CPG improves at trade promotions
A vast rise in CPG’s ability to measure trade promotion effectiveness since 2010 helps CPG learn from past events to create stronger, impactful promotions with retailers.
Just 13% of CPG companies in 2012 said they “do not have an effective technology solution in place” to effectively assess promotions—far below the 55% who said this in 2011 and 56% in 2010. Also promising: 21% said most recently they “do not have any impediments” to effectively assess promotions—well above the 12% who said this in 2010, according to Trade Promotion Optimization in the Consumer Products Industry, a white paper by IDC Manufacturing Insights and Litchfield Research.
These improvements are timely, since The Lempert Report reported recently how food price hikes coming in 2013 will grow dollar sales but impede unit volume, and will force manufacturers to promote more in order to move units. Trade-spend is already the #2 CPG expense after cost of goods at about 20% of gross sales—and pressure on price buy-downs could rise, since most retailers are taking more margin on promotion, even as they adopt clean-floor policies that inhibit merchandising space.
These retailer trends add to CPG’s profitability challenge. CPG already withstands the imposition of unauthorized deductions by retailers after trade events are done.
So CPG increasingly invests in TPM (trade promotion management) and TPO (trade promotion optimization) technology solutions to be able to target, forecast, plan, execute and measure events better, and to document and refute unauthorized deductions. In the process of adopting technology, CPG companies tend to align their organizations (sales, marketing, supply chain, logistics, finance) better, tighten promotion processes, build accountability, and become better trading partners. These CPG companies are more equipped to arrive at specific, one-number promotion-event performance goals they can agree on with retailers.
This progress helps overcome a common historic set of complaints at CPG attempting to manage trade promotion funds, says the IDC paper: poor spend effectiveness and an inability to measure ROI (return on investment), no effective way to leverage prior learnings, and poor alignment between sales and supply chain to ensure adequate execution.
More signs of improvement, notes IDC:
- When asked the degree to which CPG could adequately assess trade promotion performance, 52% of respondents in 2012 said “we have some tools in place and are able to assess our most important promotions.” That’s up from 30% in 2011. Related, just 15% most recently said they use a “largely manual process,” far below the 43% who said this in 2011.
- To design better-performing promotions, 71% said in 2012 they improve analysis of results, 55% collaborate internally, 43% collaborate with retail customers, and 32% use new channels and technologies such as mobile and coupon web sites.
- Technology investments look to be continuing. While 74% of surveyed companies have technology in place, almost 60% of respondents said they plan to invest further.