Consumer packaged goods (CPG) companies rely on promotions to drive product sales. Over the last few years, they spent an average of 20 percent of their revenues on trade promotions—more than $500 billion a year, according to a report just published by Forrester. Look at that number again: $500 billion. The amount is staggering, but the real shock is that Forrester estimates that one-third of that spend—approximately $167 billion—is worse than ineffective: It actually generates negative returns, cannibalizing high-margin lines and encouraging pantry loading.
Clearly, there’s room for improvement in the way organizations are managing trade promotions, and tighter integration of trade promotion management (TPM) capabilities with existing supply chain and enterprise resource planning (ERP) systems could be the answer. Currently, companies manage the complexity of launching, managing, and trying to quantify the uplift from a complex portfolio of collaborative promotions and in-store activities using a variety of systems, ranging from spreadsheets to standalone point products to collaborative platforms and add-in modules of ERP systems.
Is your current solution working? Start by making sure your company isn’t leaving money on the table. Any TPM solution worth having should support inclusion and awareness of promotions across the company and its partners, greater ease of investigation, and real-time updates to promotions.
Awareness of Promotions across the Ecosystem
Integrating TPM with ERP or supply chain systems at multiple touch points—such as pricing processes, billing and shipping, financials and claims, baseline forecast, allocation and replenishment—can maximize the impact of promotions. For example, a holistic view of promotions may lead a CPG company to strategically run down inventory of its usual merchandise while building stocks of promotional merchandise to meet anticipated demand. As another example, an integrated TPM could help manufacturers align start and stop dates for promotions with dates when retailers may be ordering inventory. Clear communication between manufacturers and retailers can help both parties work together to manage stocking for optimal profitability and return on the promotional investment.
According to Forrester, the more companies integrate TPM with other enterprise systems, the better. The Forrester report—based on interviews with 15 brands and vendors—states, “CPG firms need trade promotion suites that support the whole cycle from pre-promotion planning through execution and integration with supply chain, to settlement and post-promotion analysis, and integration with finance to capture, validate and settle promotion claims.”
Catch Problems Quickly with Easier Investigation
Often, retail partners deduct outstanding claims from new invoices, causing complication within CPG companies as they seek to reconcile and verify the outstanding amounts due and owed. Visibility into trade earnings, claim statuses and invoice deductions in real time can decrease the time spent to investigate trade discrepancies and helps speed up claim settlement.
This is important not just for the savings in time and administrative expense. It can also decrease losses by revealing double dipping, a practice in which a retailer takes the trade promotion payment but continues to charge the customers the original prices. A good TPM solution also makes it easier to investigate write-offs. Currently, investigation takes so much time and effort that most CPGs don’t investigate until write-offs reach a certain level. But a good system makes it easier to dig deep and find out why the write-off is happening: Is it a problem with the shipper? The warehouse? The store location? Investigating the causes helps reveal a solution to the problem—and puts an end to the many small losses that can quickly add up to a negative return on a promotion.
Real-Time Updates to Promotions
Because trade promotions are inherently time-sensitive, real profitability requires real-time data. Field sales reps need to be able to report to head office the instant a competitor drops its price so a company can make (and communicate) an immediate decision about how to respond. The company may instruct the rep to drop prices to match the new offer. But if the rep is calling on a retailer in a less price-conscious neighborhood, there may not be any real need for a change. Reps can also provide valuable input on the progress of a promotion by tracking inventory on the shelves and offering to reorder it immediately. If reps also know that there’s inventory sitting at the warehouse that may expire soon, they can offer a deeper discount to retailers on the spot and update promotions on the fly to lock in the sale.
These real-time, two-way communications between the field, and retail category managers or CPG account teams can make or break the effectiveness of a promotion. Forrester cites one case in which salespeople improved their sell-in productivity by 30 percent once they gained the ability to model the impact of promotions collaboratively with retail category managers. Real-time visibility into sales volumes and other key metrics enables companies to move swiftly to make the best decisions for the business. A TPM capability that’s tightly integrated with ERP or other systems can deliver data to decision-makers right away, without the delay of a separate process to extract and interpret data.
Integration Enables Better Management—and Greater ROI—for Trade Promotion Activities
Integration enables better management—and greater return on investment (ROI)—for trade promotion activities. Better management of trade promotions isn’t rocket science; it’s about budgeting for promotions, capturing allowances, approving and settling retailer claims, and then evaluating the impact of each sales tactic. Companies could even process a few promotions manually—but if they’re managing a few hundred promotions, they definitely need TPM systems, and if they’re managing thousands, they need enterprise-level applications to manage the processes effectively. No matter the size of an organization, it will get the greatest accuracy, simplicity and immediacy from using the same data to feed TPM, supply chain, manufacturing operations and financial applications.
With a TPM system that’s tightly integrated with corporate systems, such as an ERP platform, organizations can centralize fund management and set baselines, specify promotion periods, define tactics, and generate reports by plan, account and region, while managing and tracking achievement against sales quota. This kind of integration can enable CPG companies to regularly achieve positive results from their investments in trade promotions—and repurpose the billions of dollars spent on ineffective promotions.
Vijay Hotanahalli is a product manager at Kenandy.
 Forrester, Market Overview: Trade Promotion Management. April 22, 2015.