Now that holiday promotional plans and sales are largely behind retailers, now is the perfect time for companies to start thinking about what they’re going to do to make their Marketing campaigns aimed at retailers or wholesales, also known as trade promotions, more profitable in 2020. If you’re like many marketing decision-makers, you may have done some research on the advantages of Trade Promotion Management (TPM) and Trade Promotion Optimization (TPO) for your company.
Trade Promotion Management tools allow companies to manage their promotional campaigns including, planning, budgeting and analyzing results. Trade Promotion Optimization is the process of fine-tuning the effectiveness and efficacy of your promotional strategies, to boost revenue or increase and protect the brand’s market share.
Now, let’s explore how you can realistically implement a TPM/TPO plan and gain the lift in sales and profit margin promised by the solutions providers you’ve researched. As the new decade is in full swing, here are suggestions for getting a jump start on the year ahead.
Data Readiness Assessment
If your company decides to actively pursue a TPO strategy you will need a good understanding of the data your business currently has available. TPO operates under the premise that more data is better, meaning it’s better to tease out statistically meaningful insights from past transactions at the customer-product level.
Oftentimes this means having strong working relationships with your downstream partners, distributors, and retailers who will have the point-of-sale data for past transactions, and especially for past promotions. At least two years’ worth of past sales data is considered a minimum requirement to get started.
Your Data Science team will then have the task of cleaning and normalizing the data, resolving discrepancies and warehousing the data for further analytical use.
Cross-Functional Readiness Assessment
TPO is a cross-functional discipline that will require coordination and integration among the traditionally siloed structure found in CPG Marketing departments. It’s important to understand to what extent your Marketing team and its functions currently have access to a unified picture of customer demand. It’s also important to know the micro-level incentives that may put category managers, advertising teams, pricing analysts and financial managers at cross-purposes – and how much buy-in sales representatives in the field have with home office marketing decisions.
And, again, cross-functional readiness extends outside of your organization to your downstream partners as well. It’s crucial for them to understand your pain points and for you to understand theirs.
Scenario Planning Capabilities
TPO has evolved in measurable ways over the past decade. Technological advances in methods like Machine Learning have enhanced the ability of Artificial Intelligence (AI) to supplement the cognitive skills of human decision-makers, taking into account a wide variety of influencing factors apart from just the raw numbers of past promotional sales.
There is a unique story behind every past campaign. What were nearby competitors offering their clients at the same time that your promotion ran? Were there any unusual weather-related incidents – floods, blizzards or the like – that had an impact? Having access to this type of insights allows teams to run alternative scenarios and evaluate potential positive and negative outcomes with more precision.
Importance of 4Ps in RGM strategy
To maximize your revenue growth, key trading periods, such as Easter, Black Friday and Christmas, require you to efficiently address shopping needs, which ultimately, translates into happy customer experience. In the consumer goods industry, revenue growth requires a rigorous focus on offering the right pack at the right price and promotions at the exact place where shoppers expect the product to be located. Here are a few tips on getting a head start on your RGM planning:
The Magic Threshold for Price Planning
Not every product in your portfolio will exhibit similar uplift for a promotion. The use of elastic models and the right pricing threshold will help you weed out those categories, packs, and SKU that may not respond effectively to promotions. The magic threshold can be worked with insights from the elastic models and market intelligence.
Be Aware of the Right Promotional Channel
Make smarter use of your data by trying to match your target audience with the right promotional channel. For many products, online advertising may be an effective and economical way to reach customers.
However, this may not be true for products targeted at elderly consumers, and therefore advertisements on radio or TV might be more productive. It may be worth simulating your spending on one media channel for a month with a TPO solution to see if your company sees a rise in sales. A learning framework with optimal data helps to adjust your promotional strategy accordingly.
Spend Your Money Where It Matters
Promotions are a significant component of the revenue mix. Offering a 30% discount on a product with a 25% margin means that losses increase the more you sell on promotion. Making smarter use of data and a simulation environment helps you to design your promotional plan effectively. Optimize discount depth and frequency based on actual historical data that can guide you to a more realistic outcome.
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As with any Marketing approach, the point of optimizing your trade promotions is to measurably improve the financial performance of your sales. But there are different financial goals that pertain to companies in different stages of growth and product maturity. For one company, the goal may be to gain share for a new product launch through faster sales growth.
For another, it might be shoring up the profitability of a more mature product or category. To “optimize” means to create the most ideal conditions for reaching one of these goals by subjecting all the variables of sale to defined constraints and permissions. This is where cross-functional teams of marketing decision-makers, working with financial managers, can chart the right course using the right optimization solution.
2019 turned out to be a challenging year, with questions about how much longer the economic recovery, that began in 2009, would continue, and many potential threats are also on the horizon. With this in mind, now is the right time to start planning for whatever comes next by optimizing every opportunity – and a TPO readiness assessment would be a good way to start.