CUSTOM RESEARCH. Trade Promotion Management ANNIE S INC. GROWS ORGANICALLY WITH TPM IMPLEMENTING THE FUNDAMENTALS

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1 CUSTOM RESEARCH Trade Promotion Management IMPLEMENTING THE FUNDAMENTALS Trade promotion management (TPM) continues to be a priority as consumer goods (CG) companies strive to get more out of the 20 percent of revenue that they currently spend on promotions. In another sign of a rebounding economy where manufacturers need to win back consumers, 42 percent plan to spend more on promotions this year while only 8 percent plan to decrease actual spend, a definite shift from last year when 38 percent reported plans to spend less due to economic challenges. This change underscores the importance of effective promotions and the need to improve current capabilities through process and technology initiatives. This month, CGT and MEI partner to explore this further with a new research survey. Why TPM? The trade promotion process is unique to the CG industry and involves coordination of multiple business goals to satisfy retailer and consumer demands. While the overwhelming goal (see Figure 1) is improving promotion effectiveness, there are several other business challenges that often rely on this process to address. Improving the sales forecast is a top problem for more than half of respondents and can be particularly difficult because of the cascading effect of inaccurate forecasts. Better visibility into actual spend and related deductions was cited by 41 percent as a challenge and is typically the impetus for fundamental TPM projects. There were differences by company size for predictive capabilities and making better use of downstream data, both of which were more prevalent in larger firms because of the sophistication and technical readiness required. These capabilities are often tied into more advanced trade promotion optimization (TPO) initiatives that many Tier 1 companies are currently undertaking. Managing trade spend also involves close collaboration with retailers, which provides another set of challenges (see Figure 2). Almost one third of those surveyed claimed pressure to buy down price was the greatest challenge to this relationship, while almost another third cited compliance to promotions. Compliance has grown in importance and many CG companies are leveraging merchandising activities to help manage this aspect of promotion execution with much success. Retail execution is not always implemented with TPM but is part of most technology solutions and should be considered because of the potential impact. Ironically, with the rise of private label popularity, pressure from store brands and SKU rationalization was only cited by 18 percent of respondents. Technology Approach Because of the complexity of the trade pro- EXPERT PERSPECTIVE BY ROB BOIS, DIRECTOR OF PRODUCT MARKETING, MEI ANNIE S INC. GROWS ORGANICALLY WITH TPM National retailers have been reducing the number of brands per category, largely in favor of the more budget-focused and profitable private label, store brands. Executing the right promotion with the right tactic is the key to driving demand in today s environment. This is what motivated Annie s Inc. to invest in a TPM solution. As Director of Trade Marketing at Annie s, Dan Mader knew from the onset that his organization needed the ability to forecast what they planned and to improve reporting in order to understand both customer and item efficiency. At the root of the issue was the need for better access to actionable information. You want to have the perfect ratio on your investment. If you don t spend enough you leave sales on the table, and if you spend too much you re not optimizing ROI, commented Mader. If volume is slowing down, you have to react quickly and tighten spending or change your tactics to turn the volume back around. Either way, you need a technology platform that delivers immediate visibility into that critical trade promotion data. Getting your insight from a static spreadsheet several weeks down the road cripples the ability to drive trade efficiency into both sales and finance. Because Annie s can clearly understand what s happening in terms of spending, it has significantly reduced any major shifts in its P&L. The company has also increased its efficiency and can now focus resources on the most effective activities which drive the business further and faster. 20 CGT JUNE 2010 CONSUMERGOODS.COM

2 BY KARA ROMANOW FIGURE 1 Biggest Business Problem Related to Trade Promotion Process BIGGEST BUSINESS PROBLEM Improving promotion effectiveness 80% motion process, the infusion of integrated technology can often add significant value. In fact, almost 80 percent are using some kind of software solution to manage trade promotions almost identical to last year. However, the devil is in the detail, as 25 percent have heavily modified their selected packaged solution and 21 percent have custom built applications. One of the reasons for this may be found in Figure 3, where the barriers to packaged TPM solutions are addressed. After budgetary constraints, which were the top obstacle, complexity was cited by 37 percent Improving sales forecasting Better visibility into spend/deductions Predicting the effects of promotions Making better use of demand data (POS, syndicated data, withdrawal data, etc.) Reducing spending Reconciling deductions 29% 29% FIGURE 2 Greatest Challenge Today in Working with Retailers 41% 41% 51% Note: Respondents were asked to select their top three problems. GREATEST CHALLENGE In another sign of a rebounding Pressure to buy down price 30% economy where manufacturers need to win back consumers, 42 percent plan to spend more on promotions this year while only 8 percent plan to decrease Retailer execution/compliance on promotions Pressure from store brands and SKU rationalization Demonstrating joint value/profitability Unexpected deductions Getting access to consumption data 2% 6% 14% 30% actual spend. FIGURE 3 Greatest Barrier to Adopting Packaged TPM Software who believe their processes are too unique for a packaged application, particularly in companies with more than $1 billion in annual revenue. Organizational readiness and change management were also significant barriers and would likely be among best practices shared by companies who have experienced successful implementations. Because of the reliance on the user adoption of the sales organization, these two hurdles cannot be underestimated. Of the 38 percent who claimed they had experienced a failed TPM software project, history tells us that lack of change management and readiness may have played a part. GREATEST BARRIER Cost or lack of budget Complexity (our processes are too unique for a packaged software application) Organizational readiness (we don t have the processes perfected yet, so software won t help) Change management (my sales people will never use it) Implementation length Inadequate resources Lack of need (the current state is good enough ) Lack of a single accountable sponsor Risk 8% 12% 41% 37% 37% 35% 29% 24% 20% Note: Respondents were asked to select their top three barriers. CONSUMERGOODS.COM JUNE 2010 CGT 21

3 Consumer Goods Technology May 2010

4 8% 4% 4% 1. What department do you work in? Department % Sales 37% IT 31% Finance / Operations 13% Executive Management 8% Marketing 4% Supply Chain 4% Cross-functional account team 2% Other 2% 37% 31% Sales IT Finance / Operations Executive Management Marketing Supply Chain Cross-functional account team Other 13% 2% 2% 2. What is your company size? Company size % Under $100M $100M to $499M 16% $500M to $999M 10% $1B to $2.9B 16% $3B to $10B 20% $10B and above Under $100M $100M to $499M $500M to $999M $1B to $2.9B $3B to $10B $10B and above 16% 16% 20% 10%

5 3. How do you manage trade promotions today? Manage trade promotions % Packaged software (mostly standard capabilities) 33% Heavily modified packaged software 25% Custom-built software 21% Manually (spreadsheets, paper, workflow, etc.) 21% 33% Packaged software Heavily modified packaged software Custom-built software Manually 25% 21% 21% 4. Have you experienced a failed or scrapped TPM software project? Failed or scrapped TPM project % Yes 38% No 62% 38% 62% Yes No

6 5. What are your greatest business problems related to the trade promotion process? Respondents were asked to select their top three problems. Greatest business problems % Improving promotion effectiveness 80% Improving sales forecasting 51% Better visibility into spend / deductions 41% Predicting the effects of promotions 41% Making better use of demand data (POS, syndicated data, withdrawal data, etc.) 29% Reducing spending 29% Reconciling deductions Improving promotion effectiveness 80% Improving sales forecasting Better visibility into spend / deductions 51% 41% 41% Predicting the effects of promotions Making better use of demand data Reducing spending Reconciling deductions 29% 29%

7 6. What is your greatest challenge today in working with retailers? Greatest challenge % Pressure to buy down price 30% Retailer execution / compliance on promotions 30% Pressure from store brands and SKU rationalization Demonstrating joint value / profitability 14% Unexpected deductions 6% Getting access to consumption data 2% Slotting new products 0% 30% 30% Pressure to buy down price Retailer execution / compliance on promotions Pressure from store brands and SKU rationalization Demonstrating joint value / profitability Unexpected deductions 14% Getting access to consumption data Slotting new products 6% 2% 0%

8 7. Are you spending more or less on trade promotions in 2010 than 2009? Spending % More 42% Less 8% About the same 50% 42% 50% More Less About the same 8% 8. What are or were your greatest barriers to adopting packaged TPM software? Respondents were asked to select their top three barriers. Greatest barriers % Cost or lack of budget 41% Complexity (our processes are too unique for a packaged software application) 37% Organizational readiness (we don't have the processes perfected yet, so software won't help) 37% Change management (my sales people will never use it) 35% Implementation length 29% Inadequate resources 24% Lack of need (the current state is "good enough") 20% Lack of a single accountable project sponsor 12% Risk 8% 41% 37% 37% 35% Cost or lack of budget Complexity 29% 24% 20% Organizational readiness Change management Implementation length Inadequate resources 12% 8% Lack of need Lack of a single accountable project sponsor Risk

9 9. What drove you to look for or would make you consider a TPM software application? Respondents were asked to select their top three barriers. Consider % Need better visibility into promotion performance 76% Improve promotion planning and forecasting 75% Overspending on promotions 31% Spreadsheets becoming too hard to manage 27% Improve financial settlement process 24% New management that wants TPM 12% More unexpected deductions or post-audits 8% Other 14% 76% 75% Need better visibility into promotion performance Improve promotion planning and forecasting Overspending on promotions Spreadsheets becoming too hard to manage Improve financial settlement process New management that wants TPM More unexpected deductions or post-audits 31% 15% 24% Other 12% 8% 14%

10 10. If you were going to embark on a software project to improve TPM, what approaches would most help you improve your success rate? Respondents were asked to select their top three approaches. Approaches % Best practices built into the solution 73% Fix business processes before installing any software 51% Improved user interfaces 51% Less customization 33% Modular deployment (one phase at a time) 25% Better training 22% More professional sales staff 8% Best practices built into the solution Fix business processes before installing any software Improved user interfaces Less customization Modular deployment (one phase at a time) 73% Better training More professional sales staff 51% 51% 33% 25% 22% 8%

11 11. Where do you go for TPM information and best practices? Multiple responses permitted. TPM information % Peers outside my company 76% Access to a user community during and after deployment 57% Others at my company 53% Online CPG publications 45% Trade magazines 41% Online forums or communities 16% Peers outside my company Access to a user community during and after deployment 76% Others at my company Online CPG publications 57% 53% Trade magazines Online forums or communities 45% 41% 16%