Trade promotion is a staple of the retail and foodservice industries, and it is a driving force to increase sales and grow market share. However, creating and managing trade promotions is challenging—few companies are satisfied with their trade processes, and many don’t have a clear understanding of where their investment is going. Trade promotion management software can assure efficiency, value and profit.
What is Trade Promotion Management?
Trade promotion management is the science, and art, of managing trade spend activity in the retail and foodservice industries. It encompasses the entire lifecycle of the trade promotion process through budget management, informed planning, accurate payments, deduction and claims resolution, and processing of customer short-pays.
What is Trade Promotion?
Trade promotion is a B2B marketing activity that uses special pricing approaches in order to greatly increase demand for certain products. For foodservice manufacturers, trade programs are focused on operator and distributor incentives, while CPG retail manufacturers create incentives for consumers to take action.
Below are some of the most common retail trade promotion practices:
Bundles are a great way for buyers to save money, even more so during the holiday seasons. Just take beauty products, for example, it makes more sense for a client to buy a variety package than to buy each piece exclusively for a higher amount. Bundles are a great way to sell slow-moving products by pairing them with popular products.
CPG companies offer two-for-one bargains, or discounts for a certain amount or percentage to drive demand. This also works when retailers receive a bonus; for example, some manufacturers give retailers free products when they buy a certain quantity, encouraging the retailer to push the product to consumers to increase their own profit.
Catching the consumer’s attention is the first step in getting a sale, and shrewdly crafted in-store displays do just that. Some companies use interactive displays to captivate consumers; displays are a great way to capture the buyer’s attention.
After-purchase rebates are highly popular promotion tools, as they target both the wary buyer and impulse shoppers. Rebates may drive demand without a huge impact on profit margin; one study shows only 20-30% of buyers actually claim their rebates.
Enticing retailers to promote a product can have a gargantuan effect. This is where sales contests come in; as prizes for stores that sell the most of a product can be a crucial aspect of your promotional campaign. Prizes could include monetary prizes, trips, merchandise, and more.
Money talks, and it is no coincidence that special pricing increases demand for products. Special pricing can be offered directly to consumers, or offered through a retail partnership.
Some of the most common foodservice trade promotion practices include:
Distributors often deduct or short-pay their invoices for the monies they believe they are owed from the foodservice manufacturer based on agreed upon trade promotion contracts. These deductions are typically captured by the manufacturer’s accounts receivables team and entered into the ERP. Claims, or billbacks, are requests made by a customer to the manufacturer or distributor for payment.
Group Purchasing Organizations (GPOs) are associations and organizations that negotiate with manufacturers for volume-based discounts on behalf of its members.
Operator deviated pricing
Deviated pricing occurs when the distributor purchases the product at their normal price and then delivers to the operator net of an allowance from the manufacturer, with the distributor bearing the short-term cash flow burden of the incentive.
Why is Trade Promotion Management Important?
Trade promotion management can have an outsized impact on a manufacturer’s bottom line. Trade promotion activity accounts for an average of 20% of a company’s total net revenue, making it the second-highest cost on a P&L statement after the cost of goods sold.
Pursuing trade promotion activities based on performance assumptions, instead of high-quality data, can result in losses. Effective trade promotion management can boost a company’s bottom line by 10-15%. Effective trade promotion management can result in:
- Accurate and timely information – Trade promotion decisions are often based on assumptions or inaccurate data. Sales and marketing managers may have access to promotion information, but questions about retail or foodservice pricing commitments, and product forecast accuracy, can impede the process.
- Ability to plan promotions based on analytics – Trade promotions are primed for success when they are based on historical data.
- Efficient organization and partner integration – Key elements of organizational and partner integration include standardized metrics, systemic information sharing and collaborative processes. Integration with retail or foodservice partners is the key to successful execution of promotions.
- The right key performance indicators (KPI) – KPIs tell manufacturers how trade promotions perform against predetermined objectives so they know what, in particular, makes a promotion effective.
Effective trade promotion management can boost top-line sales, grow market share, and increase net profit.
What is Trade Promotion Management Software?
Many foodservice and CPG retail manufacturers manage trade promotion processes through TPM software. A TPM solution automates the process of planning, approving, and analyzing, trade spend. It provides in-depth insight into the volume and profitability of trade promotions to help manufacturers improve their business, and aids in gathering real-time data to produce actionable information.
When considering a TPM solution, make sure it provides the following:
- Reporting & analytics – A robust TPM system will automate data analysis and produce useful reports to help manufacturers make better business decisions.
- Contract management – Centralization of contracts provides visibility into how various contracts compare to one another.
- Calendar promotion planning – A TPM solution should include a calendar feature for an easy-to-view snapshot of past promotions. With a master calendar, your team can assess total spend vs. individual account level review.
- Automated claims processing – A TPM solution should optimize the tedious workflow of claims processing so that it is streamlined, effective, and straightforward.
- Issue checks – Automation saves time and money, and eliminates the chances of human error. Payments are accurate and timely.
- Close deductions – If your deduction balance is out of control, you’re not alone. Let TPM automation match open deductions with claims so you spend less time manually identifying payments.
Unsure if your TPM is best in class? Manufacturers should perform a trade system health check in order to identify any gaps that your TPM solution should address.
Trade Promotion Management: 7 steps
Managing trade promotions is complex. Follow these 7 critical steps to achieve trade promotion management success with your TPM software:
Capture the right information, and take the right steps every time, with standardized processes. Standardization minimizes or eliminates the chances for human error in each key component in the trade promotion management process.
2. Promotion management
Take control of your promotion creation and storage. Reduce lapsed and lost
promotions and build approval accountability. A TPM system’s centralized data makes it simple to approve promotions, pay claims, or clear deductions.
3. Data acquisition
Maintain data hygiene throughout the acquisition and logging process to improve financial performance. Data acquisition includes the importing of electronic claims data, or logging incoming paper claims so you don’t pay a distributor if you don’t meet the deduction policy timeframe.
Review claims throughout your trade management process. At each step, be sure that payment requests are valid and non-duplicative. Manufacturers should compare each claim against the terms of the contract and its associated products to ensure valid payment, and evaluate claim data against previous claim submissions to support reconciliation and prevent double-dipping.
Resolve invalid invoices or invoice details. Place any claim with a discrepancy on “pending” status until the promotion owner updates the promotion or gives direction to reject the invalid products/invoices. Address the issue with the distributor or operator so the promotion is up-to-date on their end.
Prevent deductions and guarantee a valid settlement when setting by check, or issue a deduction If a check won’t reach the distributor before the deduction policy timeframe.
7. Analytics and reporting
Understand how a trade strategy is performing across channels and customers, and adjust where necessary. On a KPI dashboard, monitor KPIs like pending claims, rejected claims, spending by component, and volume fulfillment. In standard reports, pull information on distributor performance, estimated vs. actuals by promotion, and analyze market support spend against promotion budgets.
Blacksmith Applications: A Total TPM Solution
It’s difficult to overstate the importance of effective trade promotion for retail and foodservice manufacturers: Trade promotion can increase demand and profitability, and increase customer loyalty and cash flow.
Ideally, a TPM solution should not be another tool to master; instead, it should be a support system, a constant service, a total solution that serves as a launchpad towards growth and prosperity.
Blacksmith Applications provides end-to-end trade solutions for CPG retail and foodservice manufacturers. Blacksmith TPM optimizes processes, reduces task times, prevents errors, and paves the way for highly profitable business decisions with reporting and analytics functionality.
Work with us and implement our trade applications to save your teams weeks on administrative tasks while simultaneously boosting your bottom line.