Look at what is happening today in consumer products where trade channel promotion management and execution is being integrated into the RGM practices globally. The resulting success factors are proving to be industry best practices in providing real control of all aspects of revenue growth optimization.
Trade and channel promotion is the very essence of Revenue Growth Management (RGM). Or should we say that Revenue Growth Management is the very essence of trade and channel promotion?
Either way, the bottom line is, well, the bottom line.
Trade promotion management, execution and analysis (TPx) is already one of the top three business initiatives across most global consumer products manufacturers today. Two recent studies prove it.
Published earlier this year, Promotion Optimization Institute’s State of the Industry report, “Transformation in the New Reality 2022” (State of the Industry – Promotion Optimization Institute (poinstitute.com)) describes the CPG industry trend toward infrastructure consolidation and recommends creating the “Holistic Enterprise” whereby traditional siloed organizational structures that often duplicate operational data and analytics creating expensive redundancies that negatively impact both strategy and financial success can now be under one roof—RGM.
More recently, Consumer Goods Technology and NielsenIQ have released a joint study, “The Evolving State of Revenue Growth Management” (https://consumergoods.com/evolving-state-revenue-growth-management) that shows, among other critical metrics, the increased focus on trade promotion and related activities of price optimization, retail execution and financial optimization as key functions of modern RGM organizations.
Pam Brown, POI’s Chief Commercial Officer and author of the State of the Industry report writes, “The RGM planning diligence and profit focus has transformed episodic, once-a-year planning into an ongoing and dynamic planning practice deeply rooted in advanced analytics. Companies with established RGM teams have had an advantage during the Covid crisis to better reset & re-plan.”
She hits the nail on the head. What we are seeing in these RGM transformations begins with the elevation of RGM from a middle-tier sales and/or financial organization to a top line organization with C-level leadership. Embracing the idea of consolidation, smart CPG companies are bringing trade promotion and retail execution into the RGM sphere of management along with price and product assortment management and optimization.
A growing number of consumer products companies are heeding the call for escalation in the capabilities and corporate focus of RGM. The numbers bear out what we are seeing in this transformation.
The CGT/NielsenIQ study has four mission-critical areas, Visibility into promotion effectiveness, Pinpointing ROI, Lack of data, and Forecasting inadequacies as high on the list of challenges and gaps to effective RGM. In fact, Working in Siloes is the top vote-getter for challenges and gaps to RGM.
Given the current state of accelerated TPx transformation among global CPG companies and the ongoing failure rates for promotion ROI, out-of-stock conditions and lack of performance compliance, it is no wonder that the pace of change has clearly increased.
The CGT/NielsenIQ study rates the primary RGM goals among top CPG companies for 2022. Trade promotion administration alone accounts for 22% of those goals, but if you look closely at other critical responses, TPx is a key component of each of those functions.
For example, 32% of the respondents stated Price Optimization as a primary goal, and certainly ensuring that price management and competitive advantage are indeed critical. However, with advanced AI and machine learning technology, making sure that the promoted price will generate instore sales is the top tactic for promotion planning and execution. The same is true for Financial Optimization, where because of the high percentage of trade spending to gross revenues, being able to design and predict promotions that hit the ROI target is a huge variable in overall corporate profitability.
Even for post-event analysis (12%) and modeling (3%), trade promotion optimization is a large part of the efforts for each of these functions.
In the POI State of the Industry report, Trade Spend Optimization was the highest rated response to what RGM practices must include. This aligns to what we have observed across business and process transformation work we have done during the past few years. CPG companies are taking direction action across all these fronts to shore up their overall RGM performance in not only CPG, but all consumer industries including fashion, automotive, hardware/DIY, personal care, consumer electronics and household products.
In my book, “The Invisible Economy of Consumer Engagement,” one of the prevailing themes is how trade promotion should be more aligned to corporate marketing in order to generate the most powerful message to the consumer. The longstanding practice of the sales organization in planning trade and channel promotions is to concentrate on the Sell-In, instead of the actual results of the promotion in the retail store. This perception is changing—as it must.
Of course the need to generate the incentive for the reseller’s purchase of the volume of product at the appropriate price and supported by trade promotion funds is paramount, we get that. But leading consumer products companies are beginning to engage and collaborate more with their marketing counterparts to ensure the leverage of far more consumer intelligence than what has been available historically from trade promotions.
This is where the benefits of rolling the trade promotion practice into the RGM organization with more frequent interaction among both marketing and supply chain/demand planning begins to pay off. Creating a single data set with intelligent analytics within the RGM function can work to alleviate the problems most companies have with multiple siloes of data and analytics that are guaranteed to create inconsistent and untrustworthy output and worse, confuse the consumer with conflicting messages, offers and even products.
I was recently a guest on Kimberly-Clark’s quarterly Global Town Hall meeting where I presented many of the trends and concepts from my book. K-C is one of those pioneering companies that saw the value of consolidating important functions like trade promotion, assortment planning, retail execution and price optimization into an expansion of the RGM practice. Like many companies, they created an executive level position to head the RGM organization and gave it a major prioritization. The data and analytics have greatly improved and every day, the company is demonstrating the value of cross-organizational alignment and advanced consumer engagement.
If you embrace the concept of trade and marketing promotion alignment, you have to create a framework and process that allow for regular effective collaboration between the key executives and stakeholders in sales, marketing, demand planning, retail field merchandising, brand and product management and finance. The emerging wisdom is that RGM is where all of that functionality needs to be.
And it makes sense because where else can you centralize the analysis of historical trade promotions and the integration of more detailed and thorough intelligence about the consumer to effectively analyze and predict what constitutes a precise and trustworthy projection of ROI for each promotion?
If you tack on traditional price management and advanced AI and machine learning for price optimization, optimized assortment planning and near real-time POS and on-site inventory data, you have the entire picture of what it takes to effectively engage the consumer and increase the proficiency of revenue and profit generation.
That is about the closest you can come to a working crystal ball.
For most companies, the management of trade promotion was split between sales and finance. The work of trade promotion planning fell to the key account managers and sales reps; however the day-to-day administrative duties of managing the fund accounting, claim processing, deduction management and communications were often spread across sales operations and financial accounting. Moreover, the ability to analyze performance is often scattered across several organizations and roles. There really was no “standard” with which to align responsibilities and duties.
Now, however, there is a clear path for the administration of trade promotion; and that is in the heart of the RGM organization. It makes the most sense, especially now that consumer products companies are investing so much time and money into the expansion of RGM within the corporate organizational infrastructure.
Trade promotion management finally has a home.
