fact, there are really just five types of KPI that should matter to a CPG business – the sales volumes generated, the spending on a promotion, the impact this spending has on revenue, the margins achieved, and the total return on investment. In our view, it should be possible to capture that data with 20 KPIs or even fewer. The rest is just background noise.
To have the best possible chance of making smart decisions based on absorbable information, the most efficient CPG businesses aim to have no more KPIs than they can fit on a single screen at the same time. Being forced to hit the scroll button means being forced to retain information that is no longer visible, which in turn makes it more difficult to process the data necessary to generate insight. When it comes to KPIs, less really is more.
Results certainly matter. The proportion of the marketing budget allocated to trade promotion has more than doubled over the past 15 years, according to research from MIT Sloan[1]. CPG businesses are determined to study the returns generated by such investments – to be sure they’re getting value for money, but also to adjust future trade promotions on the basis of what works best.
However, more information does not necessarily deliver greater clarity. The rapid development of trade promotion management (TPM) software platforms gives CPG companies access to a remarkable array of data. But, while it may be tempting to evaluate results on as many key performance indicators (KPIs) as possible, the danger is cognitive overload.
The main issue is the number of moving parts in trade promotions today. There’s the question of time – not only the different periods over which promotions are running, but also the aggregate performance over months, quarters and years. A time also requires KPIs for what was planned and what actually happened and revised forecasts.
There’s also the question of how promotions are structured – is the idea to sell more 12-pack variations of my product line, or to sell more package varieties of the same product? Then there’s the question of point of view – while volume, revenue, margin, and profit all play a role in the TPM process, retailers and manufacturers look at these values differently, each from their own perspective, based on a combination of in-store sales, shipments, and relative price points.
For any given promotion or account plan, KPIs must also enable like-for-like comparison. They must establish a baseline, measure incremental growth, and express that volume in common terms. The number of units or cases sold may be misleading for a business looking at, for example, sales of 2-litre bottles versus a 12-pack of the same product.
Equally, KPIs should relate to targets. How close did one promotion come to achieving what was planned for (i.e. did it exceed or fall short of the targets during that timeframe) and how do those results impact the target achievement of the account as a whole?
CPG businesses trying to manage all these variables quickly find that formalizing one KPI creates many more, as they try to take into account time, dimension, point of view and comparative performance. While TPM software makes it possible to generate accurate data for almost any KPI, CPG businesses studying 50 or 60 KPIs cannot hope to generate actionable insight. They may even make poor decisions based on a lack of focusing on the big picture.
In fact, there are really just five types of KPI that should matter to a CPG business – the sales volumes generated, the spending on a promotion, the impact this spending has on revenue, the margins achieved, and the total return on investment. In our view, it should be possible to capture that data with 20 KPIs or even fewer. The rest is just background noise.
To have the best possible chance of making smart decisions based on absorbable information, the most efficient CPG businesses aim to have no more KPIs than they can fit on a single screen at the same time. Being forced to hit the scroll button means being forced to retain information that is no longer visible, which in turn makes it more difficult to process the data necessary to generate insight. When it comes to KPIs, less really is more.
[1] “Rebuilding the Relationship Between Manufacturers and Retailers”, MIT Sloan, December 2012. Access at: http://sloanreview.mit.edu/article/rebuilding-the-relationship-between-manufacturers-and-retailers/
Kerry Farrell, Managing Director, Accenture CAS – Accenture Software for Consumer Goods and Services and Ronald Labhart, Senior Manager, Software Product Management, Accenture CAS