custom research

Trade Promotion Management

The Haves and Have-Nots
It is no secret that trade spend is one of the biggest expenses for consumer goods (CG) manufacturers, with over half of the industry spending between 10 percent and 20 percent of gross sales on promotions. To make the most of those dollars, companies have invested millions of dollars in technology to help boost the effectiveness of the trade spend. This month, CGT partners with Adesso Solutions to take a closer look at these trends and see whether or not company size makes a difference. While the percentage of the spend itself isnt necessarily impacted by company size, the way it is being managed and viewed certainly is. When companies were asked about their concerns regarding the return on investment (ROI) of trade spend, 67 percent of respondents reported concerns about the cost and efficiency. However, when you look a little deeper, three times as many companies under $3 million reported concerns about their ability to track the investment in addition to the cost itself versus larger companies. Figure 1 shows the gap between the ability to track and manage trade spend and the effectiveness of the spend itself. Roughly half of overall respondents rated themselves good in both areas, but with one exception, only larger companies reported excellence in both tracking and effectiveness. The gap between the haves and have-nots widens when you look at the tracking and management capabilities specifically, with all of the not so good and very poor assessments coming from respondents of companies under $3 million. The effectiveness of efforts to manage specific processes is similar across company size. Deduction management is best controlled, followed by planning and analysis. Account profitability was rated not very effective by companies of all sizes, indicating challenges across the consumer goods industry.

Technology

For many companies, efforts to improve promotion performance have involved technology implementations. Often times, successful initiatives leverage additional data elements (see Figure 2). Shipment and syndicated data are used most often at 83 percent each, followed by retailer scan data at 67 percent and trade data at 54 percent. Trade data is the only data type where there was a difference by company size, with 64 percent of companies over $3 billion leveraging this element, versus only 43 percent of smaller companies. Unfortunately, the data types in Figure 2 are often not integrated into Trade Promotion Management (TPM) systems, with 38 percent analyzing them separately. Not surprisingly, the 17 percent that are not integrated are under $3 billion, and the 13 percent that do enjoy automatic integration are over $3 billion. This discrepancy between smaller and larger companies is also reflected in the fac-

expert perspective by Fred Schroeder, President, Adesso Solutions LLC

Effectiveness of Trade Promotion in Mid-Sized CG Manufacturers

While most consumer goods manufacturers have a TPM process in place for deduction management, promotion planning and reporting, many organizations are challenged when it comes to analysis and understanding the effectiveness of their trade spending relative to driving their sales and profits. This is especially true among small to midsized consumer goods manufacturers who often lack the resources and capability to determine what may be working and what may not be working. Having the ability to manage trade promotion spending and measure its effectiveness at the individual customer level (both direct and indirect retailers) is becoming increasingly critical and can have a meaningful impact on the bottom line of the organization. Gaining the insights into the effectiveness of trade promotion spending hinges largely on the organizations ability to both integrate its data (e.g., retailer scan data, syndicated data, etc.) within its TPM system, as well as, correctly interpret it in order so that actionable next steps can be developed to improve the organizations trade spend ROI. With such insight, the consumer goods manufacturers will have the direction needed to refine current trade spending plans to enhance the sales and profitability for their organizations and for their customers. In addition, they will have valuable guidance needed for discussions with the trade and their own sales team/sales agency partners when setting new volume and margin targets. Those consumer goods manufacturers enabled with the ability to measure the effectiveness of their trade promotion spending particularly with their top customers will be more competitive and well positioned for incremental sales and profit growth.

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cgt | september 2012 | consumergoods.com

by kara romanow

figure 1

Trade Promotion Management vs. Effectiveness

C A PA B I L I T Y R AT I N G Excellent 17% 25% 46% 17% 12%

tors considered when selecting TPM systems. While ease of use and cost were cited as important by the majority of respondents, company size definitely influenced the importance of analytical abilities, including support in determining trade spend effec-

Good Not so Good Very Poor

54%

25%

4%

Only half of companies under $3 billion rated analytical abilities very important but every company over $3 billion did so, indicating the more sophisticated capabilities larger companies are seeking.
tiveness. Only half of companies under $3 billion rated analytical abilities very important but every company over $3 billion did so, indicating the more sophisticated capabilities larger companies are seeking. The measurement of promotion effectiveness with indirect retailers, like Ahold, also differed by company size. In companies over $1 billion, 46 percent reported using the same data for all customers. This dropped to only 17 percent in companies under $1 billion. Disparate data is used for measurement by 42 percent of the smaller companies, compared to 31 percent of companies over $1 billion. Lastly, we asked about how sales, including brokers, is incented, and again found cultural differences by company size (see Figure 3). Overall, the leading method at 42 percent was volume-based quotas. But that response was most common in smaller companies, along with customer profitability. In companies over $3 billion, however, Other was the most popular response, with most respondents indicating that they employed a combination of methods.

A BILITY TO TRA C K A ND MA NA GE S PEND ING EFFEC TIV ENES S OF SPEND ING TO D RIV E S A LES A ND PROFITS

figure 2

Data Elements Used to Analyze Trade Promotion Effectiveness (multiple responses allowed)
ELEMENT Shipment data Syndicated data Retailer scan data Trade data Other 8% 54% 67% 83% 83%

figure 3

Methods for Incenting Sales People and / or Brokers

METHOD Exceeding volume objectives / quotas Customer profitability Sales profitability Budget adherence Other 0% 24% 17% 17% 42%

consumergoods.com | september 2012 | cgt

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Consumer Goods Technology

July 2012

1. What is your company size?

Company size Under $100M $100M to $499M $500M to $999M $1B to $2.9B $3B and above % 20% 12% 12% 12% 44%

44%

Under $100M $100M to $499M

20% 12% 12% 12%

$500M to $999M $1B to $2.9B $3B and above

2. What types of products does your organization market? Multiple responses permitted.
Products Food / Beverage Household products OTC / Personal Care / HBA % 60% 32% 20%

60%
Food / Beverage

32% 20%

Household products OTC / Personal Care / HBA

3. What percentage of your gross sales are currently dedicated to trade spend?
Percentage 5 to 10% 11 to 15% 16 to 20% 21 to 25% 26% or more % 29% 38% 17% 17% 0%

38% 29% 17% 17%

5 to 10% 11 to 15% 16 to 20% 21 to 25% 26% or more

4. Which phrase BEST describes your company's position and point of view when it comes to the return on investment delivered by Trade Promotion spending?
Position and point of view Concerned about the cost and the efficiency of the investment Concerned about the cost and our inability to properly track and manage it Concerned about the cost but it delivers sales Extremely concerned about the cost, the inability to track it and the efficiency of the investment Not a major concern because it delivers a reasonable return on investment
67%
Concerned about the cost and the efficiency Concerned about the cost and our inability to track Concerned but it delivers sales

% 67% 17% 13% 4% 0%

17%

13% 4%

Extremely concerned about the cost Not a major concern

Thinking about the difference between Trade Promotion Management and Trade Promotion Effectiveness: 5. First, how would you categorize your company's ability to track and manage Trade Promotion spending?
Track and manage Good - we have a solution that manages our spending but is limited for analyzing spending at a customer level Excellent - we have a great solution that both manages promotion spending and enables us to manage promotion effectiveness Not So Good - we have a solution controlling some areas (e.g., deductions) but overall it isn't working well nor effective enough Very Poor - it's a problem managing deductions, or actual vs. planned spend is way off, and we don't have an effective, if any, solution in place
46% 25% 17% 13%

% 46% 25% 17% 13%

Good Excellent Not So Good Very Poor

6. Next, how would you categorize the effectiveness of your company's Trade Promotion spending in terms of driving sales and profits?
Effectiveness Good - we have done some analysis and have insight into some areas or accounts Not So Good - we have difficulty analyzing the effectiveness of our spending / customer Excellent - we have a good handle on the effectiveness of our spending for most priority customers Very Poor - we have no way of knowing if our spending per customer is effective
54%
Good

% 54% 25% 17% 4%

25% 17% 4%

Not So Good Excellent Very Poor

7. Please rate the effectiveness of your company's Trade Promotion efforts for the following areas:
Very Effective 54% 17% 13% 8% Somewhat Effective 29% 58% 58% 50% Not Very Effective 17% 21% 25% 38% Not At All Effective 0% 4% 4% 4%

Deduction Management Promotion Planning & Analysis Reporting & Analysis Account Profitability

8. What are you currently using to analyze your trade promotion effectiveness? Multiple responses permitted.
Analyze Shipment data Syndicated data (e.g., IRI, Nielsen, etc.) Retailer scan data Trade data Other % 83% 83% 67% 54% 8%

9. Are any of the above data sources integrated into your TPM system or are they analyzed separately?
Integrated? Analyzed separately Manually integrated Not integrated Automated integration into TPM system Other % 38% 21% 17% 13% 13%

38%

Analyzed separately Manually integrated Not integrated

21%

17% 13%

Automated integration into TPM system

13%

Other

10. How do you measure promotion effectiveness with indirect retailers (e.g., Ahold)?
Measure Disparate data We use same data for all customers None, we do not analyze this % 38% 33% 29%

38% 33% 29%

Disparate data We use same data for all customers None, we do not analyze this

11. How are your sales people and/or brokers primarly incented?
Incented Exceeding volume objectives / quotas Customer profitability Sales profitability Budget adherence Other % 42% 17% 17% 0% 25%

42%
Exceeding volume objectives / quotas Customer profitability

25%
Sales profitability

17%

17%

Budget adherence Other

14. What is the liklihood you will look to change your TPM solution?
Change We are currently looking In the next 12 months 13 - 24 months No plans to look % 21% 13% 17% 50%

15. Please indicate the importance of the following factors in selecting a TRADE PROMOTION MANAGEMENT provider:

Very Important Fast and easy to install Easy to use / good user adoption Flexible / easy to configure Cost / limited budget Analytical abilities and support determining trade spending effectiveness 29% 79% 33% 21% 71%

Somewhat Important 63% 21% 67% 67% 29%

Not Very Important 8% 0% 0% 8% 0%

Not Important At All 0% 0% 0% 0% 0%