Trade Promotion Optimization: Cognizant's Perspective

Johan Sauer, Cognizant Consumer Goods Consulting
6/28/2011
If trade promotion optimization is such a compelling idea, why isn’t everyone doing it? In Cognizant’s view, companies need to bridge the “capability chasm” between Trade Promotion Management (TPM) and true Trade Promotion Optimization (TPO) to move to the next level of performance improvement.
In our view, there are three key points of transformation a company must work through in order to cross the “capability chasm” and deliver true Trade Promotion Optimization. The three areas include:
  1. Achieve organizational alignment around the definition and benefits of TPO
  2. Build an organizational capability to provide the required analytics at scale
  3. Solve the data issue; create physical or virtual integration and alignment of POS, plan and financials to fuel a TPO capability
The first transformation is to align on a common definition of TPO. In our view, many companies have successful TPM capabilities in place, but few have TPO. Let us explain our perspective on the difference.
 
Over the past 20 years, TPM has moved through three levels of maturity, from “visibility and control” to “basic ROI” to what some call “Trade Predictive Planning” – forecasting the impact of a promotion on revenue and volume at the event level. While these capabilities are necessary to improve promotion efficiency, we believe it falls short of true Trade Promotion Optimization.
 
Going forward, TPM capabilities must account for factors outside of the specific event details – drivers such as event frequency, other marketing inputs including advertising and consumer promotion, and logistical constraints such as limits on the number of times a particular SKU can be promoted. We define this new capability as Trade Promotion Optimization.
 
In our view, TPO moves TPM capabilities to the next level along three dimensions:
  • Plan-level optimization
    1. Reverse engineers plan elements based on desired outcomes
    2. Accounts for all material marketing inputs
    3. Recognizes practical constraints, e.g., maximum number of events by brand
    4. Delivers a “Best” plan for a given set of business outcomes (e.g., volume, profit, ROI) within a set of constraints (e.g., number of events, budget, other company events)
  • Store-level promotional planning
    1. Limits paying for display in stores only where extra supply is required to support demand; avoids payment where it is not required
    2. Sets goals, measures and pays for performance at store level
    3. Performs store-level profitability analysis
  • Implications of promotions on shopper behavior
    1. Integrates shopper card data to assess promotion impact on:
      1. Shopper behavior
      2. Source of incremental volume
      3. Post-event analysis of future buying decisions
The second required capability is a world-class analytics “factory.” TPO requires critical capabilities that are outside the core competencies that have made CPG companies successful in the past. TPO requires sophisticated analytical insights similar to those used in the financial services and life sciences industries. These capabilities create predictive models and detect faint, statistically significant variances in performance that traditional key performance indicators (KPIs) fail to detect. We believe this capability needs to be viewed as a “factory” for analytics, replacing today’s cottage industry of consultants, agencies and providers.
 
The third capability is a cohesive, integrated and business-supported data strategy. With the analytical “factory” is in place to drive TPO, it needs fuel – clean, aligned POS and shopper card data – to make it run. There are alternative ways to address this issue, ranging from simple process and analytics alignment across account teams, leveraging what is in place today, to creating a Demand Signal Repository and exploring new, virtualized data aggregation strategies.
 
While TPM and TPO are often confused, the difference is significant. Realizing the benefits of TPO requires a commitment to move from the tried and true and look to other, information-intensive businesses to define the world of the possible.
 

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