Business Intelligence can be an enabler for performance improvement across multiple areas of a Consumer Packaged Goods (CPG) business. In this blog I will focus on Trade Promotion Management.
What is Trade Promotion Management (TPM)?
A simple definition is a set of processes that aim to manage promotional spending so that it maximizes sales up-lift, brand awareness, market share, and return on investment.
Why is improving trade promotion management important?
Trade promotion management is the second largest expense in CPG businesses, and on average it represents 17% of revenue according to benchmark studies by the Trade Promotion Management Associates (TPMA). Yet most CPG companies acknowledge that their TPM activities are not effective at generating incremental sales volume and return on investment. Survey respondents indicated on average only 61% of trade promotions generate incremental volume, only 62% of promotions are being fully implemented at all locations, and promotions increase out of stock incidents 2.3%.
How do you improve trade promotion management?
Measure and analyze post program results – companies need to understand why different trade activities are successful or not. By measuring and analyzing results companies can better understand the impact of various factors such as placement (checkout stand vs. end of aisle), spending type (off invoice, bill back, scan-based, etc), distribution channel, frequency of promotions, seasonality, and brand/category, on incremental volume and profitability.
Focus program spending – companies need tend to spread trade dollars evenly across brands and categories instead of focusing on those with the highest trade returns and greatest growth prospects. Brands with high market share in premium categories generally merit high investment, whereas brands with low market share in value categories tend to be poor opportunities for trade investments.
Link promotions with stock planning – companies need to ensure products are on the shelf during promotional events. Improving trading partner collaboration on forecasting and replenishment logistics helps maximize sales/margins by reducing out of stock incidences. It also helps improve customer satisfaction, loyalty and traffic during future promotions.
What can BI enable?
The data integration, reporting, analysis and visualization capabilities of BI can provide better visibility and insight into the efficiency and effectiveness of TPM. Some examples include;
A food and beverage company used BI to analyze promotions and found that the poor incremental sales volume and return on investment were a result of their complex mix of many small trade programs. Despite outspending competitors on promotions retailers were under the impression the company was spending far less than it actually was. Consequently retailers were giving competitors more favorable display and ad placements. By significantly reducing the number of trade programs and redirected spending toward brands with the highest potential the company increased in-store activity 10% and ROI 15%.
A household products company used BI to better understand the relationships between promotions and purchasing patterns. By analyzing the historical effect of promotions based on different attributes such as promotion type, channel, geography, etc they were able to more accurately forecast retail demand. Better integration between promotion and demand plans enabled them to reduce out of stock when a promotion is running from 5.2% to 2%, while reducing overall days of stock 24% (from 29 to 22 days).
At the following link you can see a demonstration bit.ly/LLLB2L