Budget vs. Strategy.
Past vs. Future.
Expense vs. Investment.
Because there are different ways to look at trade investments, CPG finance and revenue management teams often face unclear priorities. Many focus on reconciling expenses and minimizing spend, but ignore trade promotion optimization for a better return.
In revenue growth management, there are 4 key ingredients: pricing, assortment, trade investment, and promotions. McKinsey says during the pandemic about 30% – 40% of shoppers tried new brands and promotions have the potential to capture a large portion of that business. Even though promotional spend is one of the largest items on a P&L, CPG companies lack clarity into the correlation between promotions and growth.
If you focus is on what is spent, you tend to monitor the impact on budget rather than monitor the impact on the [positive, organic] growth of the business.
Without quantified performance metrics guiding promotional event planning, taking a revenue management approach is close to impossible.
In other words, you execute the same, unproven tactics as last year. This standard practice no longer has to be the norm! It’s time to adopt an analytical approach to trade investment.
Aligning CPG finance and revenue management teams around data-driven business metrics, you can move past a mindset of “what are we spending?” to the strategic mindset of “what is the optimal return?”.
Optimize Trade Spend
Predictive analytics quantifies KPIs during post-event analysis and planning.
TPO software functionality allows CPG companies to accurately and effectively follow the performance and health of their business in real-time, and to plan more judiciously.
With automation, CPGs can compare historical, planned, and actual metrics of trade events. CPG finance teams can identify opportunities to meet future objectives. Similarly, the ability to compare multiple promotional plans prior to execution provides teams with an aerial view; finding the plan that best meets corporate objectives while staying within budgetary constraints. Using constraint-based modeling to optimize promotional outcomes takes the uncertainty away from sales planning.
To achieve revenue management goals, define an event or promotional mix that meets budget constraints while optimizing for revenue, profit, or volume.
When you define the event or promotional mix, you position your company to reconcile competing priorities of financial efficacy and revenue management strategy.
Sarika Sadarangani of Ventura Foods says that they’re “always trying to get the most impact for the dollar spent.” Blacksmith TPO master calendar screen “provides an easy-to-analyze snapshot of our past promotions. We can see what worked, what didn’t work, and the causes behind it — Did we get the price point we were paying for? Was a competitor on promotion at the same time? Has our baseline been declining? In addition, the What-If Event Scenario Report allows our sales team an opportunity to do the first round of validations prior to asking for an incremental promotion,” she adds.
Couple promotional optimization with sales planning and you’ll discover the combination of events with the greatest influence on your business growth. You can be confident that the promotions you run are positively effecting the volume, revenue and lift.
Sadarangani says, “By optimizing our trade strategy, we were able to reduce our spends, grow our profit, and experience minimal volume declines.”
Promotions: Pop Quiz
McKinsey reports that 58% of CPG companies recognize the need for data, analytics, and a clearer understanding of trends as major challenges to delivering growth. As a CPG, you should know the short- and long-term effects of your promotional spend.
- Are consumers buying your product after the promotion ends?
- What is the impact of promotions on a shopper’s basket size?
- Were the projected volumes close to actual volumes?
- What impact does this promotion have on the category?
- Was your promotion profitable?
To win, CPGs must analyze promotional data and partner with growing channels. Take a balanced approach to growth – led by a greater understanding trade promotion performance – to align your promotional spending decisions advance the financial health of your business.