Over the past few years, major retailers globally have waged an increasingly cut-throat price war to protect and expand their market share. And while much of the media attention focuses on the retailer side of things, the reality is that consumer packaged goods (CPG) companies are deeply involved too, with pressure to deliver sustained trade promotions that can help retailers attract consumers. Walk into any major grocery store today, whether in the U.S., UK, France, Australia or elsewhere, and chances are you’ll be met with a blizzard of buy-one-get-one-free offers, direct discounts, rebates and other trade promotions.
Research from MIT Sloan shows that CPG brands now routinely allocate as much as two-thirds of their marketing budgets to some form of trade promotion. Furthermore, this proportion of trade promotion spending has more than doubled since 2000. There is little sign of any reversal on this, as consumers are now conditioned to a competitive array of promotions, and shop accordingly.
In turn, CPG companies have growing complexity to deal with: managing numerous product lines (and their varied extensions) across an array of promotion types — BOGOFs, three-for-two offers, discounts, coupons, rebates, trade-ins, loyalty programs and more. In turn, trade promotion management (TPM) has become a vital weapon in any CPG company’s arsenal. These systems have transformed from manual, Excel-based approaches into sophisticated software platforms, helping to manage the complexity of promoting millions of units across thousands of SKUs.
Don’t lose sight of the goal
But as these TPM systems have evolved, a plethora of new expectations are being made of them, which in turn threaten to undermine a principal goal of raising awareness of products and driving consumer demand. One key challenge comes from other internal functions: as spending on trade promotions grows, management, finance and other functions are placing increasingly onerous requirements on TPM systems.
The reality now is that while marketers primarily use TPM systems to design pricing strategies and promotional campaigns, other users are trying to make use of them: finance, demand planning and so on. Of course, the intent here is good: CPG companies are trying to keep a close eye on margins, sales volumes, growth rates of key products lines, and more as the business scales. But as more metrics are demanded, scope creep quickly sets in and marketers can become tied down in focusing on matching up to overly precise numbers.
It’s easy to see how this happens: finance starts forward planning the costs of future promotions to try and give management more accurate forecasts of the sales likely to be delivered, and associated costs incurred. In doing so, they start to use marketing’s TPM system as a source for data for other finance and accounting systems, which are designed for absolute accuracy for tax and compliance reasons – rather than the ballpark targets that TPM systems help drive.
In turn, marketing teams are being asked why one promotional activity is expected to cost a certain amount over the course of the campaign, with finance focusing on ensuring that everything matches up. All of a sudden, instead of focusing their efforts on strategies to drive brand recognition, marketers are caught up in debating why individual pricing initiatives could ultimately bring in a few dollars more or less.
CPG companies risk losing out on the true benefits of TPM systems by putting inappropriate demands on it for finance management. TPM is ultimately a sales and marketing enablement tool and to achieve maximum ROI, it should be used to help CPG companies decide which products to promote, at what price and where—and then ensure that promotions deliver their targets on the shop floor. It doesn’t need to be penny-perfect to deliver the results CPG companies are looking for.