What is TPO?
Trade promotion optimization (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.
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.
Trade promotion management and optimization deliver value by allowing consumer goods companies to track spending and ROI, compare events, share best practices, and plan more effective programs.
A TPO application will deliver a 3-5% return on annual trade investment.
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 TPM foundation, an investment in optimization, and a commitment to actionable data.
Ready to learn more?