Improving your Trade Promotion Management (TPM) framework can boost your bottom line upwards of 10-15 percent. A 15 percent improvement on the ROI of your promotions is nothing to scoff at and should provoke companies to attempt refining their strategy. Keeping in mind that many CPG companies invest nearly 1/4 of gross sales into trade spend, it only makes sense to ensure the whole process is as effective as possible.
In addition to trade spending, prominent companies are also investing in marketing and product development. Proving adequate ROI of each expense is necessary, and trade spending must be adjusted to yield the maximum return. Keep reading to find out what issues affect the effectiveness of your trade promotion and how to stabilize your framework to increase net income.
Why Trade Spend Effectiveness Matters
According to a Booz & Company survey, only 22 percent of surveyed companies can measure their trade spend for separate events. The inability to differentiate between profitable and poor promotions is costly. Understanding which activities are providing the company with the least return allows for redistribution of partial or full spending towards other higher-performing events. Improving your trade spending is a substantial and straightforward opportunity to increase your bottom-line.
Booz & Company also reported that major manufacturers’ promotional events range in ROI between negative 100 percent to over 700 percent. Although the performance of events varies considerably, it’s predictable with the assistance of statistical models that average in accuracy within 10 percent. Mathematically predict the outcome of each event and use the data to select high-performers for the future carefully.
5 Trade Promotion Aspects to Review
The success of your trade promotions will face some common hurdles. Analyze the following dynamics to interpret where corrections are needed to enhance the productivity of your trade spending.
- Over dependence on guidelines – The tendency to rely on guidelines voids the ability to drive efficiency enhancements. There needs to be some form of guidelines in place. However, they should allow employees the initiative to make changes that will save the organization money.
- Analytical capabilities of your systems – Most corporate systems do not include the ability to analyze data for trade planning and optimization. Customer relationship management (CRM) and enterprise resource planning (ERP) programs will require costly customizations to analyze data efficiently. Another option is to adopt a foodservice trade promotion management solution that’s created with the complexities of optimizing trade spend in mind.
- Management of trade budgets – There is a widespread lack of understanding as to how trade promotion budgets get spent. Compliance with accounting and control laws requires many companies to manually collect data from various sources and accounts wasting massive amounts of working hours. The right product will allow foodservice manufacturers to free up time for sales teams so they can create and sell more efficient events.
- The focus of your organization’s metrics – Manufacturers often focus on volume over profitability. Although the mindset is changing, it’s not happening fast enough, and many are missing out on profits because of it. Manufacturers that evaluate their ROI can efficiently grow their bottom-line, but the whole organization must hold a profit mindset. Incentivizing profit as a metric can assist with getting everyone on board.
- The breadth of your trade promotion management – Are your analytics capabilities strong, but not tied to a comprehensive program? Lack of informative analytics can cause the organization’s revenues to stagnate. For maximum value, tie data analysis to every step of the trade promotion process – the planning, executing, and monitoring of events.
How to Structure the 3 Capabilities of Trade Promotion
Booz & Company established a three-tier perspective on TPM capabilities that outlines a guide to making your events more profitable. Starting out with a solid foundation of capabilities and building from there is key.
- Foundational – Basic functionalities required to fund and plan trade promotions. Optimize time and productivity while following finance and auditing procedures. Without these cornerstone functions, the next two tiers will underperform.
- Advanced – Analytical capabilities that guide decisions to improve the efficiency of trade spend. These capabilities provide a clearer picture of demand fluctuations.
- Visionary – Open lines of communication across the organization combined with the capabilities noted above enable manufacturers to optimize the supply chain. By aligning sales, marketing, operations, and finance, manufacturers can conduct joint business planning that meets everyone’s needs.
Like any revolution, this will not happen overnight. Leadership must be committed to the process and spearhead the mindset change across the organization. Companies that jump all in will see a major return on their efforts and investments to make the transformation.