The average CPG company will spend more than twice the dollars on trade spending, estimated at 19% of revenue, versus advertising at 7.5%. However, far too many CPG companies operate without a continuous improvement formula that can measure and track the results of this substantial trade spending investment.
Virtually every CPG company can tell you the amount being invested in trade spending. The problem is that most of the same companies lack the methods, tools, and processes to measure whether their trade investments are working to drive sales growth or enterprise value.
The data needed to evaluate trade spending is not impossible to gather, but it is typically sourced from diverse data silos. Added problems occur when the data is formatted in unusable ways and the methods for calculations that are not consistent. Thereby, resulting in confusion among different departments within the organization.
Now, if you take these basic problems and try to track literally thousands of promotions and discounts offered by a CPG leader over time, you have a glimpse of the magnitude of the problem.
Trade spending plans and forecasts are good and most CPG companies have them. The barrier to success is how to put tools and processes in the hands of front-line managers who need to rapidly see results of any given promotion, adjust to competitive dynamics, reallocate dollars if needed at street level, and quickly see the results in two days not two months. That is why arming the corporate technology department with sophisticated analytic tools, to crunch numbers and relay new proposed courses of action, is a flawed approach that seldom yields the expected outcomes.
This approach takes too much time and neither the tech departments nor senior management are tuned in sufficiently to local account level realities, making them incapable of consistently offering sound recommendations. Add to this, the typical corporate politics of power and the process can easily become fatally flawed.
The overall strategic plan for trade spending can and should begin at the top level of the corporate hierarchy but local managers who own the account relationships must be empowered and trained to make changes and decisions as needed with the results being tracked by management.
Effective trade spending can be measured, tracked, and integrated within the overall corporate plan if management is willing and able to make the process changes, install the right software and technology engines, drive accountability to store level managers and take a continuous improvement approach to the problem. Good trade spending seldom happens when spending KPIs show up in a quarterly or semi-annual report.
With the organization and business process systems defined, too often a final challenge is putting the right analytics technology and tools in place to get the job done. This step often requires more than simply selecting a software vendor.
Any good software vendor can show you how well they can dress up the data. They may even have the staff to deliver exactly what you tell them to do.
The problems show up when you engage a software vendor who has limited experience in the CPG industry and fails to fully understand the detailed methods and processes needed to harness all the correct data sources and then establish the correct formatting needed to deliver the data to management in a useable and accurate manner.
Too many software vendors can tell you what is wrong with your data but lack the skills and business savvy to lead you to the final solution that will work for the entire enterprise. This makes vendor selection a critical part of the process.
In this age of information, trade spending is no longer an insurmountable mountain. There is a pathway to the summit where management can see, track and manage all aspects of the trade spending investment. Done right, this substantial investment will drive consistent growth in overall enterprise value and long term profitability.