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A white-paper on how to use fact based business intelligence to increase ROI on trade spends
Kakul Paul CPG Practice Head
Contents
Fast changing retail landscape How does TPO help manufacturers and retailers? How trade promotion strategy varies by brands Trade promotion management process 3 4 6 8
Companies spend
annual revenue on
trade promotions. This
figure world-wide
1 2
bigger consumer baskets that have a long-term sustained impact on baseline sales.
& discount points that maximizes sales lift & ROI and meets volume & profit targets
Companies successfully implementing TPO achieve significant benefits as they: o Have a structured process for collecting and collating data. The time saved is utilized for more value-added planning and analysis
o Are more scientific in planning their trade promotion calendars (with the right budgets allocated across months/seasons) rather than using their instincts and gut-feel
o
Make better use of their trade budgets by allocating more against promotion sensitive brands that not only increases top line sales but also bottom line profits (hence higher ROI)
o Are able to build a more fact based compelling sell-in proposition to collaborate with the retailers for restructuring their trade programs o Able to design unique trade promotions specific to a retailer/channel instead of following one-size fits all To highlight the savings, lets take an example: For a $2B CPG manufacturer who invests say 15% of its sales (~$300MM) on trade promotions, a mere 2% improvement in returns can yield $6MM incremental revenues which can be ploughed back to the business!!!
volume
Low power brands These are brands with relatively little consumer loyalty, less pull in the market and hence less negotiating power with the retailers. Retailers will give preference to brands with better margins and discounts since they know that replacing less incentivizing brands will not negatively impact their overall category sales. These brands therefore have the most to gain from better trade promotion management. B. Market situation of the brand Is the brand facing an issue with low penetration or with low consumption?
relatively less consumer loyalty & hence less negotiating power with retailers. They therefore have the most to gain from better TPO
Low consumption will entail designing trade promotions that incentivizes trade and hence consumers to stock more. Low penetration on the other hand will entail trade promotions that entice consumers to try the product.
Collaborative working across teams needed for a successful trade promotion execution
Below is a 6 step cycle for an effective trade promotion management: 1. Collate market information Create an automated process that integrates and synchronizes data from multiple sources (like shipment data, competition data, syndicated market data) onto a single platform.
2. Predictive modelling Distil historical performance to identify all the drivers that impact sales, like: price, internal cannibalization, cross-category affinity, competitive action. Translate this to develop baseline models to quantify incremental volume and profit for each brand and trade promotion activity.
Decomposing brand sales to arrive at base sales & incremental impact from other drivers
The periodicity of this exercise depends on how frequently the market dynamics change (typically its an annual exercise).
3. Budget planning & allocation Using the statistical models, create a scenario planner that the sales, trade-marketing and finance team can use to build various what if scenarios. The scenario planner will calculate ROI not only for the brand but for the entire portfolio. It will help answer the following questions: o What brands/SKUs to promote? o When to promote and how often to promote? o What trade promotions work best for the brand/SKU? o How much promotional discount to offer? o What is the expected sales lift from the promoted SKU during the promotional period? o Has the promotion resulted in a sustained long-term increase in base-line sales? o Are specific promotions cannibalising sales of other brands/SKUs in the portfolio? o What is the expected volume and ROI for the product from the trade promotion? o What is the expected volume and ROI for the entire portfolio (after accounting for cannibalization) from the trade promotion? Based on the results the team can allocate their budgets to achieve the desired volume and profit targets. 4. In-market execution Collaborative working with retailers for seamless in-market execution and settlement
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5. Post-event analysis Create Key Performance Indicators (KPIs) to help sales management measure and benchmark the trade events market performance against a set of pre-determined quantifiable objectives. Some of the KPIs are: incremental volume, cannibalization rate, returns on promotion spending, incremental profit, remaining inventory on hand. 6. Incorporate learnings onto the next cycle Evaluate success and failures from above this will then go in as the first step in the planning process for next year. Eliminate poor events based upon numbers.
About Marketelligent
Marketelligent provides data analytics-based consulting and outsourcing services that help you make smarter business decisions. The firm is backed by senior professionals with rich experience across Consumer focused industries - Consumer Finance, Consumer Packaged Goods, Consumer Retail, Payments, Telecom and Media. At Marketelligent, we believe in leveraging analytics to provide intelligent marketing solutions through a highly talented team comprising of both domain and analytic experts. This ensures that analytical insights are converted to actionable recommendations that help our clients make smarter business decisions.
For more information, please contact us at: info@marketelligent.com www.marketelligent.com Bangalore, India Kakul Paul CPG Practice Head kakul.paul@marketelligent.com New Delhi, India Roy K Cherian CEO roy.cherian@marketelligent.com New York, USA Buck Chintamani EVP, Strategic Initiatives & Business development buck.chintamani@marketelligent.com
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