GMA Question: Trade Promotion Management, What works Best?

Recently, Forrester Research identified two distinct approaches to TPM, and observed that markets with distributed buying points may be best reached through field-sales-force applications, hence in these markets field-sales-force applications may be most appropriate; and that in more consolidated markets CPG companies can work “one on one” with customers to develop promotional programs, hence an analytics-based system may be most appropriate. Do you agree? Why or why not?

Synectics Group Response:

In our 20 years of focus on trade promotion management in the CPG sector, we believe there is no silver bullet solution to the complex issue of measuring the effectiveness/efficiency of the significant trade promotion expenditure. Business intelligent /statistically projectable software solutions look great in the demo, they sound good in theory, but in production they are only as good as the accuracy of the historical information that is fed into these tools. One of the many challenges is that actual promotion lift within a specific retailer for same type of promotion and the same manufacturer’s merchandising conditions can vary dramatically for a variety of reasons. Often these outside influences are completely out of the control of manufacturer.

Consider the impact of weather and retailer competition on promotion results. Even when the impact of weather and competition can be mathematically quantified from historical data, it is very difficult to accurately project future conditions weeks in advance. Complex statistical models are typically more accurate at much higher summary levels where they provide less value to the manufacturer, and less reliable at the customer and product detail level where better accuracy is really needed.

The foundation of managing the effectiveness/efficiency of the trade-spend revolves around the implementation of a true closed-loop TPM software solution. A good TPM solution must have the ability to manage the key aspects of trade promotion; budgeting, planning, payments, deduction resolution, and pre/post promotion analysis. A closed-loop system should provide real time access to all the information necessary to evaluate the trade spending contained in one database. The system should have flexible integration and linkage capability to the manufacturer’s ERP system, CRM/SFA solution, POS/syndicated data, category management tools, demand planning/forecasting tools, lift models, etc. The execution of a good TPM system provides a hub for the eventual attainment of a best-of-breed global closed-loop CPG solution.

A true-closed loop TPM solution must also have the capability to deliver accurate P&Ls by retailer and by event. The rich historical information captured in a good TPM system empowers the field sales force to identify shifting trends regarding the effectiveness/efficiency of individual retailer promotional strategies/tactics, thus maximizing the significant trade investment. Accurate retailer P&Ls can only be obtained by clearing all promotion related deductions/payments against specific promotional events. Most CPG companies clear deductions/payments against a general fund, recording only the amount, reason code, customer code and transaction date. In a closed-loop TPM solution, the financial administrators have a view of all existing promotional plans in the same database where the deductions/payments reside. Once deduction research is completed, each deduction is financially expensed to the appropriate promotion event(s). This TPM foundation provides accurate financial reports to evaluate the profitability of individual events, as well as the cumulative profitability of every retailer. Retailer P&Ls enable the field sales force to constantly monitor the various promotional tactics/strategies employed as well as reallocating funds against more profitable retailers.

A true closed-loop TPM solution can be extremely effective in all CPG organizations that are spending at least $3mm annually against trade promotions. It is equally effective with direct and brokered sales forces and applies to all CPG manufacturers regardless of how many retail customers and SKU’s they have. Once the foundation of managing the TPM investment has been solidified with a closed-loop TPM solution, the layering of business intelligence/statistically projectable modeling systems into a true closed-loop TPM solution can significantly enhancement the ongoing corporate objective of maximizing the number one expenditure in the CPG sector: trade promotion spending. Adding these types of systems prior to a true closed-loop TPM solution is in our opinion placing the cart before the horse.