The holidays represent a major source of revenue for almost every CPG manufacturer and the season is quickly approaching.
But is it the season to celebrate?
It is hard to celebrate when huge sums of money are spent on various trade promotions and discounts during the busy holiday season. Most CPG firms struggle to track, measure, and confirm whether the spending produced positive, incremental results.
Everyone can admit that trade spending is a critical element of the CPG supply chain, but isn’t it time to quit surrendering to the notion that tracking trade promotion dollars is not possible?
Because not only is it possible, in today’s operating environment, it is essential to long term success.
The first question to confront is WHY? Why the resistance?
Many CPG manufacturers start to hyperventilate at the thought of losing market share or sales if their trade spending is stopped or changed. You may have high confidence based on past results that sales will increase with promotional spending. But is it worth it? Is an increase in market share worth it if you give away the majority of your margin to achieve it?
Most importantly, after driving up sales with various trade spending programs, can you measure or track new customer retention and brand loyalty over time?
Some consumers will always buy if the price is discounted enough but their brand loyalty is solely driven by price. How do you measure the value of that customer if you had to give most of your margin to get a one-time purchase knowing they will chase the next discount regardless of the brand?
Other critical issues that are negatively impacting trade spending are forward buying by the retailers, off-invoice spending that isn’t tracked, inventory carrying costs, POS materials, promotional intervals, SKU proliferation by manufacturers, and the cost burden to manage all promotion activities.
Some efforts have been made to more effectively align the interests of all parties in the CPG supply chain. For example, ECR (Efficient Consumer Response) was an informal program implemented to identify and eliminate inefficiencies in the supply chain and drive those inefficiencies out of the system. Only marginal success was achieved.
There are other tactics used in an attempt to deliver more precise trade spend results such as targeted rewards from manufacturers based on allocated shelf space or bonus structures based only on incremental sales resulting from a specific promotion.
Others try to simplify the trade spend approach by tracking fewer promotions during the year to avoid complexity and reduce the peaks and valleys in the promotion cycle.
When you look at all aspects of the trade spend issue, the most important missing factor is getting real time information related to all trade spend activities so changes can be made and measurable results can be viewed and tracked.
This is the only approach that can lead to a long-term continuous improvement process in trade spending.
With the right information available to all levels of management in seconds, CPG companies can begin to focus more on trade program profitability rather than solely using sales volume for measures of effectiveness.
There is no reason to dismiss volume as a core element of effective trade spend management. The right data in the hands of management can begin to measure the specific volume driven by specific trade promotions that yield profitable results.
Another key hindrance to effective management of trade spending is aggregating or summarizing various trade spend initiatives to a point that managers can’t clearly identify the effectiveness of a trade event by account type, channel, display activities at store level, or even down to the shelf set.
To truly achieve effectiveness in trade spending, management needs to be able to see real market transaction level results by store. This allows rapid identification of key spending programs that are not driving positive results and the ability to track the outcomes of any changes made in trade activities. This approach ensures profitable promotions are repeated and waste is eliminated.
This type of decision framework also enables more fact-based communication and planning among all parties to the supply chain including manufacturer, distributor, broker and retailer. It also strengthens the trade decisions made among internal operations, marketing, and sales functions.
The first actionable step toward change is for management to recognize the absolute need for more effective trade spending and be prepared to establish the right data-focused technology solution to track all programs, and support the planning and communication processes.
With the right technology solution as a foundation, profitable and sustainable growth is achievable. Profit focused trade spending programs can be duplicated while waste and unproductive programs can be quickly identified and eliminated. The ROI for the effort is substantial.