Presentation on theme: "What is Trade Promotions?"— Presentation transcript:
1 What is Trade Promotions? Created August 5, 2004
2 AgendaSo, what is TPM exactly?Trade Promotion: Current Market PlaceDeloitte’s ViewAppendix A: TPM Process Details
3 IntroductionThis document will focus on the promotion planning, execution and post analysis activities performed by an organization. Marketing, branding, and other activities are not included.After this presentation, you should be able to:Describe the TPM ProcessIdentify challenges associated with Trade PromotionsDevelop a high-level approach to addressing TPM related issues
5 The TPM ProcessTrade Promotion Management (TPM) is defined as the process of planning, budgeting, presenting and executing incentive programs which occur between the manufacturer and the retailer to enhance sales of specific products. To provide a better understanding, we have outlined a typical trade promotions cycle:See Appendix for Process Step Details
6 … In Return for Performance… Promotion ProgramsThe following diagram provides listings of many of the types of incentives and programs that are run.Promotion programs vary widely from account to accountdiscounts on each product soldpayments of a fixed sum of moneyother special programsIncentive programs are based on corporate strategy and account objectivesCostsPerformanceBenefitsManufacturers Offer Incentives to trading Partners…Off-invoice allowancesFavorable payment termsMarket development fundsSell-through guarantees/failure feesCo-op advertisingBracket allowances… In Return for Performance…At HeadquartersPlan MerchandisingBuy in advance ofdemandSet pricesAuthorize new itemsAt RetailMerchandisingAdsDisplayReduced pricesCoupons“Everyday Low Prices”ShelvingSpaceConfigurationLocationStock Rotation… To Generate Consumer Sales…Incremental Sales and Profits
7 Types of Trade Promotions Trade Promotion Management (TPM) is the configuration and management of three types of promotions.Corporate PromotionsCompany-wide promotions of a product or a brand in which accounts can participate.They are run for a specific time period and contain the objective of the promotion, suggested tactics, and other information.For example, a beverage company decides to promote a new product with the recommended tactics of a temporary price reduction (TPR) and in-store displays.Discretionary PromotionsAfter a discretionary promotion has been created, it is saved as a template.The promotion templates that can serve as the basis of an account promotion.Other key account managers can use templates of existing promotions when establishing promotions at their accounts.Account PromotionsBased on a corporate promotion or a discretionary promotion.A plan is a group of account promotions that depicts the aggregate results of account promotions, such as spending and volume.
8 National Sales Director Who Manages TPM?The National Sales Director leads the sales force, and gives direction in terms of merchandising priorities, product assortment, revenue targets, products focus (new and established), budget and thresholds for key metrics such as promotion ROI.The key account manager is responsible for account and promotion planning, category management, new product introductions.National Sales DirectorThe Controller is responsible for the accurate recording of promotional results, customer payments, rebates and the tracking of free product. Customer P&L, Product P&LKey Account ManagerControllerThe demand planner captures customer orders, and tracks their progressThe Brand Manager is responsible for providing strategic direction for brand growth and managing the P&L. She develops the consumer plan and provides guidelines on brand priorities and price points to the sales force.Demand PlannerBrand Manager
9 TPM SummaryTrade Promotion Management is the process of planning, budgeting, presenting and executing incentive programs that are established between a manufacturer and a retailer to enhance the sales of specific products.Planning: In order to meet account objectives, it is imperative to have a solid promotion plan. This plan should be based on past history, customer history, brand/product history, corporate objectives, and good judgment. Currently, many companies have extremely informal or non-existent processes.Executing: A primary stumbling block in the execution of the account plan is accurate and timely payment to retailers for promotion performance. Effective processes and tools are imperative to avoid costly deduction expenses and overspending due to poor accounting.Analyzing: Studies show that between 50-90% of promotions are not profitable. Many companies are not performing any post promotion analysis to determine which promotions are profitable. Without this analysis, the same unprofitable promotions are run over and over again.The Goal: Significant increases in effectiveness coupled with reductions in trade promotion spending.
11 The Trade Promotion Environment Most CPG companies have to plan and manage Trade Promotions in an environment where they have little control, poor visibility, limited data, and few analytical tools, resulting in trade spending ineffectiveness and inefficiencies.Powerful, demanding customersHigh dissatisfaction with promotion efficiencyDeal-conscious consumersRETAILERSCONSUMERSNot satisfied with share of trade spendDeclining consumer pass-throughPressure to deliver volume/$$$ targetsExecution at variance from planMultiple, disparate data sourcesFocus on temporary price reductionsSimplistic, home-grown analytical toolsMisalignment of performance objectivesSALESFORCEINFRASTRUCTURE
12 Problems Experienced in TPM Many companies experience that an increasing spend in trade promotion is not reaching intended targets.Manufacturers rating TPM inefficiency a very important issue85%Retailers rating TPM inefficiency an important issue63%% of spend being passed to consumers (per mfr)52%% of manufacturers effective at evaluating incremental sales during TPM63%% of manufacturers effective at evaluating incremental profit during TPM40%% of manufacturers where ROI is the 2nd biggest TPM related problem40%[ Sample size of CPG manufacturers and retailers = 300]
13 Problems Experienced in TPM (continued) CPG Marketing Spend vs. Pass Through[ % of Total Marketing Spend]Where The Trade Dollars End UpAdvertising24%24%Retailer Bottom LineConsumer Promotions15%20%Retailer ExpenseAccount-Specific Marketing10%51%56%Consumer Pass ThroughTrade Promotions“Consumer Goods” said of the challenge of TPM is Controlling the Multi-Billion Dollar Hemorrhage. It’s accountable for an annual $18 Billion loss to the consumer goods industry!AC Nielsen once reported, [TPM] is CPG’s #1 problem…$470 Billion is spent annually on it and 3/4 of manufacturers feel they are receiving fair-poor value!
14 Driven by desire for Critical Mass The Changing MarketRetail competition is intensifying, consolidation is accelerating, leaders are emerging and the pressure on suppliers is increasing.The near future will see the emergence of 3-5 dominant global retailers with room for niche players.The primary issue, however, is that we are some way off from seeing global retailers manage the business in a truly global fashion.Driven by desire for Critical Massand Market Share
15 Dynamics of the Trade Relationship Although retail competition is intensifying and consolidation is accelerating, the fundamentals of the trade relationship remain the same.What display location produces the strongest results?What is my ROI?Was compliance achieved?How often should I promote Product X?ManufacturerRetail BuyerShould or how do I extend a promotion across regions of my chain?What is the residual impact on my other brands?Did my trade monies get passed along to the consumer?What was the impact of Product X on Category Y?Did my Product X promotion drive other market basket sales?The trade relationship is becoming information and insight hungry
16 Dynamics of the Consumer Relationship Similarly, the fundamentals of the consumer relationship with both the manufacturer and the retailer have remained the same as in the past.Why do I want a relationship with a retailer or manufacturer?ConsumerWho are my highest value shoppers?What is my ROI?What is the best mix of consumer and trade spending?How can the manufacturers’ consumer insights be used to improve category management?ManufacturerRetail BuyerWhat insights can we gain from retailer customer loyalty programs?Who are my highest value consumers?How do we position our Private Label products?How do we increase shopper loyalty and shopper rings?A challenge for the consumer relationship is better integration of and insight into the ever increasing amount of consumer data available
17 The Business ProblemTrade Promotion Management is complex and requires management of:Analytical modeling to determine what to spend each timeFunding vehicles and tracking multiple ‘buckets’ of money for each customerPayment options to maximize value to their customers - dealsComplex Pricing mechanisms, which will lead to Deductions if they are wrongReporting solutions to analyze performance results and share with customersAn analytical review process to confirm that planned results were achievedProblems and inefficiencies invariably result from managing this complex issueDeductions (which are customers short payments for failing to meet promotion obligations) average 7-9% of net sales for the typical CPG manufacturerField sales representatives typically spend over 60% of their time managing deductions and other administrative issues…which is more time than they spend selling to customersAnalytical review is difficult and requires a large volume of data for accuracy
19 Trade and Consumer Management Overview Of these key activities, Deloitte believes there are four umbrella challenges in Trade & Consumer Management that are of highest priority to CPG manufacturers.How can we focus marketing investments on our highest value consumers?How should we leverage information from retailer loyalty programs to jointly market to the consumer?Which type and level of account are the most profitable and how should we prioritize customer investments?How do we incorporate lessons learned from past activities into future planning?Account PlanningTrade & Consumer SolutionsDirect to Consumer MarketingAccountManagementCollaboration & ExchangesHow should we collaborate with the retailer to improve demand forecasts?What supply chain productivity gains can be achieved by linking supply forecasting with CRM information?What types of promotional events and tactics are most effective?How can we get visibility to the quality of in-store execution?
20 TPM BenefitsTPM, if implemented correctly and efficiently, has a number of benefits that can be felt across an entire organization.Fully understanding the costs of promotions to facilitate running smarter promotions in the future (what works and what doesn’t) by focusing promotion dollars on what will increase profits, rather than just increasing gross revenues.Ability to forecast with greater accuracy over a longer time horizon to a lower level of detail than a manual approach would yield. Forecasting affects:PromotionsNew Product DevelopmentSeasonal (Xmas / Easter / Public Holidays)Contribute to an accelerated, more precise budget creation processAbility to compare promotion effectiveness during planned and unplanned scenarios (e.g. weather, holiday season, stock market fluctuations, etc.)Assist in long range business and capital planningQuick, accurate, and appropriate application of market cannibalization* and the associated phasing-in and phasing-outMarket cannibalization is the impact a new product has on the sales performance of a company's existing, related products. EXAMPLE: Coca ColaTM puts out a new product called Coke2TM. Market cannibalization is where customers buy Coke2 instead of regular Coke.
21 Key Management Drivers Thus far, we have observed several themes that drive both the trade management and consumer relationship related activities within the industry.VisibilityTrade performanceCustomer segmentation & profitabilityConsumer trends and preferencesIntegrationMulti-channel touchpointsFront office to back officeCollaborationCollaborative Planning Forecasting and ReplenishmentTrade planning and supply chain integrationGlobal Account ManagementCoordinated management and planning with an increasingly global tradeConsumer IntimacyConsumer engagementCross brand “lifestyle” solution
22 TPM How Do We Make It Happen? To improve current trade spending ineffectiveness and inefficiencies, CPG manufacturers need to adopt a comprehensive model that incorporates trade program simplification, customer and internal collaboration, and the use of technology as a key enabler.Single Data RepositoryControls and SafeguardsModeling CapabilitiesTPMFlexible and Seamless WorkflowCustomizable Reporting
23 Typical TPM Technical Strategies To address these CRM ailments, most CPG companies are aligning their business solutions around three fundamental technology strategies.Strong IntegrationBreadth of OfferingDepth of FunctionalityERP-based Solution(e.g., SAP)Enterprise Front-office Suite(e.g., Siebel)Point Solution for Trade Promotions(e.g., CAS, MEI, Vista)CharacteristicsAggressively invests in CPG offering to complete proposition.Provide for complete CRM vision, yet supports an evolutionary path to rollout.Deepest support CPG.Some companies using as a short-term, “throw-away” solution.AdvantagesSingle data repository for master data and business transactions – clean integrationLeverages prior investment and skills.Broad and deep functionality.Fewer points of integration and synchronization then ERP based solutions.Supports multiple modes/ channels.Can drive near term results in narrowly focused areas.Designed with CPG sales person in mind.Lower software license investment.ChallengesCPG functionality needs to be completed.Remote, untethered usage is new and relatively untested in CPG.May not be “best in class” in any area.License investment can be substantial.Requires multiple solutions to complete CRM picture, difficult to upgrade versions.Multiple data repositories must be synchronized.Long-term vendor viability has to be evaluated.Impact onBack-officeIntegration with back-office should be easier given one vendor providing the suite of technology.Standard connectivity is available but integration will have to be achieved with at least two software products.Some products have standard ERP integration tools, others require substantial effort.
26 The TPM ProcessTrade Promotion Management (TPM) is defined as the process of planning, budgeting, presenting and executing incentive programs which occur between the manufacturer and the retailer to enhance sales of specific products. To provide a better understanding, we have outlined a typical trade promotions cycle:See Appendix for Process Step Details
27 Allocate BudgetThe Trade Promotions process begins with a determination of the funds that will be devoted to various accounts. This step draws on several key inputs:historical sales datasales quotas by account/brandthe promotion strategy for the product/brandA clear understanding of the types of promotional dollars and activities available, as well as how the promotional dollars should be spent from a strategic perspective, is needed to effectively allocate promotion dollars.This step produces detailed spending budgets for each account by product or product grouping.For example, an account manager for the XYZ Grocery might have a quota of $250,000 for liquid soaps. To reach that quota, the sales representative might be given $32,500 of promotional spending allocated for liquid soaps.
28 Creating a Promotion Plan This step focuses on creating a formal trade promotions plan, because a formal plan helps the company look beyond the short term to consider trade promotions in a holistic, strategic light. It is the largest component of the Trade Promotions Management process and the true cornerstone to successful trade promotion activities.The challenge is to understand the thought processes that the best reps are using to create profitable promotion plans and to translate that into reusable process steps. Creating a formal promotion plan helps manufacturers to take this longer term view - typically promotions have been seen by manufacturers as short term initiatives to meet sales projections for a given period. Instead, trade promotions need to be considered more holistically to meet long term account objectives.Developing the trade promotion plan by account requires a strong understanding of past sales and promotions and often simply a “gut feel” for future events. Given the breadth of knowledge required to develop the plan, this process step should not be solely completed by either marketing or sales.
29 Creating a Promotion Plan - continued Typically marketing will provide initial strategic direction, sales representatives will use that direction as well as their extensive account knowledge to develop the detailed plan by account, and promotion specialists as well as sales management will review and approve the plan.The creation of a plan draws on a wide range of inputs, including historical data about sales, promotions and budgets; best practices in use at other companies; the company's marketing plan; and an understanding of the customer's strategies, goals, objectives, and needs in terms of products and services. The effort should involve both the marketing and sales organizations, with marketing providing the initial strategic direction, and sales professionals providing specific account knowledge.The promotion plan documents what the manufacturer will do for the retailer in exchange for what the retailer will do for the manufacturer. When complete, the promotion plan will list the details of events that are to take place with each account, such as:Event start and end dates, as well as order and shipment dates for the promotionProducts included in the eventExpected base and incremental sales for each product (lift)Event tactics (end-aisle display, temporary price reduction, ad feature, etc.)Event costs (per case shipped to retailer, per case sold by retailer, lump sums)Expected profitability for the event
30 Sell-in Promotional Plan In this step, the manufacturer puts its portion of the promotion plan into action, and monitors the retailer's activities, keeping track of shipments, compliance and consumption. As the promotion proceeds, the process is managed to ensure:A completed event/proof of performance: Did the retailer perform as planned? Did advertisements actually run? Were displays set up? Etc.Customer payment - based on the spending agreed to in the promotion planClosed deduction - any deductions and adjustments are reconciled against the promotion plan and proof of performance
31 Monitor PlanWhen a promotion is running, sales and marketing teams pay close attention to its impact on sales and market share so that they can make timely adjustment decisions using a TPM solution. A manufacturer must also monitor promotions for success. To do this, it requires shipment data from its own ERP system or, for even more sensitive monitoring, syndicated data from the point-of-sale systems of retailers or from an agency like AC Nielsen. Where a promotional event like a “back-to-school” special is tied to in-store activity, a manufacturer’s sales force might also collect compliance data in the field.As the promotion plan is being executed, managers track actual performance in a number of areas, including:shipmentsrevenuesspendingprofitabilityretailer compliance with promotion parametersThis actual data is diligently compared with planned performance. The goal is to maintain a clear picture of how well the promotion is doing, and to revise the plan to meet any new customer or business demands. For example, the manufacturer may want to expedite additional shipments to support strong early promotion results, or commit additional funds if early results are weak.
32 Execute PlanDuring this step, the manufacturer needs to actually execute their side of the plan based on previous commitments. This will entail:finalizing ads where appropriateperforming retail activities as neededgiving appropriate payments and discountsmonitoring retail activities to ensure that their customers are acting as agreed.
33 Evaluate effectiveness This step involves the review and analysis of the promotion, and produces the critical historical information that is used in the planning activities at the beginning of the TPM process - identifying what works and what doesn't and providing feedback that can drive improvements in trade promotions overall.The analysis and evaluation should be performed by promotion or customer-marketing specialists in the sales organization, in conjunction with sales representatives, to ensure that performance is clearly and accurately understood. The analysis should include both quantitative and qualitative data about factors that affected the plan, and be incorporated into a formal scorecard that can be used to consistently compare the performance of various promotions.Post analysis is a critical component of trade promotion planning process to ensure that the most effective promotions are utilized.The easiest way to increase the profitability of trade promotions spending is to shift funds from what doesn’t work to what does work.
35 CPG Industry Distribution Network Don’t Delete – Editable Version.CPG Industry Distribution NetworkHighConsumersInfluencersRetail StoresPurchaseInfluencersWebCatalogCall CenterInfluencersRetailers /WholesalersSales ForceCollaboration ComplexityWeb/PromotionsCall CenterDistributors& BrokersSales ForceCall CenterWeb/WebTradeCall CenterSuppliersLowLowCollaboration ValueHigh
36 Don’t Delete – Editable Version. 100%Leading- EdgeBest PracticesRequired to do BusinessWorking Capital ReductionBrand StrategySKURationalizatione-ProcurementCPCOutsourcingeCRMAdvertising EffectivenessAdoption RateSales Force RedesignTrade Promotions ManagementSAP Beverage SolutionsVMI(multi-partner)Mergers & AcquisitionsMulti-tier CPFRChannel StrategyValue Based ManagementMulti-tier Design collaboration0%EmergentMatureStrategic AdvantageCustom “Home-Grown” ApplicationsCost Improvement/ / Competitive Parity“Packaged” Applications
37 Don’t Delete – Editable Version. FinancialTo succeed financially, how should we appear to our stakeholders (Regulators, Customers, etc.)?Internal ProcessCustomerTo satisfy our stakeholders and customers, what business processes must we excel at?How do existing and potential customers view us? How do we continue to provide value?Learning & GrowthTo achieve our vision, how will we sustain our ability to change and improve?