In today’s exclusive, Hemanth Kumar shares how to drive growth in CPG through better trade promotion optimization. Currently, Hemanth handles Acuvate Software’s Analytics & Database services, and he has consulted various manufacturing, FMCG and BFSI clients on large-scale data related initiatives. Acuvate provides AI-powered analytics and trade promotion optimization solutions for consumer goods and retail businesses.
While the opportunity for growth in the Consumer Packaged Goods segment may be large – slated to become a USD 14 trillion market by the year 2025 – competition within the industry is also expected to get fiercer. This increased competition is due to several factors –key factors being the low barriers of entry into the industry, the ever-changing customer preferences, the movement of market trends, and the rapid emergence of local players.
These factors make it critical for CPG businesses to constantly innovate and strive to be relevant in such a competitive market. Trade promotion ineffectiveness is one major cause hindering the growth of several global CPG companies. Trade promotions are the second largest cost item on a manufacturer’s P&L statement. However most of the trade spend doesn’t yield the desired ROI, affecting margins and profitability.
As per a Nielsen Holdings report, over 40% of CPG trade promotions are ineffective and do not deliver the desired or targeted results and over 59% of trade promotions carried out globally do not break even. It is also stated in a Booz Allen Hamilton report that a majority of the manufacturers lose about one-third of the amount they invest in carrying out trade promotions.
Despite the fact that trade promotion activities account for the largest expense head after raw materials, there is very little ROI derived from this endeavour. Manufacturers and retailers have often faced the most trouble here.
As per an Economic Times Retail feature, even a 15% improvement of trade promotions ROI can enhance the top line by 10% and operating profits by a good 3 to 5%. All of these findings point to the obvious solution of optimising trade promotions to improve ROI and thereby improve profitability and gain market share. However, most businesses still struggle to run better promotions due to some common challenges. Let’s take a quick look at some common trade promotion challenges.
Inability to measure trade promotion effectiveness due to unstructured post promotion analysis
A crucial problem that revenue management and sales executives face is the inability to measure the effectiveness and ROI of any trade promotion activity due to the lack of a powerful Post Promotion Analysis (PPA). Most companies still depend on spreadsheets for conducting PPA. Field sales executives have to manually compile promotion data and send it to decision-makers. This is a time consuming and error-prone process. Decision-makers won’t have the access to real-time data.
The use of spreadsheets also decreases the speed in decision-making. Decision-makers have to spend more time analyzing data and less time gaining insights from it.
Inability to leverage data to optimize trade promotion spend
Today’s trade promotions and consumer behaviour are affected by numerous internal and external factors like weather, seasonal events, marketing campaigns, and social media influence. Running profitable promotions requires the capturing and harnessing of data from all these touch points. Most businesses depend solely on external data brokers such as Nielsen or IRI, and past promotion data for their data needs.
While capturing data from these sources is imperative, depending solely on these sources may limit the data accuracy and one may not produce a complete picture. Hence, capturing and harnessing data from multiple internal and external sources is essential to performing a holistic, 360-degree analysis.
Sole Reliance on Trade Promotion Management and ERP Systems
“One does not need a TPO software if they already have a TPM software” – this is a common misconception. A Trade Promotion Management (TPM) system is a transactional tool and is merely used for operational and managerial activities of trade promotions, like managing deductions, and keeping a record of the spending done for trade promotions.
TPM tools do not possess the capability to gather, record, or analyse data and draw insights. A TPM tool cannot offer the ability to conduct prescriptive and predictive analytics to help marketers and revenue management personnel make better, informed decisions.
On the other hand Trade Promotion Optimization Softwares equipped with post promotion analytics are built for the purpose of measuring trade promotion effectiveness and help decision-makers optimize trade spend by giving data-backed recommendations.
All the above challenges disable decision-makers to run informed trade promotions. Consequently, they take decisions based on past experiences, gut or partial intelligence – resulting in low-yield trade promotions and thereby affecting the overall revenue.
Measure and increase the effectiveness of your trade promotions with TPO
Post promotion analysis and promotion optimization needs robust software that can automate and streamline the TPO activity right from measuring, forecasting, and planning to optimization and retail execution. These softwares are equipped with predictive and prescriptive analytics and provide deeper insights into your promotions. Below are some of the use cases and benefits of an effective TPO software.
a) Automate post promotion analysis
b) Measure the sales uplift and ROI of any trade promotion. Solutions usually give you analysis views by brand, location and promotion.
c) Perform ‘what-if’ scenario analysis and forecast sales for the desired promotion combinations. You can set the desired budget and time constraints and goal parameters (increase revenue, profit or volume).
d) Get data-driven recommendations on the right type of promotions to be run. Solutions also give the forecasted sales for each recommendation.
e) Get real-time alerts and insights on your promotion performance.
f) Make data consumption and reporting effortless with advanced visualizations.
The consumer goods business is an extremely competitive one. With over 40% of trade promotions being ineffective, manufacturers should explore the potential of high-yield trade promotions as a key driver to increasing revenue and growth.
Measuring and improving trade promotion effectiveness should be a streamlined procedure and the sole usage of spreadsheets or TPM or ERP systems won’t suffice. TPO systems, with their advanced analytics and sales forecasting capabilities, harness real-time data from multiple sources and provide granular insights and recommendations for running the right promotions.
Companies should aim to build a centralized system for managing, planning, measuring, optimizing and running trade promotions by integrating a TPO system with their existing TPM system.