How we have blundered our way into so many headaches in trade promotion! Worse yet, how is it that we KEEP MAKING THE SAME MISTAKES? Let’s take a look at 10 of the most impactful mistakes a consumer goods company can make that inevitably impacts the customers, the key stakeholders and executives, and ultimately, the very financial value of the company.
By: Rob Hand
CEO, Hand Promotion Management, LLC.
March 10, 2023
One thing four decades in consumer goods, and particularly trade promotion have taught me is how to recognize when things go south. By the way, I hate that term, because, growing up in the south, I consider myself blessed and extremely happy, so it’s just not fair to label bad things happening as going there!
Right, so, instead, let’s just say, when things go bad…OK?
I’ve made a nice career of being able to help companies solve these problems, because, frankly, I’ve made many of them myself, and I’ve witnessed even more being done by others!
So have YOU, right?
And we all know that there are probably way more than 10 of them, but for today and now, let’s see if we can isolate on the top 10. And, by the way, the one guarantee I will make you is that I will not always agree with YOUR top 10. But hey, that’s what articles and blog posts are supposed to do—generate discussion toward more and better solutions to our knotty problems.
And this is NOT going to give you answers…we’ll deal with that in a later blog series when I get YOUR feedback and input.
I have decided that ranking these is probably an exercise in futility, and I don’t think that’s necessary. We shall say here that these are certainly problems we must avoid to have a successful trade promotion offering, experience and result—not that these are in some sort of order of importance.
Let’s dig in.
- Ignorance
Yep, that’s right—ignorance. What we’re talking about here is wholesale ignorance about the value proposition and realistic purpose of trade and channel promotion. Especially among the senior management and C-level, this has been a level of frustration that has permeated the very lifeblood of all of us who have labored and toiled in the roles of trade promotion operations, deduction management, promotion planning, retail execution and especially analytics.
Trade promotion has been labeled the “necessary evil” as long as there have been retailers which demand and receive financial incentives from their suppliers to promote their products locally. That is a very long time, by the way. This ignorance among the corporate leadership has prohibited or at best, stunted career growth among some of the smartest, hardest working, loyal and committed people any consumer goods company has ever had.
The very people we are talking about here are on the front lines of pain in consumer goods! They have to deal with salespeople who question their attempts to ensure retailer compliance to high dollar promotions, retail accounting and operations people who continually harass them for payment of their claims or why their deductions were charged back. They toil over reports that provide critical financial trade spending results, who complies and who doesn’t, and how long it takes to process claims and/or chase down deductions. They have just as much right of ownership of “I don’t get no respect” as the late great Rodney Dangerfield!
Trade promotion planners are often ignorant (perhaps a better word is unaware?) of what the corporate marketing organization is doing; and that can lead to conflicts with retail customers’ messaging and positioning, confusion among the consumers and outright waste of valuable promotional funds. Marketing, likewise, is often ignorant of what the promotions are doing at retail—and as much as they may disagree with that, it’s the truth.
But as with the law, ignorance of trade promotion is no excuse. Not anymore.
The good news, however, is that this is changing. You see it, don’t you?
The C-suite is learning how valuable TPx is, and not just because of the amount of money spent. The entire value chain is paying more attention. But we’re not there yet…there is still a lot of ignorance across the entire organization and, unfortunately among way too many executives that have the power to make the right changes.
- Prioritization
Big data, analytics, supply chain management, IoT, logistics and digital commerce are all very important aspects of making the value chain work, we get that. But when you consider that a product does not sell or get shipped to the channel without some sort of financial incentives, you must pay attention to HOW that incentive is planned, offered, managed, executed, settled and analyzed. That is trade promotion.
While I am excited to see and admit that things are indeed changing and the C-suite seems to be more involved in TPx than ever before, it still happens that most C-level executives know very little about or give any priority to transforming trade promotion from the poor ROI and failure rates of the actual promotion performance.
In the most recent HPM 2022 Survey on Trade Promotion, we asked 321 consumer products executives about their perception of what priority their leadership gave to trade promotion.
Unsurprisingly, the level of priority given to trade promotion by corporate leadership was extremely low or non-existent. 45% of those responding said that there was little or no priority given to TPx, while only 6% indicated that they felt the executive leadership actively supported TPx initiatives and transformation objectives.
“How in the world does the CFO look at our corporate financials, seeing that bulging trade spending number and not wake up to the need to prioritize trade [promotion],” said one head of supply chain at a global snack producer. A CIO of an OTC drug company told us that he “feels like the red-headed stepchild” in C-suite meetings when he talks about the need to better analyze trade promotion performance.
Our apologies to all redheads out there, by the way.
But the truth hurts, and the lack of prioritization of trade promotion to at least recognize the critical importance of ensuring that the second largest line item in the corporate financial statements only prolongs the failure rate through yet another decade of performance. For those who have prioritized trade promotion, the benefits are significant. These benefits are improvement in forecast attainment, reduction in compliance failure, more accurate and immediate intelligence and higher consumer engagement, to name only a few.
As long as TPx is given low priority, the chances to grow revenue remain impaired.
- Master Data Management
Very few people who are close to the action in trade promotion believe that the data is as good as it needs to be. In our latest survey, 61.5% of 321 consumer products executives said flat out, “NO.” Comments from those individuals regarding the eventual figure of almost 23% saying “yes” ranged from the belief that they did not know anything about trade promotion to a bunch of “wild guesses.”
Continually, many white papers, blogs, webinars, podcasts and conference breakout sessions promote the idea of improving the quality, trustworthiness, and accuracy of the data ingested, cleaned and harmonized to anchor the foundation of trade promotion analytics. Yet here we are, still fighting budgets and alternative projects that restrict or prohibit the expansion of quantity and quality of data within the technology used to process and analyze trade promotion performance.
Whether we’re talking spreadsheets or highly functional TPx solution technology, the lack of strong, detailed and granular enough data to enable effective AI and machine learning tools to operate at full capacity is still too much of a problem. I hear it all the time from my clients who readily admit that the plethora of siloed databases and analytics tools used exclusively and solely by other important organizations within their company prohibits effective, accurate and timely analysis of promotional performance.
Speaking of granularity, another big problem is historical trade promotion performance data. We have addressed this in many previous blogs, podcasts and white papers—the lack of hierarchical structure to promotional tactics, mechanics and/or activities used in planning promotions.
A tactic known as temporary price reductions or TPRs cannot be all inclusive. A simple product discount on the shelf is not as powerful as a buy one-get one free (BOGO), is it?
Of course it isn’t. Yet for almost every research we have done through years of historical performance data, all you get is the one line-item description which could mean multiple types of tactical forms. Displays are not ALL end-caps. Feature ads are not all types of ads. Product demonstrations can be different formats, locations, products and combinations.
Yet when you spend the hundreds of thousands (and now millions, it seems) on advanced sophisticated AI technology, the machine learning engine has limited inventory to learn from, hence, at best, it performs marginally to create a realistic and trusted predictable outcome.
Many of the new TPx vendors are overhauling their data models to build out more incremental definitions of data captured, and even amidst the complaining one often hears from the key account manager having to make all these decisions about what TYPE of tactic to use, the truth is that once input, planned, and executed, the machine learning engine now has a much broader range of learning, and, therefore optimal set of causal factors to power smarter and more accurate lift coefficients.
That produces a more accurate and trustworthy predictive outcome for the promotion and, quite frankly, justifies the high cost of the technology.
- Spreadsheets
“It’s a pretty doggoned expensive ‘binky’,” quipped the CIO of a canned foods manufacturer, referring to the comfort level promotion planners and fund managers get using their longtime spreadsheets for just about everything—even when there is a rather sophisticated TPx solution in place to do a lot of what they do on the spreadsheet. Time to wean, isn’t it?
When you think of the mission criticality of the trade spending, with all of the emphasis on fund allocation, budgeting, forecast integration, S&OP and promotion scenario modeling that happens, trusting a manual entry tool that is driven by multiple human beings entering, consolidating, pivoting, calculating and trying to determine how best to fund the nearly one trillion dollars globally spent on trade promotions, how is this good business process?
It isn’t.
I have seen some of the most sophisticated and, frankly, very cool spreadsheets in my career, and there are no doubt some highly intelligent and organized talent running them. When Lotus 1,2,3® entered the business world in the early 1980s, wow, that was a major business and personal milestone in human history.
But we don’t drive cars with naturally aspirated engines anymore, and we should have moved off the spreadsheet decades ago in trade promotion. Sadly, just because you might have a strong end-to-end TPx solution platform, it does not end the need for spreadsheets. General opinion of spreadsheet users is often that they are still the best way to manage TPx.
As TPx vendors become more functionally capable, and the analytics vendors begin to improve their planning and analytics tool sets for promotion, RGM and IBP, we should see the light at the end of the tunnel—the end of the spreadsheet as a viable enterprise management tool.
- Marketing Alignment
Across the total marketing budget of a consumer goods company, the sales organization owns two-third of it—trade promotion funds. The marketing organization owns the consumer. These two groups have been across the wall from each other for far too long. Time to “tear down that wall.”
In my recent book, “The Invisible Economy of Consumer Engagement,” I spent a lot of time touting the value of the integration of trade promotion planning and corporate marketing. I’ve spent a lot of blog space and podcast air talking about how to improve the effectiveness of both trade promotions and corporate marketing advertising, promotions and ecommerce.
My theme was simple: the consumer is the rightful and exclusive target for trade promotion.
The consumer products industry is beginning to recognize this, and the trade organizations are beginning to make this issue a key topic for their conferences, share groups and communications. So, we are on our way to effectively addressing and hopefully maximizing the entire marketing budget by ensuring 100% alignment and cross-organizational collaboration in planning and execution.
When retail promotions are in sync with national advertising, coupons, and promotional events, it is the best way to capture the hearts and minds of the consumer. The sales planners know the retailer best. They know their strategy, their instore tactics, their promotional timing, and their most effective way to deliver successful promotions.
Marketing, however, knows the consumer. They know all about them—their needs, their brand and product preferences, their shopping timing, their feelings about where and when to shop, and how they will react to new products. Yet this valuable and crucial intelligence rarely makes it into the planning of trade promotions.
Likewise, the retail trade calendar and all of the nuances and actions of the individual retailers are not top of mind for the marketing gurus.
The answer is collaboration—not just during the once-a-year integrated business planning cycle, but every single day, with shared intelligence, consistent analysis and the ability to enable each other to react to immediate market conditions.
- Promotion Management
Trade promotion is NOT a “Set-and-Forget” activity.
Yet that is what happens throughout even the largest consumer products companies every day. The key account managers and/or sales reps work hard to plan and create a deal agreement with their retail or wholesaler customer and generally walk away, moving on to the next action item in their quest to meet sales quotas. What usually happens next is the receipt of a claim or deduction from the customer.
There is something missing there, isn’t it?
Some will say that once the promotion is planned, the next step is the gathering of actual instore audit data and compliance reporting—and that would be exactly correct. But that is not all that should happen.
I recently worked with one of the world’s largest CPG companies in their Latin American region to help them improve their operational process execution around trade promotion. While several aspects of their current “as is” process needed reengineering, one process stood out as clear industry best practice.
Every single week, a team of key stakeholders and executives would meet to review the trade promotional activity that was about to be executed, currently in flight, and recently concluded. This team consisted of sales operations, marketing, sales reps and KAMs, where required, trade promotion management, financial operations, field merchandising and the settlement team. In those meetings, each major account was reviewed against the trade calendar to discuss the following topics:
- For planned promotions (to be executed within the coming week(s):
- Shipment status and logistics issues—potential late or missing shipments
- Expected promotional timing and tactics
- Amounts to be paid out or deductions expected for each promotion line item
- Specific field execution scheduling and audit requirements for compliance
- Calendar synchronization with marketing
- Expected promotion ROI and P&L
- For promotions currently in flight:
- Reports from the field merchandising audit teams (investigating potential compliance violations that can be rectified during the promotion)
- Stock conditions (from shipment data and/or instore audits of inventory)
- Daily POS data from the promotions (if and when available)
- Missing or delayed promotions by the retailer
- Fund accrual and P&L reviews
- For promotions recently concluded:
- POS data on final actual sales against benchmarks and baselines
- Potential issues with future deductions and/or claim payments
- Failures in compliance to be reported to sales and customers
- Early claims and/or deductions review
As a result of this weekly gathering, the issues of shipment logistics, out-of-stocks, compliance, and settlement were minimal, which means that this “finger-on-the-button” management of promotions works.
Most of you reading this may believe this is overkill, and frankly, when I first heard about this, I had the same thought. But as difficult as it seems to be to bring all these people together 52 times a year, it was not all that tough. If you think about a typical trade calendar, even for the largest of companies, there are not that many major deals and promotions to review, so a one and one-half hour meeting once a week, both in person and virtual when members travel, is very realistic.
Given the grief, anxiety, and downright pain every organization suffers running through all the problems post-promotion, it makes excellent sense.
And it’s flat smart promotion management.
- Optimization
Ever heard the term, “Putting the cart before the horse?”
We are in a time when technology is racing through the enterprise IT space and advanced AI and machine learning is becoming a mainstay for just about every corner of analysis. Certainly, in trade promotion, it clearly applies.
We have now crossed the Rubicon in the definition of “promotion optimization,” from a basic “what-if” analysis process to sophisticated AI/ML-based algorithms that provide the capability to model any promotional and business scenario to create a prediction of outcome.
Sort of.
More times than I care to think about, I see expensive and time-consuming AI/ML projects initiated to create trade promotion optimization tools and capabilities that are destined for failure.
We spoke about data (or the lack of quality and trustworthiness thereof) before as one of the top missteps of trade promotion. Rather than add this misstep to that section, it really deserves its own spot. The reason is that decisions are made about IT technology and advanced analytics before the data is ready to fuel the optimization engines. I can see so many of you nodding your head in agreement right now.
The cart of AI and machine learning technology is being put in front of the horse of data.
The bottom line is simple—get the historical data right first. The very definition of “promotion optimization” is leveraging historical and POS data, consumer, and marketing data to enable sufficient content to drive an optimization algorithm against potential scenarios to determine the most likely outcome.
That is the misstep—spending all those financial, technical, and human resources to build an optimization engine without the fuel to run it.
- Baselines
The forecast baselines are projections of what non-promoted product volumes are expected across the fiscal or calendar year on what is usually a weekly basis. A great deal of work goes into the determination of what these volumes are predicted to be based on the data generated by the various demand planning analytics.
For almost 60% of the over 320 CPG executives surveyed, baselines were a problem. The problems stemmed from the unbelievability of the accuracy and trust in the numbers, and the sense that they should be more fluid and updated more often than the once or twice per year averages.
Baselines set the very levels against which a promotion is deemed successful, whether they be metrics of volume, revenues, or profitability. They represent the estimated volume of product sold without the inducement of a promotion, so it supposedly gives the “default” base measurement.
Why is this happening?
Consumer products companies, particularly the FMCG/CPG subsectors, rely upon syndicated data providers to establish the ongoing analysis that generates the baselines. They rarely change it throughout the year, which, unfortunately, is their misstep.
The volatility of consumer shopping today, especially emerging from the “forest of thorns” we called the pandemic, is far more fluid, more dynamic and, honestly, faster-moving. The oscillation in shopping and purchase habits, erosion of loyalty, and the variability of going from online to brick and mortar shopping has all but decimated the idea of a once or twice per year “adjustment” in baselines.
Moreover, if the rapidly changing consumer engagement environment continues at the pace it is today, there is no way that last years, or even last quarter’s historical data can be used to set the bar for the immediate future.
The smart consumer products companies today are beginning to look at more data, and in more near real-time than accepting monthly, or even sampled and averaged weekly data as a source of baseline values. Instead, you are now seeing more dynamic baselines, more closely related to seasonality-based changes and certainly more granular measurement of promotional performance.
This is not a white paper on baselines—there are a lot of those out there on the internet lately. But it is a warning that if you are still operating with a once or twice-a-year baseline adjustment, you may well be fooling yourself (and your CFO) on the ROI for your trade spending.
And your major retail accounts won’t buy the results either.
- Settlement
Since retailers and wholesalers began deducting co-op and trade promotion costs from merchandise remittances, the process known as “deduction management” has been the bane of existence for virtually every consumer products manufacturer and supplier.
70-plus years, actually!
Humanity has experienced incredible technological achievements in that time, but not for deduction management. In fact, the only real advancements we’ve seen in deduction management have been automating the A/R and A/P functions and creating pseudo-matching functionality between deductions received and the actual original line-item tactic on the promotion plan—and THAT is hit and miss if I’m being honest.
When you think about the flow and process that a promotion plan takes from the point of agreement between the KAM and the retail or wholesale buyer to the end point of the deduction management process, there could be as many as eight (8) different systems, most of which will NOT capture the exact same details coming off the promotion plan. Therefore, with what the deduction analyst gets from A/R through the actual deduction taken from the remittance check, it is no wonder there is little in the way of recognizable intelligence that can pinpoint and align the deduction to the specific promotion and/or the particular tactic line item that was planned and executed.
Think about that.
The sophisticated ERP systems may lack the ability to receive and ingest the specific promotional plan data—especially key identifiers like tactic type, dates of execution, promoted product group (which would rarely, if ever be data managed in the retailers’ order management and A/P systems).
That said, what are the chances that the entire deduction process could ever be automated to a reasonable degree of accuracy and trust—we’re talking about upper 90% range?
Probably lower than landing a man on Mars this year!
But think about this: the hit rate for a well-run deduction management team’s ability to locate and clear a deduction from what is received by A/R with minimal research is already in the mid-80% range for the largest CPG companies according to the latest survey data.
The smaller companies will have far fewer promotions, so the ease of research is naturally higher.
So, what is the misstep?
The misstep is that after all those years, we have not been able to truly improve the overall deduction management capabilities to a level that the financial controls policies would deem acceptable. Add to that the continuing lack of solutions to the age-old problem of the OM systems failing to recognize special promotional discount prices which automatically creates an invoiced pricing error, and you have a seemingly never ending triggering of deductions. Invoice pricing errors continue to be among the highest reasons for deductions today.
If order management systems were more aligned to and accepting of more granular trade promotion detail, including price, the number of deductions received would be drastically reduced—maybe even eliminated.
- Perception
The very perception of the purpose of trade promotion funds has created a huge riff between sales and marketing at most consumer products companies. Today, trade promotion funds and, therefore, spending accounts for two-thirds of the entire marketing budget for most companies.
In my book, “The Invisible Economy of Consumer Engagement,” I have a chapter called “The Shell Game.” This chapter deals with the processes, issues, concerns and problems around the sell-in—the initial promotional deal between the supplier’s KAM or sales rep and the retail or wholesale buyer.
To a traditional (I did not say typical) KAM or sales executive, the perception of the purpose of trade promotion is to provide an incentive for the buyer to buy. While they may pay some level of attention and even homage to the importance of the promotion’s success at retail, the overwhelming opinion is that trade promotion funding is there to get the deal.
It is not fair to pin this perception only on sales executives. Not all the 132 CPG companies responding to the question of “What is the Primary Purpose of Trade Promotion? were sales personnel. So, the perception is more universally accepted.
With all the focus and attention on promotion optimization, it seems that the message of increased importance that the promotion performs well has been received loud and clear.
This same question was asked in the 2018 survey, represented by the yellow bars in the above graphic. We compared the 2022 responses (green bars) and saw a very welcoming trend.
In fact, many consumer products companies are beginning to adopt promotion success metrics as a factor in determining and calculating sales compensation. So, it appears that the corporate leadership perceives it as mission critical as well. This has become a popular topic request for the presentations and speeches I give around the industry for my book.
The aforementioned section regarding alignment and collaboration between sales and marketing is encouraging, and the evidence is indeed shown in the four-year difference in response to the same survey question above. But even with a renaissance in thinking about the purpose of trade promotion, the perception that it drives the sell-in still rings true for most sales executives and far too many corporate executives across the organization.
This perception should change to see the Sell-In as nothing more than a way to generate the most likely and successful promotional model to attract the purchase of the product by the consumer. It is not as nebulous as it might seem.
We are apparently on our way to a significant change for the better.
Summary
Although much of what is discussed above is changing for the good, the problems continue for this complex, often misunderstood and highly critical business process. Take a look inside your own trade promotion management process and organization and if you are unclear or unfamiliar with what goes on—educate yourself.
The payback is worth it, and the intelligence you gain will help drive corporate revenues, profitability, and most importantly, consumer engagement.
Rob Hand is the CEO of Hand Promotion Management, LLC, a leading analyst and advisor to the consumer goods and retail industries. He is a 40-year domain expert in trade promotion, revenue growth management, supply chain management and marketing. He resides in the Austin, Texas area.
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