Some consumers will always buy if the price is discounted enough but their brand loyalty is solely driven by price. This is probably the single most strategically important measure in trade promotion analytics…and almost nobody uses it! Traditional trade promotion optimization (TPO) solutions are scenario-based and trade promotion management (TPM) tools take into account transactional activity, but the two improve promotion effectiveness within a single retailer alone. The average consumer packaged goods (CPG) company allocates 14% of its total revenue to trade promotion activities 1, which underlines the importance of these programs. (Note:  this statement leads to many readers likely saying, “How do we know it goes away entirely? As an example, if the net cost was $3.50, and we sold 600 units, our Revenue would be $2,100 (3.50 x 600). Essentially, trade spending is the amount a company spends to increase demand for its products, including coupons, preferential shelf display locations (slotting) and co … This is a downstream process. You’ll need to adjust your year-end trade spending calculation based on planned spending for these active promotions. In fact, we covered this issue in a recent blog post on ship-to-consumption analysis. What differentiates best-in-class CPG players from average ones is the structure underpinning this variation. F: +1 607-739-4045 An outdated CPG trade promotion spending mindset. Let’s calculate our total units. CPG Trade Spending & Promotions: Ignorance is NOT Acceptable. From TPM to AI-driven Business Intelligence, our trade spend solutions are easy to learn, quick to implement and simple to use so the benefits are seen quickly. This can include customized software design and new general processes. For now you can review the actual academic research that proves the incrementality of these sales here.). Now is the time for CPGs to reevaluate trade promotion funding and spending strategies, and align their systems roadmap to fit new priorities and opportunities. To truly achieve effectiveness in trade spending, management needs to be able to see real market transaction level results by store. It can also be calculated as Incremental Units divided by Total Units. By continuing to visit our site without changing your settings, you are accepting our use of cookies. Trade promotion spending is typically the second largest cost line item after COGS for a FMCG company and according to a recent BCG study, trade … Stunningly, 59 percent lost money (in the United States, it’s 72 percent). Trade Promotion is a marketing technique aimed at increasing demand for products in retail stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, and more. Here’s an example of ten weeks’ worth of weekly POS data: In the three weeks where there’s obvious promotional activity, we’ll concentrate on Week 9, the one that shows the largest spike. E: info@salient.com. This is the only approach that can lead to a long-term continuous improvement process in trade spending. In short, Incremental Factor is the simplest way to tell just how dependent your business is on promotion. Z. The first question to confront is WHY? This should tell you what you’ve earned to date. But the most important thing is to convert those consumer units to pounds, cases, rolls, whatever. 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. Companies cannot overlook or underestimate the impact their spend has on the bottom line. COUPON (6 days ago) Most CPG firms struggle to track, measure, and confirm whether the spending produced positive, incremental results. In our client relationships, we’ve seen various companies attempting to measure different aspects of their business, from retail dollars, to shipment dollars, to equivalized volume (rolls/sheets for paper, pounds for candy etc.). of CPG trade promotion spending doesn’t drive the desired results – Nielsen Holdings. Manufacturers of consumer packaged goods (CPG) can transform their sales systems to drive profitable growth—often adding 10 to 15 percent to the bottom line operating results on an ongoing basis—through improved trade promotion efficiency.Technology facilitates in optimizing trade promotions not just with features to inform, but also to analyze. We then take that unit count and create a measurement called Revenue. In addition to simplicity, this measure also has the benefit of being able to be shared with retailers because no sensitive internal costing information is being revealed. Profit focused trade spending programs can be duplicated while waste and unproductive programs can be quickly identified and eliminated. Trade Promotion Measurement (the “new” TPM, if you will) is the periodic testing of those practices, and figuring out what works vs. what doesn’t. 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. Our goal is to simplify here, so we’re not going to mess around with manufacturing costs, logistical costs and other variable costs. The company offers TPE (trade promotion effectiveness) Community, an online platform that brings like-minded CPGs together to help address common trade issues; a SaaS TPM product to help plan, control, and analyze trade promotion spending; and trade promotion activation services to help users with analysis, planning, and TPM solution administration support. But … 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? Won’t it just be made up on other brands or in future weeks?”  The answer is no. The four metrics you need are: Consumer Units, Revenue, The Incremental Factor and Spend Ratio. This site uses Akismet to reduce spam. If you start by measuring the wrong things, all analysis falls apart. In a sense, CPG companies are just beginning to thaw out after the storm called the Great Recession. Promotions can range from trying to boost awareness of a product, to taking advantage of times when a given product may be in high demand, to unloading inventory before it is no longer usable. 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. 2020: CPG Trends . You get ZERO credit for loading inventory at your customers. Trade Promotions can offer several benefits to businesses. Obviously the actual promotional costs for these active events are not complete. Spend Ratio is computed by taking your Incremental Revenue and dividing by total Spend. CPGToolBox Is Transforming How Consumer Goods Manage Trade Spend with a Complete TPx Solution Suite. Gather meaningful answers from integrated data sources quickly. The right data in the hands of management can begin to measure the specific volume driven by specific trade promotions that yield profitable results. How to Make Trade Spending Drive Enterprise Value and Profitable Growth. CPG is even more dependent upon trade spending than ever before. The importance of having a well thought out trade promotion architecture cannot be overstated. In addition to cutting the costs associated with promotions, retailers and CPG companies must adjust prices faster than ever to keep up with an ever-changing global market. In other words, their trade promotions architecture. Its solutions include RapidDraft that … If we need to equivalize later on to analyze certain things, then we do it later on. The data on what is sold to consumers during a promotion must come from outside the company. Of course, you won’t be able to compute most of these accurately unless you can precisely calculate your base sales. Each successive step builds on the one before it, and they are all critical for managing and optimizing your trade spending. As you can see, the entire category is highly dependent on their promotional activities. 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. Later on, we'll also dive into the world of data harmonization, where you’ll learn to improve the accuracy of results by standardizing on core units of measurement and integrating different sources of information. If I stop promoting tomorrow, slightly more than half my total business disappears. Horseheads, NY 14845 US, P: +1 607-739-4511 It is typically the second-largest line item on their P&Ls (behind the cost of goods sold), and it consumes about 20 percent of their … We’re a technology-enabled analytics firm that’s been serving the consumer packaged goods industry since 1998. However, implementing a trade promotion successfully requires a significant investment of time and money. We’ll multiply that by the net wholesale price of $3.50 to get $3,675. Over the years, we have seen CPG clients experience a number of challenges, including tracking ongoing trade activity and clearly understanding ROI on trade spend and how it compares to projected lift in sales. Correct Metrics; Correct Measurement; Correct Data Harmonization; Tactics; Planning ; Execution; This set of best practice information is unique in the consumer packaged goods (CPG) industry. Trade promotions are an essential part of consumer-packaged goods (“CPG”) sales. It’s lost entirely, and we will address that question in more detail in later blog posts. From the survey results, five key findings emerged that every consumer goods marketer should consider as they begin to build their 2019 budget: Digital & Shopper Marketing Spend Grows – Without Clear Results. Because not only is it possible, in today’s operating environment, it is essential to long term success. Trade promotion evaluation is one of the primary reasons CPG companies buy IRI and Nielsen data. In Europe, where we’re experiencing a broadly deflationary environment, decent returns on trade promotion spend are increasingly hard to generate. Our break-even Spend Ratio (SR) is the reciprocal of your internal Margin Percentage per unit (1/m). Learn how your comment data is processed. Rather our Revenue definition is the shipment value of the consumer units sold at retail. A report by Nielsen Holdings confirms that 40% of CPG trade promotion spending doesn’t drive the desired results while 59% of trade promotions globally don’t break even. Revenue is better to use because it reflects differences in Net Pricing across a brand’s product portfolio. 40% of CPG trade promotion spending doesn’t drive the desired results — Nielsen Holdings. Incremental Factor effectively answers the question, “What percentage of my business goes away if I stop promoting entirely?”. Your email address will not be published. Obviously, the tactical side remains: But then we have the following four steps encompassing optimization: This is an iterative process, where we’re constantly executing, measuring results, refining practices, automating them, and on and on. It is hard to celebrate when huge sums of money are spent on various trade promotions and discounts during the busy holiday season. CPG Trade Spending & Promotions:  Ignorance is NOT Acceptable, Vice President, Salient Management Company. Our next blog post takes you into the specifics of correct measurement, where you’ll be able to establish an accurate baseline. Despite growing trade promotion budgets, many companies simply anniversary the prior year’s trade spending practices without identifying ways to optimize these initiatives. Most importantly, after driving up sales with various trade spending programs, can you measure or track new customer retention and brand loyalty over time? Many also experience difficulty keeping up with large … This is where things start to get sticky. We’ll come back to Revenue in just a few moments, but first, let’s talk about another important metric, the Incremental Factor. Now, let’s compute our base units exclusively: 100 base units per week x 10 weeks = 1,000 base units. Trade Promotion Implementation (or TPI, formerly TPM), the standard day-to-day execution of promotion practices. The study evaluated spending activity across the five core components of the modern CPG marketing mix: trade, advertising, consumer promotion, shopper marketing and digital. This approach ensures profitable promotions are repeated and waste is eliminated. Required fields are marked *. 2 Corporate Drive, Suite 254 Shelton, CT 06484 (203) 925-9162 info@tabsanalytics.com. 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