Armen Najarian of DemandTec on Win-Win Trade Strategies

In a recent Web seminar, titled "Who is Driving Trade Effectiveness?," Armen Najarian, senior director, Consumer Products Industry Marketing, DemandTec, presented a case study that demonstrated the business advantages of predictive trade planning tools. More importantly, it showed how the promotion sell-in process is transforming. Working together, trading partners are moving from a manufacturer-centric promotion planning perspective to one based on win-win principles that place the consumer at the center. Here, Najarian gives context to this development and provides a real-life example of how trading partners are seeing benefits from the new approach.

How is the trade promotion planning process changing?

Najarian: What was once a very manufacturer-centric approach to trade planning has been transformed, in many cases, into a joint business plan that works for both constituents. The consumer is the great equalizer in this equation, so building promotion scenarios based on a quantified understanding of consumer demand has allowed both retailer and manufacturer to focus on total category health and profitability. Consequently, there's now a very clear understanding of how volume and profit objectives will be achieved from the manufacturer, retailer and overall category perspective.

In a recent Web seminar, you offered an example of how one
manufacturer can take advantage of new trade promotion management tools. What does this opportunity mean for the trading partner relationship?

Najarian: In this case, the trading partner relationship benefited from some fundamental process and planning changes. In the sell-in presentation to the retailer, the manufacturer cited in the case study made three important points. First, a "volume at any cost" philosophy often drives behaviors that are not necessarily healthy for the category. They advocated instead a more profit-centric incentive plan. Next, they emphasized the need for bringing innovation to the planning process. Predictive planning tools can be used to develop "never tried before" scenarios rather than simply repeating the same plan from the previous year. Finally, they pointed out that what was once a process of analysis that could take weeks or months is now easily accomplished in minutes by non-IT personnel since the technology is available on demand to business users.

How did the manufacturer in the case study uncover a trade promotion opportunity that benefited both the retailer and manufacturer?

Najarian: The manufacturer is a top-five food company with a product that consistently has strong seasonal demand. For several years, they pursued inclusions in the retailer's annual seasonal bargain aisle; however that space was effectively "owned" by the retailer's store brand. The manufacturer recognized the importance of proving how co-promoting both its national brand and the retailer's private label product could drive better overall category health. This was accomplished through running predictive scenarios in the DemandTec Trade Planning & Optimization software service for both product lines. The software leverages base prices, promoted prices, seasonal responsiveness and other relevant causal variables built into the demand model. Using this process and the DemandTec service, they were able to present a fact-based simulation of total category incremental volume and profit for the entire holiday season.

What impact did the new trade planning and optimization process have on the retailer and the manufacturer?

Najarian: The recommendation the manufacturer ultimately proposed called for back-to-back promotion placement in the bargain aisle to achieve the optimal category results. First, the manufacturer brand was to be promoted roughly throughout the fall holiday season. Following that, the retailer's private-label promotion would begin and extend through most of the winter holiday season. The recommendation was approved by the retail customer and the promotion was rolled out. While the promotion is in market as we speak, the modeled results suggest category volume and profit growth exceeding 5 percent for the seasonal promotional window -- by all accounts, a scenario worthy of investment and support.

What are the key lessons learned from the case study?

Najarian: Consumer-centric trade planning has been accepted as a strategic imperative for manufacturers. And with the incredible volatility in commodity ingredient costs in the supply chain, winning manufacturers recognize they must take a leadership position in crafting new pricing and promotion strategies for their respective categories. These are the same manufacturers that are investing in the tools and processes to plan trade volume and profit in a transformational way.

What additional advice do you have for manufacturers looking to make their trade funds investment more effective?

Najarian: It is clear that the use of predictive technologies paired with the proper focus and discipline can help make the use of trade dollars far more effective. To approach this new way of planning there are several best practices for all consumer products manufacturers should consider, including:

Think beyond trade promotion "management," which is generally a rear-facing accounting of promotion activities. Trade promotion optimization incorporates a more broad-based strategy, and introduces predictive planning tools to simulate never tried before scenarios and category plans.

Commit to measuring promotion event ROI and do so with care. This may prove more difficult than it sounds, as it requires strict data management and advanced analytic tools, but the alternative amounts to "flying blind."

Start to improve trade effectiveness somewhere today and show value. Rather than wait for an enterprise-wide initiative, your company can innovate and begin with a major account team, a single class of trade or a single line of business or category. Predictive planning tools make this kind of targeted, yet scalable, deployment possible as never before.

Lastly, don't overlook the importance of change management when deploying solutions. Enlisting senior-level ownership and ongoing change management visibility is an essential ingredient for success.

Any final thoughts on trade promotion optimization?

Najarian: Efforts to achieve trade effectiveness succeed best when they empower the right people with the right process and supporting partners. The bottom line is that trading partners obtain the best results using fact-based tools and approaches that remove emotion from the promotion planning process.