Why Is Trade Promotion Optimization (TPO) Important?
The concept behind trade promotion is simple - spend money at a retailer to promote your offerings with an expectation that your sales and profit will increase. The mechanics behind trade promotions are more complex. To ensure you are taking the right steps towards your sales targets, optimizing promotion plans is crucial.
As we mentioned in last week’s article, trade promotion is the second-largest cost item on a CPG organization’s P&L. Unfortunately, most trade activity results in negative ROI. A robust Trade Promotion Optimization solution helps CPG companies address this through:
Make Data-Driven Decisions
Trade promotions are often run based on emotion or partial data intelligence and fail to deliver an adequate ROI. By leveraging a TPO solution, data from both internal and external sources are harmonized and transformed, creating meaningful insights for key KPIs such as market growth rate and sales uplift, helping you understand which promotions generate higher ROI. This lets you avoid the hassle of manually going through all the data and allows you to quickly forecast expected revenue, profits, and costs associated with each promotion.
Enable Better Workflow
Running promotions often involves working with multiple retailers in various locations, each functioning differently and requiring customized promotion plans. Without a unified workflow, chaos ensues. A TPO solution can help teams better coordinate promotion activities across stores, avoid back and forth miscommunication, and effectively execute trade promotions.
The CPG industry is highly competitive due to its high market saturation and low consumer switching costs. By using a TPO solution, retailers gain a competitive edge over others by leveraging real-time data and analytics to better measure performance and optimize shelf and inventory management. Not only does this help maximize margins, but it also helps build better relationships with trading partners.
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What To Look For In A TPO Solution
At its core, a TPO solution should be capable of implementing trade promotion across stores and agile enough to scale / withdraw activities flawlessly. Other parameters to look out for when selecting a TPO solution include:
Optimization is the reason you invest in a TPO solution – it’s in the name! An organization truly optimizes trade promotions when they have highly reliable forecasts of demand. Often, vendors try to wow you with terms like Artificial Intelligence, Machine Learning, Entropy Equations, Bayes Theorem, etc. At the end of the day, if the forecast or recommendations are non-sensical, you are not correctly optimizing promotions.
Ease of Implementation
Every software solution should seamlessly integrate within your organization and be easy to learn. TPO is no different. The right TPO solution should be intuitive and easy to navigate around. It should also not require a fundamental redesign in how you do business.
Advanced Reporting Capability
Every TPO solution can output bar graphs and pie charts. Only the exceptional ones offer real reporting capabilities like extracting data from different sources and producing repeatable insights that can easily be interpreted by the user (i.e. baseline trends, real-time KPI analysis, what-if scenarios, etc.). A perfect TPO solution combines reporting with advanced visualizations so you can view data in a variety of ways.
Ability for Data Integration
Solely relying on general syndicate data is not going to help you make sound promotion decisions. Thus, when choosing a TPO solution, ensure it can gather accurate data from multiple sources – both within the organization and outside of it. A common stumbling block is linking internal financials to syndicated customer data. Without this end-to-end visibility, you can only go so far.
What-If Analysis, Comparative Analysis, And Predictive Analytics
Most teams use intuition and assumptions to evaluate how a promotion could impact future sales and ROI. While they may be right some of the time, on the off chance they are wrong by even a few percentage points, it has a huge impact on promotion results. When a TPO solution can perform what-if analysis, comparative analysis, and provide predictive analytics, it saves you time and money while helping you achieve a better ROI on promotions.
What-if analysis estimates the impact of a potential promotion without having to run it. All you have to do is change a couple of variables to see how it will impact the promotion outcome. Comparative analysis helps you determine what the best promotion tactics are to invest in and budget for to derive maximum ROI. Running comparative analysis using historical data also enables organizations to design better promotions specific to retailers, locations, and SKUs before implementing them.
Optimize User Experience
For users to quickly adopt all aspects of a TPO solution, configurability needs to be simplified but also personalized for each user. For example, many revenue managers are used to using spreadsheets for their analysis, so the solution should be able to interact with spreadsheets and allow users to extract / upload information in detail. The best TPO solutions offer tiled architecture, collaboration tools, navigational aids, and responsive systems to ensure a smooth user experience.
How To Prepare For TPO Implementation
Support Change Management
When an organization adopts a new tool, there are always challenges that arise. Due to this, many avoid implementing a TPO solution for fear of change management and low adoption rates. While it's good to have a TPO solution that is supported by an intuitive interface, your TPO partner and internal organization need to have a robust multi-year activity based plan to ensure successful adoption.
Map The Data
Your TPO solution is useless without integrated data. Take the time and effort to put together a plan on what work needs to get done before you even start talking to suppliers. Do not let them dictate the agenda on what needs to be incorporated.
Understand What’s The Right Promotion Process
All too often companies engage Trade Promotion Optimization vendors to solve a very complex problem. At the end of the day, TPO is just software. It's what you do with it and how you use it that will determine success. If you don’t have a clear promotion process in place that is producing results, thinking a TPO solution can get you there is a pipe dream. First, stabilize and codify a promotion process and then start to evaluate TPO providers.
Set Yourself Up For Success
Remember that 92% of trade promotion solutions fail to meet revenue objectives. Let RML help you be the 8% that succeed. Our Trade Promotion Implementation & Optimization services help clients decide which TPO solution to choose and how to successfully develop an implementation process that is guaranteed to bring results. Get in touch today!
ABOUT THE AUTHOR Avy Punwasee is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Avy at [email protected]