Rules to Establish an Effective Trade Promotion Management Practice

For consumer goods companies, trade promotion management and optimization is known to be one of the largest line items on their budgets, estimated at more than $500 billion annually around the world. Trade spend represents more than 15% of a CPG’s total revenue (and growing), and the technology solutions around the business process are evolving.

Read on as we take a dive into trade promotion technologies to unveil a more effective operating model.

The use of artificial intelligence in trade promotions are helping CGs manage pricing, promotions, trade terms, mix, competitive activity and more. Advanced data and analytics can now add predictive capabilities in order to enhance traditional tools. Other emerging technologies are being piloted in order to get more CG companies to ditch the spreadsheets and find efficiency in their trade promotion investments.

In fact, in the latest CGT Trade Promotion Report, all the executives interviewed had made changes to their legacy systems within the last few years. As CG companies are looking to upgrade, they have two possible routes: 1. Ditch their legacy system and start over, or 2. Acquire smaller companies that are already leveraging new technologies as a blueprint for adopting new tools.

Whatever the strategy, we enlisted the help of UpClear’s Client Services Director (Americas) Rajeev Prabhakar to help shine a spotlight on trade promotion management and optimization solutions. He shares how companies should get started on their trade promotion implementation journey, talks about the state of maturity in the consumer goods space, and reveals best practices to help CG companies get on the right track to establishing an effective trade promotions practice.

CGT: When companies are looking to implement a trade promotions solution, how should they get started?

PRABHAKAR: There are two best practices that companies should consider when looking to implement a trade promotion management solution, and those come way before the tool selection itself.

Leadership Alignment. A comprehensive business case including key challenges, opportunities, anticipated return on investment, timeline, and taskforce should be laid out by the leading department (typically sales or finance in conjunction with IT) to commercial leadership, and then approved. This ensures that the appropriate level of investment, focus and resources are committed beforehand, towards a common set of business objectives to avoid roadblocks and inefficiencies in the overall process.

Maturity Assessment. In order to clearly identify the needs that the initiative should address, it is key to assess the current state of the commercial processes and organization and compare it against an industry benchmark. This facilitates the requirements definition to inform the RFP (request for proposal) for the technology vendor selection, but also ensures that priorities are clear during selection process itself (what key capabilities and expertise should the manufacturer look for in a vendor). This also provides a clearly defined starting point against which performance can be measured.

CGT: How would you describe trade promotions maturity within the consumer goods industry? Are there differences globally?

PRABHAKAR: In the last few years, technology innovation in the consumer goods industry has been significant, especially around AI and predictive analytics. Despite this growth and innovation, a number of companies in the industry still have not addressed the process and foundations of data. Focus in these areas consistently lead to improved (informed) decisions around trade promotions and deliver stronger returns on trade and marketing investments.

Critical foundations are typically around definition of baseline volumes, cross-functional collaboration to drive consensus, forecasting and internal (shipments) versus external (EPOS/sell out/indirect sales) data mapping, and harmonization to make sound commercial decisions.

In addition, we do see that the collaboration between CG manufacturers and retailers is more sophisticated in markets with more centralized distribution (for example, the U.K. or France) versus fragmented markets like Southeast Asia or Latin America, and in some cases, the United States. This is typically due to factors like data availability, retail structure, and complexity.

CGT: What sort of benefits are companies managing effective trade promotions realizing?

PRABHAKAR: There are four business benefits that best-in-class manufacturers can realize by establishing a good operating model (people, technology and process) around trade promotions and commercial planning:

Trade Optimization: Return on each dollar invested in promo due to better insights/visibility to support decisions (promotions and P&L).
Sales and Operations Management: Improved forecast accuracy and reduced out of stock due to better collaboration across sales, finance and supply chain as well as data robustness (“one version of the truth”).
Governance and Financial Control: Reduced invalid claims, tighter accruals and reducing aged debt.
Productivity: Reduced time spent on administrative tasks and quicker access to robust centralized information through process automation and data integration