SPECIAL SECTION. CGT Straight Talk. vs.

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1 ... SPECIAL SECTION CGT Straight Talk REALITY MYTH vs. WADING THROUGH THE TRADE PROMOTION HYPE THINK IT S TOO HARD TO IMPROVE CAPABILITIES AND PERFORMANCE? THINK AGAIN Trade promotion hasn t quite been around since the dawn of retailing, it just seems that way especially when you re neck-deep in a spreadsheet trying to rationalize program allocations that seem like they haven t changed in years. You d think that there d no longer be any myths surrounding a practice that s been around here so long, is so critical to the sales process and is so prominent on the corporate expense ledger. But you d be wrong. And a number of the remaining myths involve the industry s willingness to treat trade promotion as a necessary evil that s too costly, too time-consuming or simply too much work to try improving, as we learn in this month s Straight Talk. SPONSORS TM UpClearR CONSUMERGOODS.COM JANUARY/FEBRUARY 2017 CGT 29

2 Wading Through Predictive analytics requires a tremendous amount of metrics. SHERYLE BLASKO Enterprise Accounts Director, FS TPM Division afs Technologies tpm.afsi.com/ The account manager only needs to understand two numbers: what is my base, and what is my info@shotfarm.com lift on deal. Account managers are often challenged to forecast additional volume opportunities when planning trade events. To do this, they often look historically, to project what the lift would be based on prior year events. However, challenges arise when they are required to forecast against a new price point or a new performance tactic for which no historical reference is available. Account managers then need to look to Corporate for direction on the impact to incremental volume when considering this new event. But Corporate may not understand the AM s customer, or may only be able to provide an incremental volume forecast from an unrelated retailer; Corporate often assumes a broad-stroke lift factor for volume forecasting and doesn t apply any per-retailer methodology. The impact to this type of assumption is that it does not consider consumer motivation to assume that price variances will fluctuate from retailer to retailer. Corporate will often inundate the AMs with an inordinate number of metrics to understand what this projection of lift will be. In reality, the AM only needs to understand two numbers: what is my base, and what is my lift on deal. In the amalgam, the greatest task is to understand what your base volume is, and there is no fancy calculation or technology that is going to predict that number with 100% accuracy it is an assumption. So, at the end of the day, what s required is an agreedupon base number (consumption versus shipment) and a simplistic way to obtain and understand a projected lift number, along with scenario plans or multiple what if s to help determine the right price point. By understanding the lift at multiple price points or tactics, the account manager can understand the combination of price, tactic and spend required to confidently execute plans that will achieve expectations. TM 30 CGT JANUARY/FEBRUARY 2017 CONSUMERGOODS.COM

3 Trade promotion is a zero-sum game: if the manufacturer wins, the retailer has to lose (and vice-versa). GARY SINGER Principal, Advisory Services Practice Ernst & Young LLP With margins under pressure, trade promotion has become a point of contention rather than collaboration info@shotfarm.com yet 35% of promotion events are actually winwin for both the manufacturer and retailer. Consumer goods manufacturers urgently need to find new ways of making themselves relevant to consumers. Retailers face the same challenge. This is a problem they could solve together. For decades, manufacturers have worked with retailers to give people the products they wanted and to sweeten the purchase with the right price, a tempting discount or a great deal. Collectively, manufacturers spend around $200 billion each year on trade promotion. But with margins under intense pressure, trade promotion has become a point of contention rather than collaboration. Too often, each side negotiates pricing and promotion as though it were a zero-sum game, where a win for one side means a loss for the other. It doesn t have to be this way. Last year, EY analyzed data from more than 2,200 promotion events across the U.S. and found that 35% were actually winwin defined as generating incremental profit for both the manufacturer and retailer. Opportunities for both sides to improve their business performance occur more frequently than conventional thinking would suggest. We ve set out the actions companies can take to capture these opportunities in a white paper (available at ey.com and consumergoods.com). Two of these actions stand out. First, manufacturers and retailers need to collaborate better; we found that companies are achieving 67% promotion compliance on average but leading companies are achieving better than 80%. Second, companies need to invest in their data analytics capabilities. According to EY research, only 15% of manufacturers and 17% of retailers feel confident in their use of analytics to make better decisions on pricing and promotion. However, for companies that work with insights that are detailed and reliable, more win-win events are possible. In doing so, our analysis shows the potential for manufacturers and retailers to achieve a 10-fold and four-fold increase, respectively, in incremental revenue per promotion event. CONSUMERGOODS.COM JANUARY/FEBRUARY 2017 CGT 31

4 Trade promotion planning is a once-a-year process. RICK HALL Global Head, Sales Effectiveness Nielsen nielsen.com If you are currently treating trade promotion planning as an annual event, you are likely not reaching your budget s full ROI potential. Perhaps the easiest way to evaluate this statement is to question whether once a year is indeed frequent enough to manage what is often the largest line item on your company s P&L. Imagine balancing your own checkbook and setting your personal budget only once a year. Are there ever any surprises (either good or bad) in your personal finances? Would you really want to just set it and forget it? The same holds true for trade promotion planning. Trade promotion planning is not really a one-and-done kind of process; it s more of a collaborative exchange between two parties, with all the negotiation and back and forth that goes along with that. The retailer has a calendar, and the manufacturer has a calendar, and they re different. You may have a headquarters-driven annual plan that gets created with all the anchor events, like movie tie-ins, new product launches, etc. but that doesn t mean the process is over once that plan has been defined. Things happen that necessitate a course correction: the cost of goods increases, a new product enters the market, there is a product shortage, the retailer (or manufacturer) decides to respond to a specific competitive activity, and so on. There s no doubt that it s worthwhile to plan ahead so you know what s coming. But as stated, that doesn t signal the end of the process. Besides, every plan has a little wiggle room, something around the edges at the very least. For example, the headquartersdriven plan may very well have a builtin allowance for retailer- or accountspecific promotions. Finally, and critically, once the promotions start running, you need to be able to measure performance and react. This requires analytics and tools. And having the right analytics enables you to adjust in real time to make the most out of your finite promotional budget. If you are currently treating trade promotion planning as an annual event, you are likely not reaching your budget s full ROI potential. Help is available: You can start by benchmarking your current processes against the best in class. Then, with access to powerful analytics and tools, you can maximize the profitability of those everyday decision opportunities that are expected in today s ever-changing retail environment. It really can be as easy as balancing your checkbook. 32 CGT JANUARY/FEBRUARY 2017 CONSUMERGOODS.COM

5 I need to invest in a full-blown TPO solution to avoid being left behind. THIERRY SOUDEE CEO UpClear upclear.com At its core, TPO is an extension of the TPM process and does not have to be as complex as some might say. info@shotfarm.com The definition of trade promotion optimization is, as a relatively new concept, still unclear. For some, it refers to total category promotional planning for X number of months or years in the future, while for others it is more focused on What if? scenario planning or simply dynamic baselines. In either case, the perception is that a complex and expensive TPO system must be implemented that sits on top of an existing trade promotion management process to keep up with the industry. TO BE CLEAR: TPO IS, FIRST AND FORE- MOST, A PROCESS, NOT A SOLUTION. Do you have to pay exorbitant fees for a custom, standalone TPO solution that depends on good TPM data and gets you, let s say, 95% of the way? Or can basic analysis, TPM system capabilities, and your internal knowledge get you started quickly at 80%? At its core, TPO is an extension of the TPM process and is not as complex as some might say. So, why not start with embedded TPO built into your TPM process? The starting point for TPO Light is leveraging the knowledge you already have, including existing (clean) promo data, and then making use of vendor capabilities to develop a dynamic baseline, real-time historical promotion benchmarks, and lift factors based on one-part science and one-part common sense. Modern software-as-a-service TPM options benefit from agile and continuous development and are therefore designed to meet these evolving needs. They make it easy to capture accurate and reliable information. These tools avoid legacy issues such as incompatibility and the inefficiency of integrating yet another system. This embedded TPO Light will utilize machine learning to continually improve based on new data and feedback from the people who are closest to the promotion: the account managers. Over time, users will find themselves with an intelligent, full solution, without the added costs. UpClearR CONSUMERGOODS.COM JANUARY/FEBRUARY 2017 CGT 33