Trade Promotion: Stop Managing And Start Optimizing

by Colby Sheridan

Like most consumers, I like a good deal.  Finding products I like discounted at the store shelf is always great and may even prompt me to buy before I need to just to take advantage of the trade promotions planninglower price.  And, I’m also like most consumers in that I’m much more willing to try a new product for the first time if it’s available on promotion.  I often wonder, though, what’s in it for the companies that make the products I buy?  Do my purchasing behaviors resulting from their promotions actually help strengthen their brands, or do the promotions influence consumers like me to buy only when there’s a promotional discount?

Maximizing your ROI with trade promotion optimization

There’s an old saying that goes something like, “I know that 50% of my promotions are profitable but I don’t know which 50%.”  For most consumer products companies, planning and executing consistently successful – let alone profitable – promotions remains elusive.  Why?  Historically it’s been difficult to monitor actual results from past promotions to determine what worked well.  It’s also been challenging to test the potential impact of variables that might influence promotion performance to determine which combination of price, promotional vehicles, time periods and other factors will generate the best results.   And, perhaps most importantly, the goal should be to get consumers to buy products consistently at the right price and the right time rather than relying on promotions alone to drive revenue and volume.

Instead of managing trade promotions to drive revenue and sales volume, consumer products companies can now achieve so much more by investing in innovative technologies for trade promotion optimization that help them continuously review sales performance for both promoted and non-promoted items, analyze promotion performance and consumer sell through  in real time, and leverage that information to optimize planned promotions to maximize overall revenue, volume and profitability for both themselves and their retailers.

In a recent interview, Simon Ellis, practice director with IDC Manufacturing Insights, talked about the key characteristics of companies that are benefiting from trade promotion optimization. Among these companies, Ellis has found that:

  • The business process of trade promotion optimization is cross-functional – while the responsibility still falls on sales, the accountability is more broadly distributed across supply chain, marketing, and finance.
  • Technology plays a key role in delivering true collaborative trade promotion optimization by helping companies collect and analyze large amounts of data in real time – and enabling business users to instantly access data from any mobile device.
  • Business strategies that focus more on optimizing promotional outcomes, rather than simply reducing promotional budgets, often also result in cost savings ranging from 10 to 20%.

Expanding the group of stakeholders that contributes to the promotion optimization process while simultaneously leveraging broader and more granular demand data in real time accelerates promotion planning cycles, adds additional dimensions to planning models to improve forecast accuracy and increase available optimization options and drives both top and bottom-line benefits – for both consumer products companies and retailers.

Nothing ventured, nothing gained

While companies that focus on managing trade promotions can be successful in driving sales volume, Ellis says that companies that invest in optimization benefit from cost savings, process improvements, predictable demand lift, personalized engagements, and increased collaboration. These benefits can ultimately drive sustainable increases in baseline volume, requiring less frequent promotions to achieve overall revenue and volume targets while simultaneously creating opportunities to re-direct promotion spend to focus on only the most targeted, effective and profitable promotions.   And, because retailers are already giving preference to the suppliers who are able to optimize both promoted and non-promoted  volume, trade promotion optimization is becoming essential to maintaining a competitive edge.

For more information about how your consumer products company can optimize trade promotion, explore the IDC Manufacturing Insights paper for insights and best practices here

  • Mohamad Khatib

    Great article covering broad range of issues in the subject of trade promotion optimization.
    I will add that a prescriptive/predictive analytics model to measure performance results of trade promotions would be extremely valuable to guide trade promotion spends.
    Such model does not have to be complex, but it needs to be granular in measuring impacts.
    The model can be combined with historical analytics and sales data to produce foresights for manufacturers and retailers.
    Predictive analytics is playing a key role in trade promotion optimization, and CIOs recognize the proper deployment of such solutions will yield great ROI to their companies.