Intelligent Trade Promotion Optimization

Stephen DeAngelis

December 11, 2017

Trade promotion is considered a necessary evil in the consumer packaged goods arena. There is a constant tug-of-war between the need to attract consumers and the desire to maximize profits. Trade Promotion Optimization (TPO) solutions (sometimes referred to as Trade Promotion Management (TMS) systems) attempt to find the proper balance between those two objectives. In order to optimize trade promotions, TPO systems must disentangle an extremely large number of highly-interrelated variables to identify disruptive insights leading to growth opportunities. These insights help develop a more thorough understanding of a retailers’ and consumers’ value perception. A good TPO solution provides the data-driven evidence needed to make informed decisions on promotion and campaign planning.

Improving Trade Promotion

Perhaps the biggest challenge associated with trade promotions is measuring their effectiveness. Terry Ziegler, CEO of T-Pro Solutions, reports, “Nielsen estimates that 59 percent of trade promotions will not break even.”[1] That’s troubling considering the fact “promotional spends are 20% to 30% of [many CPG manufacturers’] overall revenue.”[2] As Ziegler notes, “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.”

Rob Hand, CEO at Hand Promotion Management, writes, “Most domain experts will say that there are many causes for why trade promotions fail; but it really comes down to only one major thing: bad intelligence. As Willie Degel, founder and CEO of Uncle Jack’s Steakhouses and noted Food Network star says, ‘If you can’t SEE the problem, you can’t FIX the problem!'”[3] As noted above, TPO involves analyzing an extremely large number of highly-interrelated variables (i.e., the intelligence required to see the problem). The most important variable, of course, is the consumer. If you can’t base decisions on consumer behavior, you are making decisions blind. Too often today, Hand writes, “What you can’t see is the consumer. Or at least, what you can’t see is what the consumer is going to do, and when. Predicting the success of trade promotion is what this rush to promotion optimization is all about; but, it’s more about the quality and quantity of the data.”

In an earlier article, Hand reported some CPG manufacturers may have a faulty perception of what TPO is all about. When he asked one CPG executive where the consumer fits into Trade Promotion Management, he was surprised when the executive replied, “Nowhere really — TPM is essentially a deal between us and the retailer.”[4] If the most important variable associated with successful trade promotion is not even considered, it’s little wonder so many promotions fail to achieve desired results. What kind of data allows you the best view of the consumer? Hand explains, “Point-of-sale (POS) data is a huge piece of that puzzle; but it cannot be the only piece. Demand signals include shopping trends, digital footprints of shopping online or looking at recipes, talking to their neighbors and friends on social media, buying habits, and consumption data.”

Intelligent Trade Promotion

Hand asserts, “Converting big data to usable insights can only really be accomplished through a digital path to purchase and an infusion of that technology and intelligence into the trade promotion planning and execution processes. In fact, being able to see what the promotion is doing in near real-time is the only way to avoid the ultimate pain of a failed promotion. That is where digital technology saves the day.” Enterra’s TPO solution is driven by the Enterra Enterprise Cognitive System™ (ECS). This platform provides capabilities that generate insights and foster institutional consistency across markets and categories. ECS utilizes Artificial Intelligence and Advanced Mathematics to replicate human analysis and decision making; but with a high degree of integrity, consistency and at computer speed. As complexity increases, cognitive computing capabilities become even more important.

Ziegler asserts, “Trade promotion optimization should allow for the harmonization of POS, shipment and spending data to provide more frequent and more accurate baselines.” He makes it clear, however, he believes a good TPO solution involves everything from pre-planning to post-event analysis. “Post-event analysis becomes more than a justification for spending,” he writes, “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.” Cognitive computing platforms can help with every phase of TPO execution from beginning to end.

Supply chain professionals know supply chains are complex and promotions add to that complexity. Karmen Gilbert and Jason Malmassari, executives with HAVI Global Solutions, explain, “Efficient supply chains are adaptive, flexible, and built on predictable supply and demand models. Variations happen and demand fluctuates, but promotions can take unpredictability to a whole new level. Promotions are less predictable by nature, and can involve new ingredients or components, limited production runs, limited shelf life, new suppliers, and even new distribution networks.”[4] Because cognitive computing systems can handle many more variables than previous analytic platforms, they are ideal for handling the challenges introduced by trade promotions.

Summary

Vijay Hotanahalli (@VHotanahalli) concludes, “With 20% to 30% of consumer goods companies’ budgets dedicated to promotions, it makes sense to monitor and manage TPM alongside every other part of the business.”[5] A good cognitive computing platform can be leveraged to ensure TPO takes advantage of data, both structured and unstructured, to inform promotional campaign decisions. More effective promotions benefit all stakeholders — manufacturers, retailers, and consumers.

Footnotes
[1] Terry Ziegler, “How Optimized Promos Can Stretch CPG Marketing Dollars,” Progressive Grocer, 13 July 2016.
[2] Vijay Hotanahalli, “Better Together: ERP and Trade Promotions Management,” IndustryWeek, 11 August 2015.
[3] Rob Hand, “Digital Transformation in Trade Promotion: What Must Change?” LinkedIn, 30 August 2017.
[4] Karmen Gilbert and Jason Malmassari, “Supply Chain + Marketing = Successful Consumer Promotions,” Inbound Logistics, 27 July 2015.
[5] Hotanahalli, op. cit.