Trade promotions continue to result in loss; every year an estimated $500 billion is spent on trade promotions globally, and across the Western world’s major markets 59% of trade promotions net loss.
Why? Because brands continue to make common mistakes in pricing discounts. Even with a strategic intent to achieve control and visibility with trade funds, consumer goods manufacturers appear to be missing out on contemporary best practices and innovative trade management technology opportunities.
While trade spend remains a high priority for brands, when it comes to implementing an effective pricing approach, organizations struggle to minimize risk and improve the bottom line – often continuing their “business as usual” practices.
You can avoid trade promotion loss and make your trade dollars work harder for you. Don’t make these mistakes:
Mistake 1: You only evaluate data in silos.
Siloed data is isolated information within the organization. Does this sound familiar – you go to the ERP to answer one question…to the CRM to answer another and you miss the opportunity to layer the answers to all of your questions together in a meaningful picture of the total business? Siloed data leads to single-threaded analysis and less profitable business decisions. Ensure that your data is aggregated and that your insights are reflective of the intersection of business metrics. Integrate systems if they stand alone today. It’s just as important for your data points to communicate with one another as it is to communicate with team members and customers. Integrated data will lead to better trade negotiations and more profitable programs.
Mistake 2: You can’t measure the effectiveness of your promotions .
You might know how much you’re spending on promotions, but can you determine a return on the investment? Focus on measuring the outcomes of promotions, don’t ignore margins or allow your attention to be swayed by the wrong data sets. Jay Crown, Director of Trade Strategy & Business Insights at Rich Products, says, “We look to better understand where we spend our money, on what, and what the returns are on that we are getting for the dollars that we put into the marketplace.” Start with a baseline of trade spend promotion by promotion, continue to track the performance of each deal, and soon you’ll be able to make informed decisions knowing what dollars are the most impactful.
Mistake 3: You repeat promotions without addressing trends.
Are you recycling promotions that aren’t profitable? Support your products; use data to determine what distributor-trade and operator programs are working and what programs aren’t. Leverage your knowledge of industry trends and current events to optimize your promotional return opportunity. What flavors, segments, or dining habits offer opportunities to promote differently. Try to get your partners to focus on volume building and white space promotional opportunities instead of discounting without strategy.
Mistake 4: You use the one-size-fits-all approach.
Segment your customer base; not all customers [whether distributor or operator] are the same. Customers have diverse expectations, strategies and priorities. Depending on the customer, and the location, your promotion might need to be altered to deliver optimal value and performance. Never assume one strategy will work across the board.
Mistake 5: You ignore your competition’s strategy.
What are your peers doing to make their customers happy? If you’re not paying attention, your product can get ignored. Be sure that you are communicating the value of your product in a way that doesn’t just get it stocked, but gets it sold. Bring data to the table to create a standard where profit matters to your internal decision-making process. The Sales team should champion profitable deals and reject low performers. Adam Ledonne, Managing Director at Unilever Food Solutions, expresses the importance of a brand proposition, “Brands are still very important.” He continues, “You have to create a win-win situation where you’re talking about price as simply one piece of the conversation in a broader context of appealing to consumers.”
Mistake 6: You rely on outdated tools and processes.
Just because it’s been done the same way for a long time, doesn’t mean it’s the best way. Evaluate your software and trade management processes to determine if you need a better solution. The ideal TPM solution manages the agreements, checks, credits and accruals for each of the ways you spend trade funds:
- Off invoice discounts
- Corporate programs
- Local marketing and food shows
- GPO and national account agreements
- Operator contracts
- School bids
- Brokerage commissions