How can you reduce trade spend risks? If you understand where your risk comes from, then you can reduce the risks by prioritizing data, defining common objectives, and focusing on the future.
Boards, shareholders, and consumers are holding consumer goods companies and to high standards – not only with product quality and innovation but also fiscal responsibility and sustainability. As a result, the “we’ve always done it this way” stance is coming under scrutiny, especially trade promotion investments.
That said, CPG executives don’t dictate the trade investment strategy. They reinforce organizational objectives to guide it. This means not accepting the stereotypical “sunk cost” reason for trade spend. Instead, CPGs eliminate the risk associated with the investment.
Where risk comes from:
Like most risks, the danger isn’t the investment itself, it’s the lack of understanding, accountability and power to change.
- We don’t know what we’re spending or if it’s working.
- We don’t understand how our work impacts the organization.
- We don’t have the tools or information to make better decisions.
How to reduce risk:
As an executive, your role is to guide the vision of the company, so your leaders can develop strategies that achieve success.
To accomplish optimal results, the most successful CPG companies are eliminating risk by:
1) Prioritizing accuracy in data availability, data efficiency and data utilization
No executive wants to dig around trying to find out how their spending impacts their objectives. It’s equally unacceptable to have rooms of analysts compiling data tha’s unclear about how trade spend affects performance. (Yet, this is happening throughout the industry.)
To reduce the risk of poor-performing trade investment, CPG execs should prioritize data availability and efficiency. Accurate data practices link directly to measurable insight – as close to real-time as possible.
It’s up to you to ask the question, “how do you know?”. Answering this question gives value to the data. Challenge your teams to show how they use system-generated intelligence to drive better results.
2) Asking how, why not, and what if
Risk aversion is contagious. Calculated risk is contagious.
When the elephant in the room consumes more than 20% of your annual revenue, you can’t avoid it.
A leader who asks how, why not, and what if. You should expect your team to use analytical and predictive planning tools for answers. That encourages future-focused thinking that eliminates risk-filled “same-as-last-year” spending in favor of data-driven decision making.
3) Expecting accountability and governance
If we encourage calculated risk, we need to put guardrails in place to position our people for success.
Define common objectives based on a common understanding of the business. Too often, different goals are set because each department is working from different baselines. As an executive, you hold the organization accountable for one, centralized version of the truth that is used to set and measure objective performance.
4) Focus on improvement
When it comes to trade promotion investment, many CPGs rely on their trade promotion management (TPM) solution to track and forecast their plans. This is a great accomplishment. But, to fully address your spending or how you might invest differently, you should turn to optimization.
Data and analytics are critical ingredients in the recipe CPGs use to accurately forecast demand across product segments. Eliminating risk is more than identifying where the risk is, it happens by prioritizing doing your best to address it.