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.
In CPG retail, promotion optimization removes the guesswork from sales planning by smoothing baselines and automating post-event analysis.
Watch the Webinar: TPO Myth vs. Reality 👇
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 spend right.
In May 2019, we set out to answer the hot-button topic…
What does it actually take to do TPO well?
CPGs wrestle to find the best approach to pricing and spend too much time and money on ineffective retail 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 (ineffective) 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
Think about trade promotion optimization as predictive. Predictive is defined as relating to or having the effect of predicting an event of result. Our data shows that only 22% are satisfied with their ability to manage trade promotions.
CPG manufacturers continue to find value in trade promotion optimization capabilities. 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 your needs. Your trade promotion optimization solution 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 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 8-12 weeks. IT resources are mostly unnecessary since the TPO system vendor should shoulder most of the work.
- Read more
- MYTH: “Optimization sounds cool, but it’s really only for the consumer insights group.”
- Why it’s not true ✓ Most CPG departments benefit from promotional optimization capabilities. All groups can use the data to strategize for future events.
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- MYTH: “You can only optimize retail trade events once a year… What’s the point of investing in this application?”
- Why it’s not true ✓ Using trades spend 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.
- Read more
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.
Promotion Optimization Case Study
Welch’s became a Blacksmith TPO customer in 2017.
Key Promotional Challenges:
- Poor promotional ROI
- Budget adherence
- Non-repeatable practices
- Siloed planning
The Solution: A 10-week implementation, enabling the team to:
- Work together to identify ineffective trade spend and create profitable promotions
- Move away from manual planning and analysis to automated post-event analytics and predictive optimized planning
- Trade investment ROI increased 16%+
- Achieved volume objectives
Ready to learn more? Watch the webinar: