In the midst of a time when we are seeing the most innovative advancements in trade promotion optimization technology and practice, there are still so many consumer products companies holding off implementing TPOs.
I think we can safely say that the maturity level for trade promotion optimization (TPO) technology is increasing and that there is now sufficient understanding in the consumer products marketplace of what it does for promotion planning.
So, what are the reasons behind the reluctance so many CPGs have to fully embrace, implement and execute a TPO?
As part of the recently released 2022 HPM Survey on Trade Promotion, we asked that very question of those consumer products companies which have yet to implement or start a project for TPO. Of course, most of those companies do have plans at some point for TPO, but more than 150 respondents replied with their top reasons for why they have yet to take the plunge.
As we suspected (and I’m sure YOU do as well), DATA was the number one issue—particularly the problem with historical trade promotion performance data. The prevailing concern is that it is not detailed enough, it is not accurate, and in many cases, does not even exist.
Many of the early adopters of TPO learned that lesson the hard way—whatever sophistication existed in the machine learning-driven algorithms was wasted on bad data or the lack of it. Even for those companies employing the more sophisticated and mature TPM solutions, the data captured in routine promotion planning and settlement often lacked the details that enabled realistic distinctions across the tactics, timing, product groupings and costs. Hence, the ML engines had no real “fuel” to fire the algorithms in the direction of a trusted predictive outcome.
This is a well-accepted issue and one that is seeing most CPG companies pay closer attention to the detail structure of the data models.
The next two reasons were somewhat related. For instance, 18.8% of the respondents felt that the lack of trust and accuracy of the predicted outcomes was not high enough to base the promotion plans that are to drive the sales forecast. Likewise, nearly the same amount of respondents (17.9%) felt TPOs to be too expensive. The comments behind those choices were almost in synch—the trust factor and cost of a TPO implementation did not justify the decision to buy…at this time.
The people in consumer products and retail who deal in some capacity with trade promotion every day often network with other colleagues in the field, even with their competitors in webinars, industry events and so on. The subject of TPO is a favorite topic of discussion. Specifically, conversations around the processes, successes and failures of promotion optimization take place constantly across the industry, so the key influencers and stakeholders working in TPx environments are well-versed in what the scuttlebutt is around implementing a TPO.
“For us, the problems we had trying to push a TPO on our sales planning teams revolved around the change management process—or more aptly, the lack of it,” says the senior director of RGM at a hair care products company. “Neither our implementation partners nor our own TPx vendor provided satisfactory change management after we went live.”
She went on to say that the sales teams quickly became frustrated with the output of the TPO because so many of the projections for promotion success and ROI were way off target. They felt that the simple effort to conduct multiple “what if” scenarios “didn’t measure up to reality.”
Moreover, she indicated that the sales teams felt like they were not able to effectively present the TPO output to their retail buyers and marketing teams and wanted more help with that.
That sounds like a change management issue, but a data one as well. Looking at the above chart depicting results from the 2022 HPM Survey on Trade Promotion, you can see that more than one-third of the respondents felt that change management was less than effective.
So, we do have some work to do there; but in reality, all new technologies suffer these types of growing pains, do they not?
Another reason for the reluctance is the decision on the technology platform itself. We know that only 15% of the TPO systems deployed are embedded within the TPM platform. This means that, for whatever reason, the decision makers feel like the first and second tier TPx solution vendors have not been able to provide equally functional TPOs as the independent analytics vendors which have more experience and depth in advanced AI and ML analytics. In the HPM survey, 78% of existing and installed TPOs are stand-alone systems.
So, in our research, we see that many of the TPOs from these analytics solution vendors are chosen by IT and analytics leadership who may not be directly involved with trade promotion management, planning and execution. Still, the analytics vendors in today’s marketplace are very strong with many providing excellent TPO functionality. Of course, they are ultimately limited by the master data, so the process of coming together on a decision for a TPO takes a lot of time for each impacted organization to identify, understand and settle on the exact requirements.
Finally, there is the issue of priorities. I can safely say that most of the TPx implementations I have worked with over the past several years have been focused on getting the basic TPM (e.g., master data management, fund management, planning, and settlement) functionality in place before thinking about TPO.
That is a wise decision, by the way.
If you look at the realistic issues of data, planning, workflow process, financial accountability, and settlement, these are prerequisite to any further exploration of advanced promotion optimization. If the infrastructure and master data are not nailed down, nothing good happens. In previous blog posts, I’ve talked about how to make sure the right work is done in advance of any implementation project for trade promotion, and that is especially true for TPO.
Most companies I work with understand the need to nail down the basics first but may be reluctant to begin. Not knowing what you don’t know can indeed impact success. For the level of sophistication and the critical importance of trusting the predicted outcomes and ROI of promotion optimization, getting past these issues and having the right factors in place up front is the only way to guarantee that success and enable more effective consumer engagement.
These problems we have mentioned are becoming more visible in the consumer products industry; but in reality, they are quite minimal when considering that trade promotion optimization is now becoming a standard tool in the trade promotion solution portfolios. With the increased focus on data improvement and workflow process, these problems may soon be a thing of the past.