3 Reasons Not to Cut Your Trade Promotion Investment

CPG companies will once again invest upwards of $200 billion on in-store promotions despite the fact that many of these same companies are shredding marketing budgets and searching for cost-saving measures. The POI 2017 TPx and Retail Execution Survey concludes that 84% of its respondents are dissatisfied with their ability to manage trade promotions.

The 3 possible reasons for companies to stick with this high-investment approach to encourage consumers to buy their products:

  1. Their competitors are doing it

  2. Their retail partners are demanding it

  3. They just might work

 

For better or worse, these motivators are enough to keep investing in trade promotions. It also signals an even greater need to turn trade investment management into more than what respondents of the POI survey described as the entire process of creating a promotional plan, from budgeting to planning to execution to settlement to post-event analytics, which takes a burdensome amount of time.

As companies make peace with the fact that trade promotions aren’t going anywhere, the available trade technologies give them analytical insight and predictive planning capabilities to effectively address all of the motivating factors listed above. This as well as an improved quantified return on their trade investment.

Competing Brands Have Active Trade Promotions

While one day we may be writing about the technology that can predict which promotions your competition will run before they actually run, today we have to rely on the fact that history often repeats itself. This is especially true when it comes to trade promotions. Most companies simply run the same promotions they ran last year and hope for different results. How does this help you?

The visibility gained with the post-event analysis capabilities include a competitive view of trade promotion activity. In doing so, the historical description of your competition’s trade promotions and corresponding pricing is available to analyze. Additionally, a holistic analysis of this activity will reveal trends indicative of a strategy that will more than likely be the foundation of next year’s plans.

Of course, since your company is taking a more data-driven approach to trade investment (using a TPO solution), this intelligence can be used in your own planning and collaboration with retail partners.

Retail Partners Dismiss Cuts to Trade Spend

This is no surprise. Manufacturers are justified in their concerns that a cut in trade spend could mean a reduction in SKU assortment or shelf space. With the real possibility that retailers look to cut the center store, retailers are not interested in manufacturers being another group dictating the “do more with less” mantra. Instead, manufacturers should approach their retail partners with the idea of investing more intelligently for mutual benefit.

However, manufacturers will need to foster this relationship with more than “trust me” promises where both sides hope everything turns out well. Instead, manufacturers can use the power of predictive modeling to develop promotional events and plans that clearly quantify retailer KPIs. Furthermore, the optimization capabilities of a TPO solution allow promotional planning to be optimized in consideration of retailer constraints such as minimum retailer profit margin or discount bracket.

Manufacturers should approach their retail partners with the idea of investing more intelligently for mutual benefit.

 

Armed with intelligence, the possibility exists to have conversations with retailers about how to use this data for better results. This shifts the conversation from trade promotions being a must have in order to stay on the shelf to a conversation about wanting the promotion because it is in both parties’ best interest.

Promotions Just Might Work

It does not take an algorithm to see that consumers are influenced by price.

However, for too long manufacturers have blindly offered deep discounts to both consumers and retail partners in exchange for the opportunity to drive volume. These slightly educated guesses relied on perfect execution and loyal customers to come close to breaking event.

The visibility gained with post-event analysis capabilities of a TPO should include a competitive view of trade promotion activity.

As a result, trade promotions have gained the reputation as sunk cost of doing business. Trade promotion management solutions are sufficient in managing the transactional processes of in-store promotions. As CPGs place more scrutiny on trade investment, the historical and predictive intelligence gained with a TPO solution can potentially reposition trade investment as a sustainable contribution to your revenue growth management strategy.

Confidence Replaces Cuts

As the #2 line item on many P&Ls, the decision to cut trade spending seems like an easy win. Unfortunately, swift, miscalculated cuts can result in the same losses that unsuccessful trade plans have brought to your organization for years. Instead, rediscover confidence in your trade investment by reducing costs associated with under performing events and reinvest in proven, more profitable promotional strategies.

With better intelligence, better accountability and better predictability, companies will start to see the strong performance in making their trade investments work again.

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