Demystifying SAP Trade Promotion Optimization and setting the stage for a modern crawl-walk-run approach
The Consumer Products Industry is facing enormous competitive pressures as they compete for consumer wallet and apply promotional trade spend (second highest cost next to cost of goods sold for a CP company) for market share. As a result of this pressure, consumer products companies are finding the need to change the way in which they reconcile and optimize the effectiveness of their trade spend with their sales channels and customers.
The increasing importance of trade promotion optimization making use of big data is one of the focus areas at the CGT Sales & Marketing Summit (#CGT2013) in New York. The term Trade Promotion Optimization (TPO) is used in various interpretations and contexts in the industry, which leads very often to misunderstanding and misinterpretations.
Food for thought: How do you define trade promotion optimization? Is trade promotion optimization the same as optimizing trade promotions?
SAP defines trade promotion optimization not as a separate business process or new process addition, but an integrated part of the end-to-end account and trade promotion optimization process. It is about enabling all users from field reps and promotion planners to headquarters and consumer insights teams working together while optimizing the entire annual sales plan and enable ongoing modifications to not only the individual promotion, but the entire campaign of trade promotions so that the typical and always unpredictable market conditions can work to their advantage. In this way, trade promotion optimization is part of the entire end-to-end process, from optimizing price and promotion strategies to annual plans to individual events at even a region or store-level.
Figure – Account and Trade Promotion Optimization Process
The blue boxes in the graphic above indicate the integration of advanced analytics and predictive planning within the end-to-end process. Consequently, the SAP Trade Promotion Optimization delivers end-to-end business process support to optimize promotion revenue, volume, and profitability for you and your retailers. It gives you comprehensive tools to measure, predict, and improve KPIs for both your promotional and non-promotional activity, improving your overall business results.
That’s actually different and hence sometimes confusing to what people think about TPO. Frequently TPO is seen as the icing on the cake and not being part of the cake itself – we think different about it.
Want more details about SAP Trade Promotion Optimization? Watch the new SAP TPO overview video – how to measure, predict, and improve your promo and non-promo activities for you and your retailer partners http://tinyurl.com/d4fh96v
With this understanding it is time playing the myth buster role. My favorite myth in this context: Supporting the Account and Trade Promotion Optimization process requires a certain implementation sequence of SAP solutions. Very often the phrase of crawl, walk, and run is used here. The myth says you need first Trade Promotion Planning and Execution, then Trade Promotion Effectiveness Reporting /Analysis and then – remember the icing – Trade Promotion Optimization.
Figure – SAP solutions supporting the Account and Trade Promotion Optimization Process
There is actually nothing wrong about starting small and expand from a robust base, however setting the solutions in an order like this is not state of the art anymore and is not reflecting the industries needs and the immanent pressures as well.
A modern crawl-walk-run approach picks critical opportunities in the end-to-end process and builds from there based on a realistic assessment of internal maturity and readiness. An entry point could be a market unit, a business unit, a category or important and strategic customers. Considering that incremental improvements are additive over time, modern businesses preserve flexibility to extend the solution and add coverage as they go. All based on a holistic view that balance long-term goals with near-term realities, e.g. business pain points, data availability, infrastructure and tools, etc.
As an example of a modern crawl-walk-run approach consider trade promotion planning supported by predictive trade planning of key retailers from the start and expand to collaboration planning over time being a trusted adviser. Why following a promotion planning process like in consumer industry’s Stone Age? Some people are still scared using predictive capabilities, but imagine having just automated visibility of predicted total volume or predicted uplift volume helping planners to come up with reasonable numbers and saving time. Planners plan and update their promotional plans and SAP TPO automatically updates benchmark key figures as the planner changes products, promotional tactics, timing, etc.
Users would have a reference point when manually entering the volume or revenue numbers and we have seen over time the acceptance would be there and the plan accuracy would improve.
Imagine the same advanced capabilities support the post-event capabilities decomposing the actual volumes, whether on promotion or not, into the demand drivers and understanding price sensitivity by customer and SKU.
All of that is not sophisticated promotion optimization – it is state of the art trade promotion planning, however all of that is supported by the SAP Trade Promotion Optimization and Trade Promotion Planning products.
Another modern way would be to first tackle the promotion effectiveness with making the right promotion decisions using SAP Trade Promotion Optimization first and stick with your execution system for now or start in parallel the implementation of SAP Trade Promotion Planning and Execution. Why keeping doing the sub-optimal activities (even in spreadsheets) instead of gaining a better understanding what did work in the past and what will work in the future?
SAP enables living a modern crawl-walk-run approach with the powerful rapid deployment solutions offerings.
As an example, the SAP Trade Promotion Planning and Optimization rapid-deployment solution enables faster implementation with pre-configured templates and predefined analytics. Based on SAP and industry best practices for managing enterprise-wide promotional planning processes, the solution lets you modify the implementation, add other components, and integrate other processes as needed.
There is other myths like trade promotion optimization focuses only on trade promotions, TPO solutions can only be used by scientists, require SAP TPM as a prerequisite, or do not integrate with SAP TPM, etc. that ask for special attention of a myth buster.
As some of these might be true for other TPO solutions, they are busted by SAP Trade Promotion Optimization.
SAP will be featuring a number of solutions at the upcoming CGT Sales & Marketing Summit that address the opportunities associated with Big Data for Sales & Marketing. Please follow @SAP_CP to stay up on the CGT Sales & Marketing social media conversation. We’ll be Tweeting using the hashtag combination #SAP and #CGT2013.
Please visit with us to see how our new solutions for Demand Signal Management, Retail Execution, Trade Promotion Management and Optimization, and Social Media Analytics can address your big data opportunities. For more CGT Sales & Marketing Summit information, check out the full conference agenda online.
Do you have a question about trade promotion optimization, process, product or deployment options at The CGT Sales and Marketing Summit? I’d like to help you answer them. Please email me at Timo.Wagenblatt@sap.com.