For better or worse, trade promotions are one of the driving forces of consumer behaviour in FMCG, to the extent that trade promotions are the second biggest P&L cost after the cost of goods sold. The POI Institute estimates that nearly half of FMCG companies spend more than twenty per cent of their revenue on trade spend.

Yet many promotions aren’t effective. Nielsen Holdings research suggests that more than forty per cent of FMCG promotions don’t deliver the desired results, and the POI Institute indicated that 31 per cent of FMCGs are dissatisfied with their ability to manage promotions, with 78 per cent of FMCG companies still using Excel spreadsheets to track trade spend. Companies aren’t able to effectively track where trade spend is going, as they may have disparate processes, disconnected teams and different departments reporting on promotions across various systems and spreadsheets. This limits the ability to management promotional program effectiveness and analysis, which in turn restricts the ability to get retail customers to accept promotional proposals and programs.

So much for the status quo. Then the pandemic and related supply chain chaos threw a spotlight on Sales and Operations Planning (S&OP) forecasting and accuracy flaws. From a trade promotions standpoint, it served to demonstrate why the time-worn axiom for consumer goods promotional programs, ‘same as last year with adjustments for Easter’, is the trade promotions definition of insanity.

So how to optimise trade promotions planning for better sales and demand forecasting and S&OP accuracy?

Trade promotions management (TPM) is tactical and manages trade promotions processes, where trade promotions optimization (TPO) is predictive. TPO reduces the guesswork involved in forecasting by harmonising data, modelling baselines, optimising planning through predictive analytics, and applying post-event analysis. It assists with supply chain optimisation and improves agility and efficiency. It ensures an end to end financial, demand planning and customer planning system that provides a single source of truth to manufacturing, marketing and selling brands.

Components of S&OP

Good S&OP plans typically include the following:

• Promotion Calendars and plans, including promotional plan objectives, pricing and category objectives
• Volume Planning
• Deduction Management
• Margin Analytics
• Post Event Analytic
• External Factors Planned and Unforeseen (‘what if’ scenarios)
• Price Changes & Promotional Mechanics
•  Promotional & Seasonal Uplifts and Dips, Cannibalisation, Pantry Filling and Forward Buying allowances
• In-store KPI Compliance.

Four pillars for effective TPO

To achieve the components above, effective TPO and predictive analytics requires data harmonisation, baseline modelling, optimised planning, and post-event analysis as a starting point.

Data Harmonisation is about centralising internal data  such as shipment, spending with external data such as syndicated and POS category, RMA and SKU level data into one single source of truth and language that enables cross-factor analysis, rather than a series of separate spreadsheets.

Baseline Modelling: Baselines can be inaccurate because standard historic and syndicated baselines don’t take into account events such as COVID. Baselines need to allow modelling future baselines using scenario planning, account for change drivers such as changes to regular or ‘everyday’ retail prices, and distribution changes. They need to be smoothed to reflect true consumption in the absence of promotions.

Planning optimisation utilises predictive planning at both the individual event and a full calendar levels, incorporating promotion objectives and tactics. This includes what-if and doomsday scenario planning using consumption demand data, not internal shipment data, to ensure scenarios are built on statistical models. It also takes into account execution factors such as merchandising and display support for promotional programs.

Post-Event Analysis (PEA) is where historic promotional performance data comes in. At a minimum this involves analysing an individual promotion’s performance versus forecast; ROI, margin and incremental profit evaluations, competitive and consumer event overlays often involving external data source integrations. True PEA provides the ability to utilise multiple sources of data in one view. That means syndicated data, internal shipments and spending, competitive activities, and marketing/consumer events can be viewed at once. Rolling up PEA at a customer and category level enables development of a roadmap for future successful promotional activities.

Integrating into one system

Many organisations still operate in a scenario where the trade marketing team uses different tools to manage their promotional planning and budgeting, and to control their trade spend, settlements and post event analysis. This makes forecasting and future planning difficult.

Moving to a TPO system refines the process and enables a clearer, cross-functional view that yields up to 15-20 per cent improvements in promotions forecast accuracy. They create a credible base volume forecast combining forward looking what-if scenario modelling with detailed historic PEAs.

By integrating sales and marketing historic and forward-looking data into a single source of truth, the crystal ball if you like, it is possible to avoid the trade promotion definition of insanity.

ABOUT LUKE POCOCK

Luke is Customer Director APAC, Exceedra at trade promotions, data analytics and supply chain software specialists Telus Consumer Goods. He has 10+ years’ experience in customer engagement and supply chain, working with FMCG & OTC global manufacturers across Australia, NZ and the UK. Contact Luke: luke.pocock@exceedra.com

About Exceedra & Telus Consumer Goods

Exceedra is the largest pure play global consumer goods solution provider in Revenue Growth Management, Integrated Business Planning and Retail Execution Excellence. Our focus is to connect all aspects of Trade Promotion Excellence with Assortment Optimisation, Pricing Modelling Analytics and Data Harmonization capabilities to manage the most complex route-to-markets. This is supported by Retail Execution and CRM platforms which provide real-time store-based data to increase efficiency, enable better decisions and increase profitability. Telus Consumer Goods numbers a range of software, data and analytics and supply chain offers for consumer goods companies. https://www.telus.com/agcg/about-us