What is Trade Promotion Optimization?
Trade promotion optimization maximizes your trade investments through data analysis.
Trade promotion optimization software enables the analytical ability to deliver insights and enhance future outcomes.
All CPGs want to better align trade promotion investments with quantifiable returns but many aren’t clear on what benefits a trade promotion optimization (TPO) solution can bring to their organization… especially in conjunction with a trade promotion management (TPM) tool.
Integrating your TPO solution to your TPM software gives you the intelligence to move beyond a transactional, event-based view of trade spend activity to an analytical, performance-based approach to effectively improve your trade investment.
Trade promotion optimization is the next innovation in trade promotion management process. With optimization functionality, CPG manufacturers can bring together spend analysis and planning that will make an impact on performance outcomes.
True promotion optimization solutions must have 3 components…
Automated post-event analytics harmonizes your data and quantifies ROI and KPIs. Historical data provides you with the ability to share fact-based data with your retail partners.
Historical and predictive lift coefficients will calculate manufacturer and retailer KPIs at event and plan levels.
Run through the multitude of promotional mixes to determine the optimal event or promotional plan to align with revenue, profit, or volume objectives for both a merchandising tactic and an annual customer plan.
Without all three of optimization components, you may find yourselves in a situation where you have insight but can’t act. Or worse yet, you lack an accurate and holistic view of promotional performance so that you’re predictive planning is nothing more than a misinformed guess.
McKinsey & Co. wrote that CPG winners “differentiate trade investments using metrics that cover both outcomes (such as net sales) and activities (such as placement of promotional displays). They track a comprehensive set of key performance indicators and conduct formal reviews, paying special attention to deviations from trade-investment guidelines and imposing more stringent consequences for overspending.”
This winning mindset, as I’ve described above, is a reality with TPO in your tech stack.
With TPO, you see real-time performance measures. You can explain the impact of promotions on category, brand, and overall business performance. You have powerful predictive capabilities to be agile and proactive in achieving future objectives.
As an ANALYSIS tool, a TPO solution should allow CPGs to:
• See the interplay of consumption, shipment and spending data as it affects the quantified performance indicators of an event
• Monitor baseline trends over time
• Account for inconsistencies in syndicated performance data and correct data anomalies
• Monitor the effects of competitor and consumer events’
As a PLANNING tool, a TPO solution should allow CPGs to:
• Eliminate redundant entry with tight integration into TPM system
• Conduct unlimited what-if scenarios
• Create a library of approved plans
• Calculate predictive KPIs (for you and your retail partners)
• Use predictive and constraint-based modeling to determine optimal performing events and plans at the product and customer level
• Compare annual plans optimized for profit, revenue and volume
Even with a better understanding of how TPM and TPO solutions can work together, the concern of implementing yet another system with even more functionality can be daunting.
Consider the following:
- By the time you’ve analyzed your data, it’s often too late to inform sales planning or to allow your leadership team to really understand the picture of overall business.
- Your TPO solution prepares detailed data among all of your customers, making the work you do more efficient, more accurate. and most importantly… more profitable.
- Implementing TPO software takes between 8-14 weeks and there’s minimal involvement from your IT team. Your TPO tool should seamlessly integrate with your company’s ERP system, TPM system, and any other provider of trade promotion data with read and write capabilities.
- As you bring unique, raw data and predictive analytics to the table, you open up conversations with retailers about how to maximize returns that are mutually beneficial.
- Without the ability to centralize and easily visualize data and its effect, CPGs are at the mercy of retailer data when it comes to promotional compliance and supplier issues. Showing retailers your ROI data improves collaboration.
Return on Investment
- What if you could say that you’re quantifying a more than 5% return of your annual trade investment? And all it took was a single change to one customer plan (and you already paid for the tool that helped you get there?). A TPO solution should provide a robust historical and predictive what-if scenario planning module, enabling accurate and optimized customer plans.
With visibility to ROI you:
➥ Are accountable and have an opportunity to improve.
➥ Define specific internal KPIs and reference your customer’s KPIs.
➥ Specify erosion in performance and make tactical adjustments to trade spend.
Promotion optimization software will show you:
- What happened the last time your plan ran
- What you can expect if it’s run again
- What factors might influence its success
- What optimal tweaks might make the plan more effective
TPO has the capability to optimize your trade spend for volume, profit and revenue. This information is invaluable! Electronically port it to your TPM — no redundant entry.
“Always recognize that software is not the automatic answer to a problem. Instead, it is the enablement of an underlying business process with appropriate technology that can deliver results. Merely buying some software package and installing it is not the answer, despite all the marketing hype to the contrary.”
–2015 POI TPx and Retail Execution Survey
A TPO solution should work in partnership with your TPM solution. These tools can work together. You’ll have a central intelligence center for a complete and accurate post-event analysis. You’ll have greater insight to the comparative effect that shipments, trade spending, consumption data, consumer marketing and competitive activity have on your base volume.
How to Prepare
Once you’ve decided that trade promotion optimization is a process you want to include in your trade marketing program, it’s time to organize internally to evaluate both your needs and the solutions available. Tips to get started:
💡 Undergo an internal evaluation and organize the team
💡 Assess your situation. Identify pain points with your trade and sales teams.
💡 Develop a project charter with potential benefits for your organization. Research solution providers and evaluate!
💡 Develop an evaluation and implementation timeline.
15 Questions to Ask Before Implementing TPO Software
- What are our trade promotion goals?
- What do we hope we can see from our post-event analysis?
- How are we measuring the results of our promotions?
- What would make our analysis and planning more efficient?
- What information would make our planning easier?
- How would visibility to ROI affect our work?
- What do we hope would be gained with the addition of a TPO solution?
- What do we fear would be lost without the addition of a TPO solution?
- Do you have syndicated or DSD data?
- Are you managing, analyzing and planning promotions using spreadsheets?
- Are you or your team spending more time compiling data than analyzing it?
- Are you struggling to provide timely and accurate KPI measurements to management?
- Would your sales and/or planning team benefit from having more information on future promotions?
- Are you looking to improve your relationship with your retail partners?
- Would your organization benefit from a quantified return on its annual trade promotion investment?