Under the Surface: How to Find Trade Spend Visibility

Posted on October 3, 2017 by Caitlin Orosz under Trade Spend Topics

You can’t efficiently manage trade spend with your eyes closed; you need visibility to assess a program’s profitability and process efficiency.

Knowing where trade funds are spent, showing a deal’s value, determining product growth, and tying responsibility to promotions drive the need for visibility in the fast-moving CPG market.

Consumer goods manufacturers cite limited visibility as a common challenge in trade promotion; it prevents them from accurately measuring and improving trade performance.

Are you guessing whether or not you’re overpaying on operator programs? Do you know if your teams are meeting workflow guidelines or if they have sufficient vendor support? Are you collecting the right data?

Perhaps your trade management system is like an iceberg. You’re in a boat, on the water, aware of the small portion of ice above the surface. If you were to jump into the water, you would quickly realize more volume underneath the surface, and that which you were able to see from the boat is in fact a very small amount of the total structure. Once you’re aware of the entire iceberg, you are in better shape to determine a successful way forward. Similarly, your trade spend strategy can be dramatically improved when you see the full picture of program performance.

iceberg

Gaining visibility ‘under the surface’ of a deal exposes additional, hidden challenges so that you can focus on effective, efficient outcomes.

Finding the Data that Matters

Globally, more than half of trade promotions don’t break even. When you operate on razor-thin margins, identifying gainful pricing strategies and evaluating your investments are a priority.

If you’re trapped in spreadsheets trying to find insights there’s room for error. And it’s time-intensive. Even if you’re using a trade management system, the outputs and analysis can get muddled, given the endless number of programs, SKUs and deal structures.

Organize and validate your data using one software solution. Build a historical analysis to support future promotional decisions. Observe the value of a deal across programs, reduce bad pricing and stay on track with financial expectations. Employ automated functionality to make payments, optimize programs, settle claims, and forecast accruals.

Consider these report details for profitable insights:

  • Product Details: Instantly see what you’ve paid on the contract down to each individual SKU
  • Freight Rates: Calculate inbound and outbound rates based on warehouse zip code and view pick-up allowances
  • Auto Pay: Create automated payment terms for your distributor rebate programs
  • Deviation Grid: See the start and end dates of a billback and view the relevant program for details on expected rate calculation – price per case, invoices and rate claim

 

Don’t Hide from Reality

With better trade spend management, CPG companies can transform their organizations to drive profitable growth, adding 10-15% to bottom-lines.

Use analytics to your advantage. Ensure the highest-performing deals are identified and amend low-performing deals. For example, brand managers and sales should share program analytics across geographies and departments to provide better insights into deal mechanics. This will maximize the return of each promotion dollar across different retail channels and activity types.

With regular review of trade spend performance, an organization can:

  • Identify what pricing works or does not work
  • Provide knowledge on product trends over time
  • Establish differences in relative customer and relative category spend and sales
  • Recommend action plans that result in continuous ROI/effectiveness improvement
  • Increase the bottom line

 

Moving Forward: Process Improvements

As a best practice, companies should collaborate for more fruitful promotion plans – sharing visibility into how dollars are spent against strategic initiatives, customer segments and product SKUs. Gaining visibility into spend throughout departments will increases sales and margins.

For a strategic approach, evaluate customer and division profitability.

  • Compare indirect volume commitments to actual run-rates in order to evaluate the volume / price ratio. Is the rate still fair in light of actual sales?
  • View discounted business with each customer relative to their gross purchases and compare across points of distribution by local house, corporate parent and buying group. Identify which distributors represent ‘true street’ business by region and broker.
  • Assess the distributor’s effective net price rank relative to the price point to categorize the true net contribution by SKU and major planning category.

 

Identify the real factors standing in the way of your trade deal success, then build a better framework.

Visibility enables you to reduce inefficiencies, mitigate monetary risks and expand product performance. Although it’s no simple task, you can avoid loss in your trade programs by viewing the entire “iceberg”; avoiding mistakes resulting from partial information.