As a consumer products (CP) company, how effectively can you currently plan and execute mutually profitable trade promotions with retailers?
If there’s considerable room for improvement, you’re not alone. The good news is the size of the prize is substantial: The typical CP company sees significant improvements across trade spend efficiency, lower deductions, and reduced inventory with a holistic trade solution.
According to a 2016 survey of CP companies conducted by the Promotion Optimization Institute (POI), 79% of companies are not satisfied with their ability to manage promotions—nor should they be. The typical trade promotion loses money, erodes baseline volume, and fails to account for the retailer’s own business objectives. And yet it is typically the number-two item in a P&L and consumes 25% or more of revenue.
Despite these outcomes, most CP companies simply copy, run, and pay for the same failed promotions year after year. Moreover, these promotions are typically not aligned with the retailer’s objectives, and rolling up these individual account plans to overall corporate growth targets is difficult at best. Trade plans are often based on internal data only, because external point-of-sale data, distributor sales data, and other resources (including massive volumes of customer data) are too copious and difficult to work with. So plans rely on estimates instead of actual consumption, when sound decisions require a complete and accurate picture of promotion effectiveness.
None of this would be surprising except that many CP firms have actually implemented some sort of trade management (TM) package. The problem is that these solutions are typically limited to assessing promotional profitability and effectiveness – not managing the full customer P&L, which is critical to success. Only sales leaders with accountability for all volume can develop effective plans that can drive customers’ category growth and build baseline volume to drive their own margin growth. When sales leaders own the entire P&L for each retail customer, CP companies can prioritize investments and opportunities for long-term growth – ultimately driving customer value and profitability.
Given their limitations, traditional TM technologies are often used simply as a “checkbook” for tracking trade spend. As POI points out, the gaps in system functionality in areas such as reporting and analytics force CP companies to manage many core trade promotion activities using manual spreadsheets.
Sound familiar? Then it’s time to rethink your entire trade management business process, with an eye toward:
- Owning the entire P&L for each customer, prioritizing investments and opportunities to help them unleash long-term growth, customer value, and profitability – not just short-term results.
- Transforming your relationship with retailers from a promotions manager to a trusted advisor who collaborates with them to build plans for customer-specific categories and KPIs that drive return on relationship.
- Expanding the conversation – for example, by considering marketing campaigns, finance, and supply chain as part of a holistic customer plan for all volume – to improve purchase consideration, frequency, loyalty, penetration, and more.
- Performing joint, post-event analysis to see what was profitable, what wasn’t, and how and what to change going forward to improve results.
The time to reimagine is now
What makes this the right time to reimagine trade promotions management? Consider that:
- Amazon and other market-disruptive companies are encroaching on nearly every category, making it ever harder to compete.
- Category growth is coming from smaller, more nimble competitors.
- Retailers are increasingly demanding business plans that are tailored for their buyers in their own language and KPIs – and expecting manufacturers to help them achieve their revenue and profitability targets.
- The majority of current merchandising trade spend is associated with events that deliver negative profitability and event ROI.
- Zero-based budgeting is becoming the new norm, which means every dollar spent must be re-justified every year. Expect intense scrutiny regarding how money is spent.
New technologies equip you to revolutionize trade management for your business
The good news is, new trade management technologies are now available to support more holistic, collaborative trade management processes that are far more effective. These solutions enable new ways of working, collaborating, analyzing, and planning that truly revolutionize trade management by allowing CP sales leaders to:
- Coordinate all volume across all channels via comprehensive programs and tactics aligned to jointly agreed KPIs
- Elevate value proposition and alignment to help retailers achieve broader business objectives versus simply hitting promotion targets
- Understand implications for all strategic and tactical decisions versus full-year targets, plans, and KPIs for both parties
- Enable fact-based decision making for sales leaders to drive activities best aligned to targets
- Align planning and execution across marketing, finance, and extended supply chain
- Simplify volume dimensions across all channels and enable coordinated, flexible, and agile responses to demand and supply dynamics
Are you ready? Over the next few weeks, I’ll be blogging about the trade management revolution and how SAP solutions, including the SAP Trade Management application, have been re-imagined and innovated to support this vision of holistic trade management. In the meantime, feel free to follow me on LinkedIn and Twitter, visit sap.com, or contact your SAP representative for more information.