Avoiding trade promotion poor performance repetition by moving to forward-looking promotion optimization.
The pandemic and related supply chain chaos threw a spotlight on Sales and Operations Planning (S&OP) forecasting and accuracy flaws. From a trade promotions standpoint, it served to demonstrate why the time-worn axiom for consumer goods promotional programs, ‘same as last year with adjustments for Easter’, is the trade promotions definition of insanity.
So how to optimize trade promotion planning for better forecasting and S&OP accuracy?
First, we need to understand that Trade Promotion Management (TPM) is tactical, where Trade Promotion Optimization (TPO) is predictive. It reduces the guesswork involved in forecasting by harmonizing data, modelling baselines, optimizing planning through predictive analytics, and applying post-event analysis. It assists with supply chain optimization and improves agility and efficiency. It ensures an end to end financial, demand planning and customer planning system that provides a single source of truth to manufacturing, marketing, and selling brands.
Components of S&OP
Good S&OP plans typically include the following:
- Promotion calendars and plans, including promotional plan objectives, pricing, and category objectives
- Volume Planning
- Deduction Management
- Margin Analytics
- Post Event Analytics
- External Factors Planned and Unforeseen (‘what if’ scenarios)
- Price Changes & Promotional Mechanics
- Promotional & Seasonal Uplifts and Dips, Cannibalization, Pantry Filling and Forward Buying allowances
- In-store KPI Compliance
Four pillars for effective TPO
- Data Harmonization is about centralizing internal data such as shipment, spending with external data such as syndicated and POS category, RMA and SKU level data into one single source of truth that enables cross-factor analysis, rather than a series of separate spreadsheets.
- Baseline Modelling: Baselines can be inaccurate because standard historic and syndicated baselines don’t take into account events such as COVID. Baselines need to allow modelling future baselines using scenario planning, account for change drivers such as changes to regular or ‘everyday’ retail prices, and distribution changes. They need to be smoothed to reflect true consumption in the absence of promotions.
- Planning optimization utilizes predictive planning at both the individual event and a full calendar level, incorporating promotion objectives and tactics. This includes what-if and doomsday scenario planning using consumption demand data, not internal shipment data, to ensure scenarios are built on statistical models. It also takes into account execution factors such as merchandising and display support for promotional programs.
- Post-Event Analysis (PEA) is where the historic promotional performance data comes in. At a minimum this involves analyzing an individual promotion’s performance versus forecast; ROI, margin and incremental profit evaluations, competitive and consumer event overlays often involving external data source integrations. True PEA gives you the ability to utilize multiple sources of data in one view. That means syndicated data, internal shipments and spending, competitive activities, and marketing/consumer events can be viewed at once. Rolling up PEA at a customer and category level enables development of a roadmap for future successful promotional activities.
Integrating into one system
We see many organizations operating in a scenario where the Trade Marketing team uses different tools to manage their promotional planning, budgeting, and to control their trade spend, settlements and post event analysis. This makes forecasting and future planning difficult.
Moving to a TPO system refines the process and enables a clearer, cross-functional view. We have seen up to 15-20% improvements in forecast accuracy using TPO systems because they employ scientific predictive volume calculations rather than hand-entered ‘gut feel’ estimates. They create a credible base volume forecast combining forward looking what-if scenario modelling with detailed historic PEA.
Blacksmith’s TPO platform guides promotional optimization, baselines, promotional event analysis, planning and reporting management, trade programs, reporting and analytics, budgeting, and planning.
If you don’t currently have a TPO solution and are looking for an opportunity to improve your forecasting and S&OP accuracy, we would love to tell you more about it.
Check out more content on TPO here.