By Terry Ziegler
What if you made one change to one promotion for one customer?
Instead of asking questions about how we can evolve current trade promotions practices to get better returns, CPG companies recycle the old debate weighing risk and reward of cutting trade promotion spending. The result is often stagnancy as unquantifiable events return immeasurable risks. Therefore, trade marketing professionals adopt a “if it ain’t broke don’t fix it” mindset despite greater demand for finite marketing resources. The problem is that it is broke, as Nielsen estimates that 59 percent of trade promotions will not break even.
It's time we start expecting more from our trade programs. Optimizing trade promotions is a key component of turning trade investment from a strain on marketing budgets to a quantifiable revenue contributor. With optimization, CPGs can monitor, adjust and plan based on several indicators:
ROI, KPI Event and Plan Level Data
Did it work? This is one of the greatest unknowns to trade marketing teams both in accuracy and timeliness. But it is also one of the most improvable data and process components possible. Trade promotion optimization should allow for the harmonization of POS, shipment and spending data to provide more frequent and more accurate baselines. In turn, monitoring the health of your promotions plan through real-time ROI and KPIs as part of post-event analysis. With this, post-event analysis becomes more than a justification for spending, but an action plan to put your marketing dollars to the greatest use.
Furthermore, the ability to calculate predictive ROI and KPI performance for individual events, planned groups, specific customers, or an entire annual plan with a trade promotion optimization solution further empowers your team to make more informed decisions.
Once you start having a clearer picture of accurate promotion performance, it will become very clear when something does not appear correct. For example, discrepancies between planned and actual promotion activity leading to misaligned events or a competitor shortage on inventory bumping your lift wrongly attributed to a promotion. These are data anomalies that often draw an inaccurate and overstated picture of plan performance. Trade promotion optimization should allow an admin user to treat these discrepancies as data anomalies and not impact the base. As a result, we have a more accurate baseline reflective of actual promotional performance to plan against.
Similar to the increased awareness and control that one has with the ability to correct data anomalies, is the insight gained by being able to overlay consumer marketing events and competitor activity. Not only can you then see the impact of these factors as compared to promotion lift, you can also make decisions based on the combination of events. For example, what promotions do better in combination of specific consumer marketing activities? What promotions perform well compared to a competitor’s promotion? With answers to these challenging questions, identifying what the best investment for your limited marketing spend will be easier to determine.
Optimizing 'What If' Scenarios
Of course, predicting promotion performance is a reason many CPGs turn to trade promotion optimization in order to put their analytical understandings to work. With this in mind, the power of predictive analytics to run what-if scenarios opens the door to an unlimited library of possibilities.
These user-generated scenarios provide options, but optimization’s unique capability to apply constraint-based modeling to identify the optimal result based on situational realities takes some uncertainty out of promotions planning.
With the elimination of the “guessing” aspect of planning, the discussion between manufacturer and retailer changes with the added transparency gained by calculating revenue, profit and volume for both parties. This includes forward-buy calculations eliminating unnecessary surpluses or shortages that throw off manufacturer and retailer relations.
Stretching marketing dollars is an innate challenge faced by trade marketing departments; however, optimizing trade promotions provides quantifiable insight into pre-event predictive performance and post-event analytics measures that take the mystery out trade marketing spending. When this happens, CPGs will shift from asking, "Why spend?" to asking, "How are we going to invest?" Optimization can make this question easy to answer.
Terry Ziegler is CEO of T-Pro Solutions.