Effective Trade Promotion Leads to Increased Profits

Posted on March 19, 2018 by Brian Maloney under Foodservice 101

Effective management of trade promotions can lead to increased profits. Refine your trade fund strategy by examining your focus, analysis, dependence on guidelines, budget management, and its overall magnitude. Advancing your trade promotion management can boost your bottom line by 10% or more.

Improving your trade promotion management (TPM) framework can boost your bottom line upwards of 10% – 15%.

A 15% improvement on the ROI of your promotions is nothing to scoff at and should provoke you to attempt refining a trade fund strategy. Keep in mind: many CPG companies invest nearly 1/4 of gross sales into trade spend, it only makes sense to make the process as effective as possible.

In addition to trade spend, foodservice and retail companies invest in marketing and product development. Proving adequate ROI of each expense is necessary, and trade spend must be adjusted to yield the maximum return. What issues affect your trade promotion effectiveness and how can you stabilize your framework to increase net income.

Why Trade Spend Effectiveness Matters

According to a Booz & Company survey, only 22% of surveyed companies can measure their trade spend for separate events.

The inability to differentiate between profitable and fruitless promotions is costly. Understanding which activities are providing the company with the least return allows for redistribution of partial or full spending towards other higher-performing events. Improving your trade spend efficiency is a substantial and straightforward opportunity to increase your bottom-line.

Effective TPM

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Booz & Company also reported that major manufacturers’ promotional events range in ROI between negative 100% to over 700%. Although the performance of events varies considerably, with the assistance of statistical models, you can mathematically predict that average in accuracy within 10 percent.

5 Trade Promotion Aspects to Review

  1. Over Dependence on Guidelines. The tendency to rely on guidelines voids the ability to drive efficiency enhancements. There needs to be guidelines in place, however, they should allow employees the initiative to make changes that will save the organization money.
  2. Analytical Capabilities of Systems. Most corporate systems do not include the ability to analyze data for trade planning and optimization. Customer relationship management (CRM) and enterprise resource planning (ERP) programs will require costly customization to analyze data efficiently. Another option is to adopt a foodservice / retail trade promotion management solution that’s created with the complexities of optimizing trade spend in mind.
  3. Management of Trade Budgets. Compliance with accounting and control laws requires many companies to manually collect data from various sources and accounts wasting massive amounts of working hours. The right trade management product will allow manufacturers to free up time for sales teams so they can create and sell more efficient events.
  4. The Focus of Your Organization’s Metrics. Is your focus on volume not profitability? Although the mindset is changing, many manufacturers are missing out on profits. Manufacturers that evaluate their ROI can efficiently grow their bottom-line, but the whole organization must hold a profit mindset. Incentivize profit as a metric can assist with getting everyone on board.
  5. The Breadth of Your Trade Promotion Management. Lack of informative analytics can cause revenues to stagnate. For maximum value, tie data analysis to every step of the trade promotion process – the planning, executing and monitoring of events.

How to Structure the 3 Capabilities of Trade Promotion

Booz & Company established a three-tier perspective on TPM capabilities that outlines a guide to making your events more profitable. Starting out with a solid foundation of capabilities and building from there is key.

Effective TPM

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  1. Foundational. Basic functionalities required to fund and plan trade promotions. Optimize time and productivity while following finance and auditing procedures. Without these cornerstone functions, the next two tiers will under perform.
  2. Advanced. Analytical capabilities that guide decisions to improve the efficiency and profitability of trade spend. These capabilities provide a clearer picture of demand fluctuations.
  3. Visionary. Open lines of communication across the organization combined with the capabilities noted above enable manufacturers to optimize the supply chain. By aligning sales, marketing, operations, and finance, manufacturers can conduct joint business planning that meets everyone’s needs.

Like any revolution, this will not happen overnight. Leadership must be committed to the process and spearhead the mindset change across the organization. Companies that jump all in will see a major return on their efforts and investments to make the transformation.