It's a familiar mantra, "Consumer goods companies spend 20
percent of their revenues on trade promotion -- 20
percent!" What might be said following that statement? "Tracking
effectiveness and profitability is uncertain;" and "the majority of
CG companies are still using spreadsheets as their trade promotionmanagement (TPM)
solution."
While a few years ago these budgetary allowances and technical
constraints were accepted as the standard, shifts in the marketplace and trends
in the industry have brought TPM discussions to the table. Yet, even as
additional products become available, and the value of successful TPM becomes
more apparent, many CG companies are simply not investing in an outside
solution.
Surveys reveal different aspects and statistics relating to the
lack of use or prioritization for TPM solutions. In a study commissioned by
MEI, Amplitude Research indicates that only 25 percent of companies purchase
software from an external vendor. An AMR Research study shows that only 30
percent have a TPM solution in place, but that Excel is the largest TPM
provider. Forrester says that 40 percent use a "home grown/Excel"
solution. A recent survey by Consumer Goods Technology
indicates that 36 percent of the companies responding are currently using a TPM
solution, but 22 percent have no plans to evaluate or implement in the next two
years.
Ask a few different people why CG companies are not using outside
solutions, and you will get a few different answers. At the most basic level,
TPM is still too new for businesses to understand
what it is all about. Lisa Bradner, a Forrester Research analyst says, "Trade
promotion management is still in its infancy. Our survey shows that
many consumer products companies are struggling with how to track, report and
execute trade promotions effectively internally and that they
need to master that before figuring out how to manage it with their channel
partners. Adding to that is a fundamental question of 'who owns the money?'
That makes TPM an extremely difficult conversation for retailers and
manufacturers to have."
Promotion Effectiveness
So if companies are having internal struggles with the
nitty-gritty, perhaps a definition is necessary first. According to AMR
Research, "Promotion effectiveness is the measurement of the results of a
promotional activity based upon uplift, cost, margin, profit, revenue and
account management considerations."
Early on TPM was viewed as a transactional execution process and
was often limited to the accounts receivable management process. Then, a few
years back, TPM transitioned into a process that involved collaboration with
retailers and internal sales and operational planning (S&OP). And recently,
there has been a move towards optimization across enterprise, shaping demand
through measurement and the execution of promotions. (See Figure 1) Ironically,
it may be precisely this move towards optimization, which while providing a
greater benefit to companies, has, in effect, added to the complexity of TPM
and contributed to the reluctance of adoption.
Gary Adams, solution principal II, consumer products integrated
sales and marketing, SAP, explains, "Managing trade promotion dollars
and events continues to draw a tremendous amount of attention from most
consumer products manufacturers. Despite this trend, many of these same
companies continue to struggle with purchasing and implementing a best-practice
solution to solve this meaningful, yet complex, business process. Therein lies
the dilemma. Understanding the complexity of each process that effects, or are
effected by the trade-promotion dollar is crucial."
Jon Van Duyne, chief executive officer, CAS Americas agrees,
"This move from transactional trade promotion management, as
we have been accustomed to discussing it, to trade promotion
optimization -- which also needs to include for this purpose demand
side management-- has created the 'perfect storm of a business problem
since so many parties, including marketing, sales, operations, finance and even
general management are, by necessity, now involved." starting small CG companies
need to use a "crawl, walk, run" tactic, starting out with
fundamentals. Across functions, organizations have different goals for
promotion effectiveness and its meaning depends on each perspective.
Understanding this diversity is the first step in TPM assessment.
For example, if marketing tries to solve the problem with an
application that tracks spend and sales, but operations uses a tool to
understand lift and predict volume, they work independently and therefore,
inconsistently.
"Organizational alignment is needed -- at a minimum -- when
implementing a TPM solution, and requires coordination between sales,
marketing, finance and IT. Given that within most organizations, there is no
clear owner of TPM across these functions, it's often challenging to gain
agreement to implement a TPM solution and build consensus on how the solution
should be configured to support each business functions critical
processes," says Mark Osborn, chief solutions and services officer, Gelco
Information Network Inc., Trade Management Group.
Adams speaks to this as well. "To truly solve these
challenges, a company must fully evaluate how sales, finance and operations
(including production and logistics) are impacted by the budgeting, planning,
selling, executing, validating, settling and evaluating of their trade
promotions. By putting this road map together, companies can clearly
identify the type of solution(s) required for implementation as they work
toward effectiveness and optimization of trade-promotion dollars."
Van Duyne points out that leaders in this space recognize that the
future is more about increasing effectiveness versus simply achieving
efficiencies through enabling technology. He says, "In order to make this
vision a reality, companies must look at people and processes in addition to
systems." Fred Schroeder, chief executive officer MEI, also believes that
internal issues play a big part in the slow pace of adoption, particularly
internal collaboration and benchmarking. He suggests, "CG executive have
to rethink long-standing activities and practices."
One of these practices is the use of Excel to track data.
Companies need to jump this hurdle in order to leverage TPM, especially at a
level that is more than simply transactional. Because this is the method
"they have always used," because Excel is inexpensive and so
accessible and already understood, many businesses simply stay
with what they know.
Osborn explains, "From our perspective, the ongoing use of
spreadsheets remains a significant opportunity for both TPM solution providers
and the industry in general. Despite the perceived benefits, spreadsheets
are unreliable, subject to frequent and potentially significant errors, and
unable to ensure auditable standards and adequate financial controls."
Sarbanes-Oxley, the controls to which he refers, has brought new
scrutiny and regulation to the use of spreadsheets. Osborn and many others
believe that this tool may fail to meet the requirements of the Act, with its
full implications yet unknown.
MEI calls on the vendor community to grow the category mutually.
Schroeder says, "When TPM is implemented right, it can have a big
impact." He cites a study done by Hand Promotion Management that found an
overall improved ROI (from 4 percent to 18 percent) in CG manufacturers that had
implement advanced TPM and analytical tools.
The Bottom Line
The bottom line is that CG companies need to change the way they
approach promotions. Rather than being overwhelmed at the comprehensive
technology available to ensure effectiveness of spend, be brutally honest about
what is required today; then consider possibilities for tomorrow.
If a transactional system is needed to track spend, reconcile
deductions and manage the financial flow, then start basic. If the basics are
already in place, then build on top of that foundation with more advanced
planning capabilities, and ultimately move into promotion effectiveness and
optimization that leverages more sophisticated analytics. But don't rely on
spreadsheets to manage one of the largest and most important budget items most
CG companies have.
It has always been challenging to track the ROI for marketing
activities, but an enterprise-wide application that manages all aspects of
promotions can certainly go a long way to ensuring success at the retail shelf.
