Trade Spending: Investing with Insight or Blindness?

Among the vast array of diverse CPG companies operating around the world, you will find a expense item on the P&L that is typically second only to the cost of goods being sold, and that line item is trade spending.

Trade spending alone can drive nearly 25% of the gross sales of a CPG manufacturer and yet, despite all the talk, far too many CPG firms still are blind to precise tracking and understanding the outcomes and payoffs of the trade spending investment.

A perfect world would find CPG manufacturers, distributors and retailers operating in a synchronized and collaborative manner, given the enormous size of the investment on the line to ensure that all parties see positive results, but that isn’t happening in far too many cases.

Is it possible to engage the right technology platform and discover the insights needed to make rapid, market driven changes, track the changes and ultimately drive a consistent ROI on the trade spend investment?

The answer is YES!

But too often, trade spending falls into patterns of investment driven by key seasonal holidays and events, outdated calendar discount promotion schedules coupled with a constant drive for volume increases at any cost with no thought for efficiencies.

These are core reasons why so many CPG manufacturers are investing enormous trade dollars without the tools or processes available to local managers that allow them to identify the strong performing promotions from those yielding minimal to negative results.

What technology capabilities are needed for the local manager to accurately monitor and evaluate the investment in trade spending?

Promotion Review: If a store is using trade dollars to discount the price of targeted SKUs, then the store manager must be armed with a technology that:

  • provides a clear picture of how all discounts applied are affecting product mix on the shelf;
  • evaluates merchandising costs and other spending to see the SKU level impact on profit and sales growth and
  • optimizes the brand and SKU mix to avoid overstocking while driving the highest sell down possible for each promotion.

Sales & Distribution Gaps: Every store manager must have the technology to measure account level results and determine what accounts are growing because of trade dollars spent and highlight those accounts that are of questionable value. Managers must be able to rapidly apply filters, drill into results by category, brand or SKU to be able to see and track measurable results over time.

Testing and Allocation: Every store level manager must be capable of testing various merchandising and pricing strategies while minimizing any risk, track results and make in-time corrections for long term efficiency. Added to this, each manager must be able to allocate any manufacturing rebates, off invoice funds or any other trade spend dollars by event, by store location or down to the brand or SKU to see the complete trade spend picture.

Accountability & Rewards: Armed with the right tools to make data driven decisions about the local market, managers become accustomed to a continuous improvement process. The ability to see the market with all the needed data allows managers to identify the problems and outliers at store level, make change decisions and monitor results. Personal accountability is readily embraced and compensation can be aligned to reward consistent growth in sales and profit.

CPG manufacturers and retailers don’t have to invest enormous trade and promotion dollars and remain in the dark regarding how to measure the ROI of that investment.

With the right management training and technology solutions, the entire supply chain (manufacturers, distributors and retail/internet stores) can engage in productive business planning to create a forecast plan for trade spending that is completely inclusive. And it can be adjusted based on real time market conditions and results.

This plan will include and integrate all the right analytics, visual formatting for ease of understanding, and the right business processes and systems to ensure effective organizational alignment.

This is the path to consistent and positive ROI on all trade spending investments.

Karl Edmunds

About the Author

Vice President, Salient Management Company

is a nationally recognized business leader and author with more than 20 years of experience working with suppliers, distributors, and retailers in the CPG industry. His focus is aligning technical solutions with sales, marketing, and organizational needs to drive long-term profitable growth.

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