Trade Promotion Optimization Softwares: Everything You Must Know

Even though the trade promotions spend take up a lion’s share of the organizational revenue, traditionally manufacturers have always struggled in optimizing their promotion mix for achieving the maximum bang for the buck. CPG companies typically take a two-step approach to implementing trade promotions – Trade Promotion Optimization and Trade Promotion Management (TPM). Let’s start by establishing the core definitions of both and how they are different from each other.

Trade Promotion Optimization (TPO): TPO is the process of continuously improving the effectiveness of trade promotion strategies by optimizing them based on your business goals and current supply and promotion constraints. The key objective of TPO is to maximize the value every dollar invested in trade promotions. It follows the famous motto of “Build, Measure, Learn and Repeat”.

The software which support and enable this entire process is Trade Promotion Optimization Software. These solutions are equipped with a range of predictive modelling, analytics and data harmonization capabilities.

Trade Promotion Management (TPM): TPM focuses more on the internal execution and operational part of trade promotions. This can include defining new promotions, allocating budgets at various stages for different departments, retail activity management, tracking promotions and managing funds, authorizing payments etc.

This is the most common excuse we hear when we talk to CPG companies about their trade promotion challenges. TPM systems are needed to “manage” promotions i.e you can use them to define promotions, track spending or schedule invoices to retailers or any other operational/transactional activities. However, the capabilities of these systems are limited to just planning and execution.

A majority of TPM solutions can’t integrate data from key influential sources like POS, digital media, weather etc.he post-event analysis and what-if scenario building capabilities are also very limited in most TPM software.

Companies should look at choosing a TPO solution which can seamlessly integrate into their existing TPM system. This enables both systems to work in tandem with each other and centralize all your trade promotion activities.

Any reliable TPO solution should be extremely user-friendly. Advanced visualizations and seamless navigation flows are some key elements to look for while choosing a TPO solution and have elements which will help with better adoption by users.

In addition, a TPO solution should  automate post-event analysis and data-entry. Without automation, field-sales teams need to manually enter data which is not only unproductive but also prone to human-error. Obtaining  information for better decision making is a huge challenge.

Integrating AI chatbots with the TPO solution is one another effective way to increase adoption among field-sales personnel. Chatbots simplify the way you interact with data and eliminate the need to switch windows or drill dashboards.

Unlike your typical TPM systems which need a considerable amount of time to go live, TPO systems can be deployed within a few weeks. And while it’s true that these systems can’t really be termed “cost-friendly” but companies need to think about the ROI delivered by these systems.

Today a mere 15% improvement on Trade Promotion ROI will improve the top line by 10% and operating margins by 3-5%. If you are in the CPG business, you probably must be well aware of the increased competition from local brands in the last decade. And this is most likely to increase further in the coming years.

In such a scenario, you no longer can afford taking critical business decisions based on gut or partial intelligence or past experiences.

Success in the CPG industry is largely based on decisions – decisions which are accurate and taken at a lightening speed. While decision-making does depend on several factors, it’s highly important to leverage emerging technologies like TPO solutions which will improve and simplify it.   

There are numerous types of data which needs to be considered before devising or optimizing trade promotion strategies. These could include POS data or Syndicated data from data brokers or past promotion data etc. However most companies spend heavily and depend solely on syndicated data for taking decisions.

While this type of data is important to capture, there are numerous other influential data types which need to be harnessed to increase data accuracy and get a big picture view of reality.

Another popular challenge is siloed data. Your POS data remains at one place, syndicated data in another, social media data at some other place. This limits the efficiency and productiveness of decision-makers as they can’t process and analyze data effortlessly.

Most decision-makers in the CPG business still are reliant on some custom-built spreadsheets for data consumption. Even though many business users are accustomed to using Excel, the lack of flexibility of these sheets decreases the speed and accuracy of decision-making.

Especially as the amount of data to be processed increases, decision-makers have to spend more time analyzing data and less time gaining insights from it. Also, manual data entry into spreadsheets is very tedious for field-sales teams and prone to human errors.

This is another common challenge which disables TPO teams from leveraging data for decision-making. Business teams usually have to depend on highly-skilled crew like IT or MIS personnel or Data Scientists to get new report formats or update the existing ones with the latest data. This is a complicated process and hard to incorporate in the daily work flows of a decision-maker.

Due to the above challenges and various other organization-specific problems, TPO teams cannot powerfully measure the effectiveness of trade promotions and clearly identify low and high yield promotions. Thereby budget and resource allocation cannot be done effectively.

Most companies depend on their typical corporate systems like TPM or ERP systems for trade spend analysis. However, trade promotion planning, measurement and optimization require tools with strong analytical capabilities. A majority of existing TPM systems only offer effective control mechanisms.

Even though there is a quick realization that profitability carries more weight than volume, business teams – from field sales to marketing are still focusing on volume. But volume and profitable volume are two entirely different things. Focus on achieving profit should be embedded within every department of the organization.

It’s imperative to understand the different steps involved in trade promotion optimization and important capabilities required to effectively execute each step.