Obviously, the tactical side remains: But then we have the following four steps encompassing optimization: This is an iterative process, where we’re constantly executing, measuring results, refining practices, automating them, and on and on. , Karl EdmundsVice President, Salient Management Company. Over the next few weeks, we’ll be visiting these elements in detail. 1 1. What differentiates best-in-class CPG players from average ones is the structure underpinning this variation. There are other tactics used in an attempt to deliver more precise trade spend results such as targeted rewards from manufacturers based on allocated shelf space or bonus structures based only on incremental sales resulting from a specific promotion. This site uses Akismet to reduce spam. Trade spending is a common practice amongst consumer-packaged goods (CPG) and retail companies. The right data in the hands of management can begin to measure the specific volume driven by specific trade promotions that yield profitable results. However, implementing a trade promotion successfully requires a significant investment of time and money. For now you can review the actual academic research that proves the incrementality of these sales here.). Even Prego, the brand with the lowest Incremental Factor of the top five brands, still depends on incremental sales for nearly half of their business. The ROI for the effort is substantial. Your email address will not be published. The average consumer packaged goods (CPG) company allocates 14% of its total revenue to trade promotion activities 1, which underlines the importance of these programs. In the U.S. alone, CPG trade spending exceeds $200 billion annually. A report by Nielsen Holdings confirms that 40% of CPG trade promotion spending doesn’t drive the desired results while 59% of trade promotions globally don’t break even. Of course, CPG companies can get access to retail sales data. Won’t it just be made up on other brands or in future weeks?”  The answer is no. According to Kantar Retail’s Trade Promotion Study, despite trade promotion activity and spending quickly migrating to digital, just 13% of manufacturers have separate brick-and-mortar and e-commerce budgets and 24% have no e-commerce budget at all. Consumer packaged goods companies spend billions annually on trade promotion, and pressure from retailers, competitors, and consumers is increasing. Because not only is it possible, in today’s operating environment, it is essential to long term success. We’ll multiply that by the net wholesale price of $3.50 to get $3,675. Trade promotion spending for a typical consumer brand can be 15 percent to 20 percent of sales revenue, depending upon the category. When you look at all aspects of the trade spend issue, the most important missing factor is getting real time information related to all trade spend activities so changes can be made and measurable results can be viewed and tracked. To truly achieve effectiveness in trade spending, management needs to be able to see real market transaction level results by store. But the most important thing is to convert those consumer units to pounds, cases, rolls, whatever. How to Make Trade Spending Drive Enterprise Value and Profitable Growth. Trade Promotion Optimization (TPO), where we work to create an optimization model, and actually automate those new processes as best we can. When sitting down with new clients, TABS guides them through the six essential elements of managing trade promotion. Trade promotion spending is typically the second largest cost line item after COGS for a FMCG company and according to a recent BCG study, trade … Now is the time for CPGs to reevaluate trade promotion funding and spending strategies, and align their systems roadmap to fit new priorities and opportunities. From the survey results, five key findings emerged that every consumer goods marketer should consider as they begin to build their 2019 budget: Digital & Shopper Marketing Spend Grows – Without Clear Results. It has come from analyzing twenty-plus years’ worth of trade promotions, over 200,000 of them in all. It’s lost entirely, and we will address that question in more detail in later blog posts. Stunningly, 59 percent lost money (in the United States, it’s 72 percent). You’ll recall that our total incremental units were 1,050. The lack of consistency and visibility hurts: on average, 20 percent of CPG revenue is spent on trade promotion, yet more than half of that promotion spend results in a loss. This can be done for a single event or any aggregated period, such as a quarter or year. Another key hindrance to effective management of trade spending is aggregating or summarizing various trade spend initiatives to a point that managers can’t clearly identify the effectiveness of a trade event by account type, channel, display activities at store level, or even down to the shelf set. Posted on December 21, 2017 July 24, 2019 by Karl Edmunds. And even companies that don’t have direct-to-consumer marketing will still often have retailer driven in-store merchandising. But this time, rather than returning to the same streets and sidewalks that dominated the landscape before, they’re considering new approaches. Learn how your comment data is processed. Promotions can range from trying to boost awareness of a product, to taking advantage of times when a given product may be in high demand, to unloading inventory before it is no longer usable. With the right information available to all levels of management in seconds, CPG companies can begin to focus more on trade program profitability rather than solely using sales volume for measures of effectiveness. Over the years, we have seen CPG clients experience a number of challenges, including tracking ongoing trade activity and clearly understanding ROI on trade spend and how it compares to projected lift in sales. This is a downstream process. We then take that unit count and create a measurement called Revenue. Each successive step builds on the one before it, and they are all critical for managing and optimizing your trade spending. The data on what is sold to consumers during a promotion must come from outside the company. 40% of CPG trade promotion spending doesn’t drive the desired results — Nielsen Holdings. We’ve got seven weeks without any appreciable spikes: We then add the three weeks of promotional activity: 700 + 400 + 350 + 600 = 2,050 total units. Trade promotions are an essential part of consumer-packaged goods (“CPG”) sales. Because this storm has significantly altered the landscape – especially when it comes to trade promotions. If you start by measuring the wrong things, all analysis falls apart. The final metric that’s vital to assess is your profit, which we will measure using Spend Ratio. The importance of having a well thought out trade promotion architecture cannot be overstated. Required fields are marked *. Yet, trade promotion productivity underperforms, while users have to navigate multiple legacy systems with incomplete or imprecise data. As an example, if the net cost was $3.50, and we sold 600 units, our Revenue would be $2,100 (3.50 x 600). Incremental Factor effectively answers the question, “What percentage of my business goes away if I stop promoting entirely?”. Companies cannot overlook or underestimate the impact their spend has on the bottom line. Others try to simplify the trade spend approach by tracking fewer promotions during the year to avoid complexity and reduce the peaks and valleys in the promotion cycle. This can include customized software design and new general processes. Everyone can admit that trade spending is a critical element of the CPG supply chain, but isn’t it time to quit surrendering to the notion that tracking trade promotion dollars is not possible? hbspt.cta._relativeUrls=true;hbspt.cta.load(544043, '63281776-e31a-43b8-9d94-a5af7324ccc8', {}); TABS Analytics gives you a competitive advantage by simplifying the way you deal with your CPG data and giving you the power to easily extract competitive insights. Trade Promotion Implementation (or TPI, formerly TPM), the standard day-to-day execution of promotion practices. Obviously the actual promotional costs for these active events are not complete. Consumer packaged goods (CPG) and retail companies have invested heavily in technology solutions to boost their trade promotion performance, but many lack the talent or business processes to capitalize on these investments. of CPG trade promotion spending doesn’t drive the desired results – Nielsen Holdings. Presently, the conventional wisdom in the CPG industry separates trade promotion practices into two distinct branches: We propose that splitting TPO actions into four different tiers is a more effective and comprehensible approach. Most CPG firms struggle to track, measure, and confirm whether the spending produced positive, incremental results. Yet another study by Booz Allen Hamilton reveals that most manufacturers lose nearly one-third of the money they put into trade promotions. We have also seen CPG companies fail to hold adequate reserves to deal with deductions accruing from the prior year. Z. Each new post will cover just one of these elements. As you can see, the entire category is highly dependent on their promotional activities. Notify me of follow-up comments by email. Consider: manufacturers know what they spend on trade promotion. For one, CPG companies will strive to become more efficient in trade spend. CPG Trade Spending & Promotions: Ignorance is NOT Acceptable. Despite growing trade promotion budgets, many companies simply anniversary the prior year’s trade spending practices without identifying ways to optimize these initiatives. It can also be calculated as Incremental Units divided by Total Units. Trade Promotion refers to marketing activities that are executed in retail between these two partners. If you can help me get to that objective by shaving some of your margin I can go back and get more money from my management.”. But is it the season to celebrate? In this example, let’s say our base sales constitute 100 units per week. COUPON (6 days ago) Most CPG firms struggle to track, measure, and confirm whether the spending produced positive, incremental results. Let’s return to our example (here we are using Units): Those spikes of 400, 350, 600 represent the number of units we sold over and above our day-to-day base sales. His focus is aligning technical solutions with sales, marketing, and organizational needs to drive long-term profitable growth. Here’s an example of ten weeks’ worth of weekly POS data: In the three weeks where there’s obvious promotional activity, we’ll concentrate on Week 9, the one that shows the largest spike. Trade Promotion Accruals? This is probably the single most strategically important measure in trade promotion analytics…and almost nobody uses it! Its solutions include RapidDraft that … But … Many also experience difficulty keeping up with large … Dr. Kurt Jetta, CEO and founder of the TABS Analytics, has refined this process over a period of many years, in his comprehensive study of trade promotion of packaged goods companies in nearly every category and mass market retailer. CPG Trade Spending & Promotions: Ignorance is NOT Acceptable. This is where things start to get sticky. Trade Promotion is a marketing technique aimed at increasing demand for products in retail stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, and more. You may have high confidence based on past results that sales will increase with promotional spending. Trade Promotions can offer several benefits to businesses. Each successive step builds on the one before it, and they are all critical for managing and optimizing your trade spending. We use cookies to ensure that we give you the best experience on our site. Streamline the settlements process and improve speed to cash. is a nationally recognized business leader and author with more than 20 years of experience working with suppliers, distributors, and retailers in the CPG industry. This is going to serve as the foundation of how we evaluate our incremental (promotional) sales vs. our base sales. The full findings include more than 750 unique responses and represent more than $5 billion in trade promotion and shopper marketing spending. In other words, their trade promotions architecture. In addition to simplicity, this measure also has the benefit of being able to be shared with retailers because no sensitive internal costing information is being revealed. Save for later; Introduction. The key to keeping measurement simple and accurate is to measure exclusively in Consumer Units. Profit focused trade spending programs can be duplicated while waste and unproductive programs can be quickly identified and eliminated. (Note:  this statement leads to many readers likely saying, “How do we know it goes away entirely? CPG is even more dependent upon trade spending than ever before. Trade Promotion Best Practices (TPB), where we take that knowledge and refine it into a set of theoretical best practices. Of course, you won’t be able to compute most of these accurately unless you can precisely calculate your base sales. Focusing on topics from pricing analysis and slotting tactics to spending priorities and retailer performance, this research represents responses from 235 CPG companies across 110 store categories and 55 retailers. Horseheads, NY 14845 US, P: +1 607-739-4511 You get ZERO credit for loading inventory at your customers. If you want to be consumer-centric, then you need to measure the same way that the consumer buys. The holidays represent a major source of revenue for almost every CPG manufacturer and the season is quickly approaching. Spend more than a few minutes in a conversation with someone in the CPG (consumer packaged goods) industry and you will almost inevitably find yourself discussing the spiraling cost of trade promotion. This type of decision framework also enables more fact-based communication and planning among all parties to the supply chain including manufacturer, distributor, broker and retailer. There is no reason to dismiss volume as a core element of effective trade spend management. Put another way, if the internal margin is greater than 42% (1/2.4), then the event is profitable. hbspt.cta._relativeUrls=true;hbspt.cta.load(544043, '32689147-4b49-4725-b74f-cd747397e842', {}); hbspt.cta._relativeUrls=true;hbspt.cta.load(544043, '2e9efe59-608f-456c-b6ac-e0166e5624c7', {}); To summarize, we’ve outlined the more most useful metrics to collect in the trade promotion process, namely: The 4 Most Useful Metrics In CPG Trade Promotion | TABS Analytics, ©2021 - TABS Analytics All Rights Reserved |, Trade Promotion Management (or TPM), the day-to-day implementation of trade promotion practices, and, Trade Promotion Optimization (or TPO), which is the process of refining those practices. 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