Trade Promotion Management 2019: New Tech for Old Tricks
While the call for transformation is loud and clear, the process is still going slowly.
The trade promotion practice often gets a bad rap for continuing to apply outdated strategies and outmoded technologies to one of the most critical business functions for consumer goods organizations. But it’s not from lack of desire
to change.
A survey fielded by the Path to Purchase Institute last year found that more than two-thirds of consumer goods companies consider the practice “extremely important” to the business. But many survey respondents expressed dissatisfaction with existing management systems, program performance and overall effectiveness. They also lamented the need for deeper insights, better metrics and faster response capabilities.
So, while the knock about outdated strategies might still be true in some cases, progressive companies have been working to improve their traditional practices by adopting new tools that are moving trade promotion away from spreadsheets and incremental sales growth toward a more strategic, holistic commercial practice built for the omnichannel retail era.
Path to Purchase IQ’s third annual Trade Promotion Report will look at the tools that companies are using to transform their traditional practices into strategic efforts that incorporate broader, deeper consumer understanding to uncover new growth opportunities and strengthen relationships with key retail partners.
The Traditional Landscape
Given the money that’s at stake, no one in the industry contests the importance of trade promotion: More than $500 billion is spent on trade promotion annually around the world, making it the second largest line item in the budget of most consumer packaged goods companies. Trade spending represents more than 15% of a CPG’s total revenue, and despite all the disruptive changes to the industry, it continues to grow, according to an EnsembleIQ/SymphonyRetail study.
No one contests the need for improvement either: Gartner finds that as much as 67% of trade programs don’t break even — maybe because roughly 60% of companies still use manual processes and spreadsheet applications to manage their programs.
The reasons are many and decidedly complex. One is, of course, the retailer-manufacturer dynamic, which isn’t a wholly one-sided relationship but sometimes plays out that way. While both parties theoretically should be working toward mutually beneficial goals, the Institute’s most recent Retail and Consumer Goods Analytics Study found that, while 27% of CPGs identify trade promotion as a key area for improvement, only 8% of retailers did.
That suggests another obstacle for transforming the practice: the need to utilize the right data at the right time. There are troves of data available on both the retailer and manufacturer side of the table about shopper behavior, price elasticity, past program performance and a host of other topics. Making matters even more complicated is the growing need to take the digital shopper and new forms of data (i.e. social media data) into consideration.
So while the need for change is loud and clear, the task is still daunting and, therefore, slow-moving. Many large, established CPGs are stuck in legacy systems in which they’ve overinvested; internal policies and politics can oftentimes keep them from changing and evolving with the more advanced technology now available.
Meanwhile, smaller, emerging companies — who tend to be far more agile and nimble and not anchored to legacy systems — are jumping all over newer cloud-based and SaaS solutions.
Traditional CPGs, therefore, have two general avenues to pursue: Ditch their legacy systems and start anew, or acquire smaller companies that are already leveraging new technology to use as a blueprint for adopting new strategies and tools.
Time for Change
Whatever the case, CPGs are exploring various technologies that can help them improve the future by making this line item far more worth the investment. Case in point: all the executives interviewed for this report have made changes to their legacy systems within the last few years.
Rich Products Corp., for example, upgraded its current system two years ago but is “in the process of building a business case for a new system to cover all divisions,” explains trade marketing manager Casey Joiner.
“We were motivated to upgrade our current system to add a few enhancements that were not included in the initial implementation,” says Joiner. “Our current search for a new tool is motivated by our company’s need for data consistency across all divisions.”
Meanwhile, a leading household products company implemented a new trade promotion management (TPM) system over the last year because “the organization needed consistent processes, tools and data that would allow us to perform advanced trade analytics,” says the vice president of revenue growth management (who requested anonymity).
“We have just begun a project to replace a bespoke [advertising & promotion] management system with an integrated TPM system,” says Cara Taylor, business relationship manager at Pernod Ricard USA. “Our A&P tool is at ‘end of life’ and we want to be able to track spend, calculate profit and ROI, and eventually get to trade optimization.”
Until recently, 17-year-old pet food maker Blue Buffalo Co. didn’t have a tool at all, says Michael Gamage, director of customer sales and trade promotion. As the company grew and started expanding from pet specialty stores into mass merchants, it began to roll out a tool to manage the increasing activity. (Blue Buffalo was acquired by General Mills in 2018 and could potentially serve as the pilot for a TPM strategy to roll out across the larger organization.)
“We’re seeing a lot more granularity in decision making,” says David Moran, co-founder of solution provider Eversight. “For leading CPGs, gone are the days of a few PowerPoint slides from headquarters instructing the field on the types of offers that should be going into the market. We’re now observing higher levels of precision at, for example, the individual customer and event level, where AI engines are systematically determining which offers to run. And we’re seeing a radical change in adoption.”
“Over the past five years, consumer goods manufacturers have undertaken a journey to improve their overall revenue management capabilities to build sustainable growth models and provide more confidence to shareholders,” echoes Thierry Soudee, founder and chief executive officer of UpClear. “This has definitely influenced the roadmap for ‘TPx’ vendors.”
Thus, TPx solutions are evolving to let CPGs manage pricing, promotions, trade terms, mix and all related causal factors (competitive activity, retail switching, etc.) in a holistic way, Soudee explains. Because of advanced data requirements and the complexity around the collection, cleansing and visualization of millions of data points to support decision making, TPx vendors have had to develop analytics tools, as well as predictive capabilities, to further facilitate analysis and definition of commercial strategies.
New Tools for the Trade
Yes, many CPGs continue to use spreadsheets. But others are on the forefront of innovation by exploring — and even investing in — some emerging technologies.
Artificial intelligence and machine learning are gaining the most attention as the panacea for just about every business need. But what about utilizing these new tools for TPM?
Machine learning is an important component powering Eversight’s experimentation algorithms, explains Moran. “Without ML, we wouldn’t be able to efficiently automate everything, from what new promotions to test, how to design experiments, test-stopping criteria and winner selection, etc.”
There even have been some early efforts to move trade planning to something that’s more “programmatic” in determining investments, similar to what’s taken place in the world of digital media buying. “This trend is mirrored by Amazon’s ‘Hands Off the Wheel’ initiatives [a move toward automated price negotiation and demand forecasting] and shows promise for a future world of integrated trade spending and loyalty that could be profoundly more effective,” he suggests.
Machine learning automatically analyzes large amounts of data using rule-based algorithms in order to find trends and patterns. If the underlying data points are messy, the results will also be messy. So it’s important for CPGs to first build a solid foundation of basic data and analytics best practices.
To date, a lot of AI activity has involved the use of ML in e-commerce, particularly for search analysis, product recommendations, promotions and analyzing consumer sentiment — actions that ultimately will enhance trade planning but don’t directly impact TPM.
When AI is applied directly to trade promotion activities, it could help improve timing, tracking and other aspects of the investment. What’s more, AI and analytics can also provide promotion-related insights for channel managers, category/brand managers and financial teams to allocate trade fund dollars more accurately.
More Than Just Talk
Another potential area of investment for CPGs entails improving promotional effectiveness through natural language processing, the ability to listen to natural spoken (or written) language, analyze it and generate appropriate responses.
By using NLP, CPGs can verbally experiment with changing promotional criteria to test different outcomes. The feedback is immediate and can help determine actionable price points or promotional offers, and then identify trends that can be adjusted in real time. Since there is no PC or massive data crunching involved, this type of R&D can be done at relatively low costs.
The Internet of Things (IoT) is another technology set to watch. Here, the benefits seem to be more on the back end for things like inventory management and product reordering — which can have an impact on promotional execution, of course, but don’t directly affect TPM like AI//ML already is.
“There’s a lot of latent enthusiasm about beacons, ESLs, cameras in-store, etc., but we’re not seeing these things become mainstream yet in terms of really impacting trade spending in material ways,” says Moran. While the majority of companies aren’t using open source analytics tools, Pernod Ricard is leveraging Microsoft Power BI for heightened reporting with visual cues and insights, says Taylor.
The Data Within
In exploring the need to improve trade promotion, it’s also important to consider some of the new data sets being incorporated into these tools. Many of the executives interviewed are working with social media activity, digital promotion results, corporate/regional advertising schedules, external factors (weather, economy) and comparative retailer analysis to inform their plans. “All of them help feed our segmentation ‘machine’ and pull out insights that drive account prioritization,” says Taylor.
“We’re beginning to align advertising schedules with trade plans,” adds Joiner at Rich Products. “As for retailer data, we’re using it to see main drivers from past performance.”
According to Soudee, TPx vendors have been innovating the last five years when it comes to:
• Predictive Analytics: Solution providers have invested in advanced analytics and predictive modeling capabilities to support the growing complexity of the retail environment.
• Data Models: Promotion planning has become more personalized based on store types, geographic areas, shopper demographics, and other factors. This has pushed vendors to improve data models in order to handle bigger data sets, dynamically build commercial plans at any level, and better assess promotional performance.
There also has been innovation in mobile technology, which “has been significantly improved to ensure access from any device and at any point in time to facilitate collaboration with retailers, but also to increase sales manager productivity,” says Soudee.
According to Taylor, there’s still more work to be done mobility-wise. “Although we’ve been successful in ingesting the information into a data warehouse, it has been challenging to integrate and present [the data] in a meaningful way without significant speed issues. The reports overwhelm mobile devices.”
The Future of Trade Promotion
When TPM was still in its infancy back in 2006, Forrester Research reported, “Many consumer products companies are struggling with how to track, report and execute trade promotions effectively internally and … need to master that before figuring out how to manage it with their channel partners. Adding to that is a fundamental question of who owns the money. That makes TPM an extremely difficult conversation for retailers and manufacturers to have.”
Fast-forward to 2019, and not much has changed. Trade promotion is still a very difficult process to manage. So what does the future of trade promotion look like?
First off, “It’s no longer cool to call it TPM,” according to Blue Buffalo’s Gamage. The more in-the-moment practice is revenue growth management, which “encompasses more than just trade” and will be a “highly integrated process and system,” he says. [Editor’s note: See Path to Purchase IQ’s August issue for more on RGM.]
Elsewhere, some companies are infusing TPM into their supply chains and other business functions to do a better job getting product to the right place at the right time. That trend will continue to grow, Gamage predicts.
“Advanced analytics, supported by efficient data integration and machine learning capabilities, can really facilitate CPG companies rolling out revenue management best practices at scale,” adds UpClear’s Soudee. “The ability to quickly establish data connections is key to building fresh insights and communicating them across the organization.”
As for the future of trade promotion, Soudee predicts that the design and execution of marketing initiatives overall will evolve. “Drivers of successful promotions and marketing activities will become more and more related to penetration [mental and physical availability] rather than brand awareness or ‘trade up’ mechanics,” he says. “With the growth of online channels and the ability of manufacturers to directly reach consumers with personalized offers (thanks to AI), trade activities will become less and less relevant — shifting the execution from the store to the consumer.”
“It is likely AI/machine learning for TPM systems will be available sooner (in the next few years),” says that anonymous household products company VP. He also envisions voice-activated commands; requesting scenarios to maximize a prescribed metric (revenue, incremental sales, ROI); and automated systems that optimize products, time periods, competitive recommendations, brand/category impacts, consumer impact and potential ROIs. “This could likely be maintained entirely in an ERP [enterprise resource planning] system,” he predicts.
The omnichannel marketplace also demands change, suggests Rich Products’ Joiner. “It will probably start to include all spending to drive sales — marketing, warehousing, shipping — as well as traditional trade expenses,” he says. And while it may not be on the horizon just yet, “from what we have seen in our search for a new tool, AI and machine learning with forecasting and promotion optimization is something that would be game-changing,” he says.
“Trade spending will be managed through an integrated content management system that blends personalization, A/B testing and automation to allow a much more segmented view of personalized promotions,” suggests Eversight’s Moran. “It will become ‘programmatic’ just like marketing has, and funding investments will dynamically move between ‘mass’ and ‘personalized’ offers.”
“We will need to capture and make sense of all sorts of digital promotions, loyalty programs, digital price matching, etc. It will need to be meaningfully segmented to retail accounts and consumers,” says Taylor. “Promotions will become smarter — but to do so, we’ll need to ingest large amounts of data, make sense of it, and segment it usefully. Ultimately, promotions should be close to real time and based on consumer needs.”
Finally, moving beyond isolated trade promotion planning to take a more integrated, strategic view of commercial investments is the ultimate goal for all practitioners.
And while it may have been coincidental that everyone interviewed for this report is currently working toward a new TPx solution, it seems more likely that many CPGs have realized the need to review their existing tools and strategies — whether that entails a simple refresh or a complete restart.
Whatever the case may be, it’s apparent that executives are assertively articulating their TPx wants and needs, and hoping solutions and service providers are taking note.