What is TPO?
Trade promotion optimization, often referred to as TPO, is the process of utilizing integrated goals, factoring in promotion (price / duration), supply constraints, and predictive analysis to create continuously improving trade strategies and results.
The unprecedented level of change in the consumer goods industry doesn’t take away the fact that trade spending represents the second largest line item on the ledgers of most CPG companies.
💰 More than $500 billion spent annually around the world.
💰 As much as 20% of CPGs total revenue.
💰 As much as 60% of all marketing dollars.
Trade promotion management and optimization have begun to alleviate the challenges CPGs face. With all the money at stake, it’s critical for CPGs to get trade right. In May 2019, we set out to answer the hot-button topic…
What does it actually take to do TPO well?
Consumer goods companies are wrestling to find the best approach to pricing and spending too much time and money on ineffective promotions.
How can we get better? Now is the time to think expansively and define goals as you create a strategy for success.
First, let’s recap the roadblocks you face on your path to pricing optimization:
- Forecasts are off. 67% of consumer goods companies can’t predict or forecast promotional outcomes, so they roll over programs year after year.
- No control over trade management. 93% think that trade management systems are too cumbersome. To avoid the hassle, CG companies focus their priorities on competing activities.
- Undependable data resources. 85% of these companies have issues with data quality. If you have poor data, then you can’t gain actionable business insights.
The Value of TPO
Trade promotion optimization delivers value by allowing consumer goods companies to…
- Aggregate and harmonize multiple data sources
- Analyze and compare events
- View base volume
- Generate the best promotional calendar
The best promotion should satisfy the consumer’s needs, the retailer’s needs, and yours. Your TPO application should deliver a 3-5% return on annual trade investment. (See Blacksmith TPO in-action.)
Globally, more than $500 billion is spent on trade promotions every year. Much of this, however, is spent on fruitless programs… Only 33% of promotions make money!
Nielsen reviewed more than 800,000 UPCs and 92 million promotion event weeks totaling $213 billion in U.S. retail sales across 75 retail banners across channels, and found that two-thirds of promotions don’t even break even.
Common Trade Promotion Optimization Myths
- MYTH: “Implementation will take forever and eat up all of our IT resources.”
- Why it’s not true ✓ An average TPO system implementation takes just 8-12 weeks. IT resources are mostly unnecessary. The TPO system vendor will shoulder most of the work.
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- MYTH: “Optimization sounds cool, but it’s really only for the consumer insights group.”
- Why it’s not true ✓ Most departments will benefit from optimization capabilities. All groups can use the data to strategize for future events.
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- MYTH: “You can only optimize trade once a year… What’s the point of investing in this application?”
- Why it’s not true ✓ Using trade system data, you can show the retailer how much incremental profit and revenue could be made if tactics are changed more often than the usual once-per-year timeline.
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To be successful in promotional optimization, you need to start with some fundamentals – a strong trade spend management foundation, an investment in optimization, and a commitment to actionable data.
Ready to learn more? Watch the webinar: