Managing trade spend is an exercise in balancing your customer requirements with the increasing need for profitable revenue growth. Effectively managing trade spend requires the right discipline, data, systems, processes and people. In this blog we explore how proper trade spend management can be a key component of your profitable growth strategy.
Trade spend is a term used to describe the bucket of funds that a consumer goods company spends to promote their products through various channels, including food stores, mass merchandisers (like Walmart and Target), club stores (like Costco and BJs), natural and specialty retailers (think Whole Foods and Trader Joe’s), dollar stores, convenience stores, online store (like Amazon) etc. When you see an item offered at a discounted price for a short period of time, this discounted price is typically funded by the manufacturer of the product, not the retailer. In fact, manufacturers spend so much money on retail promotions that it is most often the second largest expense (after the cost of manufacturing the product).
There are many different types of trade spend, and manufacturers classify them in many different ways, typically starting with two main buckets:
Working Trade - working trade is defined as spend that results in some sort of offer that the end-consumer can see. This could be a simple TPR (temporary price reduction), consumer rebate, an ad, either online or in a retailer’s app or printed, or an in-store display of products.
Non-Working Trade - non-working trade includes expenditures a manufacturer must pay the retailer that does not directly induce a consumer to buy. This might include administrative fees, fines, spoilage allowances, data sharing fees, etc.
Managing trade spend has two key components, managing the transactional component and managing the strategy and optimization of this spend. Let’s investigate both:
Transactional trade spend management - Managing trade spend transactionally is a simple cycle. A budget is prepared for total spend (typically 10-20% of gross sales) and allocated to account managers to spend on programs in their accounts. These account managers devise an annual plan, preferably in conjunction with their retail customers, and both agree to move forward. When the promotions are executed, expenses for those promotions are reconciled, the results of the promotion are analyzed for efficiency and effectiveness and the cycle begins again.
Below you will see a “follow the money” illustration of the transactional process between manufacturer and retailer:
There are two ways manufacturers manage the transactional component of trade spend, through spreadsheets or with a trade promotion management system (TPM).
This table highlights the advantages of using a dedicated TPM system like CPGvision compared to managing trade spend manually through spreadsheets. The TPM system's automation, integration, and real-time capabilities offer significant improvements in efficiency, accuracy, and decision-making.
|
Aspect |
Trade Promotion Management (TPM) System |
Spreadsheets |
|
Data Accuracy |
Data is centralized, standardized, and validated in real-time, reducing errors. |
Prone to manual errors, data inconsistencies, and outdated information. |
|
Scalability |
Can handle large volumes of data and complex promotion models across multiple markets and products. |
Limited scalability as managing large datasets manually becomes cumbersome and error-prone. |
|
Collaboration |
Facilitates real-time collaboration across teams with role-based access and updates. |
Difficult to collaborate in real-time; multiple versions of the same file often create confusion. |
|
Audit Trail |
Automatic tracking of changes, with visibility into who made what changes and when. |
Manual change tracking; difficult to maintain a comprehensive audit trail. |
|
Promotion Planning |
Provides integrated tools for scenario planning, simulation, and optimization with AI insights. |
Lacks sophisticated forecasting and simulation tools; heavily reliant on manual calculations. |
|
Visibility & Reporting |
Real-time dashboards and customizable reporting, providing visibility into trade spend effectiveness and ROI. AI and ML modeling offers deeper, more accurate insights. |
Requires manual report creation and updating, leading to delays in decision-making. |
|
Data Integration |
Seamlessly integrates with ERP, sales, and marketing systems, providing a unified view. |
Difficult to integrate with other systems, leading to data silos and a lack of holistic insights. |
|
Speed & Efficiency |
Automated processes for approvals, fund allocations, and accruals improve speed and accuracy. |
Time-consuming to update, verify, and reconcile trade spend data manually. |
|
Cost Management |
Helps control overspend by setting alerts, tracking budgets, and monitoring performance. Matches expenditures to promotions for ROI evaluations. |
Harder to track and manage costs effectively, increasing the risk of overspending. Deductions are often accepted without validation. |
|
Scenario Analysis |
Allows real-time modeling of various promotion scenarios and their financial impact. |
Limited to basic what-if analysis, often requiring multiple spreadsheets. |
|
Compliance & Security |
Provides robust security measures, role-based access, and compliance controls. |
Lacks strong security features, making sensitive financial data more vulnerable. |
|
Long-term Viability |
Designed for ongoing growth and adaptability to new business needs and regulations. |
Limited flexibility and sustainability as business complexity increases. |
When selecting a TPM software solution, due diligence is key. You don’t want to get stuck with outdated, overly customized software that doesn’t meet your business systems today or allow for flexibility as the business evolves. A visit to the Resources Page on our website will provide a wealth of information on how to select the solution that is right for your business, and bring the project to fruition. We want you to succeed on this journey!
Some recommendations include:
Guide To TPM Essentials for CPG Companies
Everything you Need to Know before Implementing a TPM software
How to Find the Best Trade Promotion Management Software
Haven’t seen CPGvision v5? Contact us today!
Trade Spend Strategy and Optimization - No doubt you need to take care of the transactional stuff first, but the big benefits of managing trade spend come with getting the right strategy and optimizing promotional plans.
By implementing data-driven decision-making and leveraging AI based insights, companies can significantly improve ROI. For more in-depth strategies, see our blog “10 proven strategies to boost ROI:” found here: https://www.cpgvision.com/blog/cpg-trade-promotion-spending-strategies
We discuss the following steps in detail
Implement data-driven decision-making
Allocate budget effectively
Target promotions precisely
Collaborate with retailers
Optimize promotion mix
Leverage technology
Invest in high-performing products
Ensure effective timing and scheduling
Integrate your marketing communications
Continuously monitor and optimize
Getting strategy and optimization right can be challenging without the right data, systems, people and process. Again here, this is nearly impossible to manage in spreadsheets:
|
Aspect |
Trade Promotion Optimization (TPO) System |
Spreadsheets |
|
Optimization Capabilities |
Uses advanced AI and machine learning algorithms to optimize promotions for maximum ROI, volume, or margin. |
Limited to manual calculations and basic formulas, lacking true optimization capabilities. |
|
Data Processing Power |
Can process and analyze large datasets from multiple sources to generate accurate forecasts and insights. |
Limited processing capacity, making it difficult to manage and analyze large datasets effectively. |
|
Scenario Planning |
Allows real-time scenario analysis, testing different promotion strategies to assess potential outcomes. |
Difficult to model multiple scenarios, often requiring separate spreadsheets for each analysis. |
|
Speed of Insights |
Provides near-instant insights into optimal promotion strategies with automated calculations. |
Insights are delayed due to the time required to manually input and process data. |
|
Predictive Analytics |
Leverages historical data, market trends, and AI to predict future promotion performance. |
Requires manual effort to analyze historical data; lacks advanced predictive analytics capabilities. |
|
Cross-functional Collaboration |
Facilitates real-time collaboration between sales, marketing, finance, and supply chain teams with integrated workflows. |
Collaboration is slow and disjointed, as multiple spreadsheets need to be consolidated and shared manually. |
|
Accuracy of Optimization |
Reduces human error by automating data input and calculations, ensuring consistent and reliable results. |
High potential for errors in data entry, formula mistakes, or incorrect assumptions, leading to inaccurate optimization. |
|
Integration with External Data |
Integrates with retailer, sales, and marketing data to provide a comprehensive view for more accurate optimization. |
Requires manual import/export of data, leading to potential data mismatches and delays in optimization. |
|
Reporting and Visualization |
Generates detailed, interactive reports and dashboards with visual insights into promotion performance. |
Reporting is manual and time-consuming, often lacking the depth of visual insights provided by a TPO system. |
|
Execution Feedback Loop |
Incorporates real-time feedback on promotions to continually refine optimization models. |
No real-time feedback mechanism; optimization updates must be done manually, leading to outdated strategies. |
|
Historical Data Analysis |
Analyzes years of promotion data efficiently to understand patterns and adjust future promotions. |
Time-consuming and inefficient to review historical promotions across multiple spreadsheets. |
|
Profitability and ROI Tracking |
Monitors trade spend and ROI in real-time, adjusting strategies as necessary to improve profitability. |
Harder to track and optimize trade spend effectiveness due to manual calculations and delayed reporting. |
|
Speed to Market |
Quickly adapts to changing market conditions with real-time adjustments to promotion strategies. |
Slower to react to market changes, as adjustments require manual recalculations and approval processes. |
|
Cost Management |
Proactively identifies underperforming promotions and reallocates spend to more profitable opportunities. |
Difficult to track and manage the performance of all promotions simultaneously, leading to potential inefficiencies. |
|
Long-term Strategic Planning |
Provides strategic insights to plan future promotions and pricing strategies over longer time horizons. |
Short-term focus; long-term strategic planning is hindered by the limits of manual processes and data handling. |
|
Compliance & Security |
Enforces data security and compliance measures with audit trails and role-based access. |
Lacks strong security controls, making sensitive data more prone to breaches or errors. |
We recommend utilizing a strategy and optimization platform that is incorporated into your TPM, working off of one streamlined and clean dataset, where team members can collaborate inside the application. CPGvision’s real-time optimization tools help manufacturers effectively allocate their budgets, precisely target promotions, and continuously monitor performance. Our solutions uses:
Global scenarios - for side by side comparisons of different go-to-market strategies, with quantification of the impact of each on sales, volume, profit and spend.
What-if scenarios - that are easy for account managers to plug different promotions from their promotion library, in different combinations, to optimize the annual plan.
On the fly ROI projections - while planning, account managers will see a live projection of the return on investment of their promotional spend.
Generative optimization - enabling the artificial intelligence to make recommendations, either building plans from scratch or improving existing plans.
Effectively managing trade spend is crucial for consumer goods companies aiming to maximize the impact of their promotional efforts. While transactional management ensures that promotions are executed and reconciled accurately, the real advantage comes from optimizing those promotions to drive growth, profitability, and market share.
By moving away from manual processes like spreadsheets and embracing advanced systems such as Trade Promotion Management (TPM) and Trade Promotion Optimization (TPO) platforms, companies can make data-driven decisions, improve collaboration, and unlock new levels of efficiency. With tools like CPGvision v5, which integrates both TPM and TPO capabilities, manufacturers can manage every aspect of trade spend with precision, ensuring every dollar spent is working harder to achieve the company’s objectives.
As competition in the consumer goods space intensifies, having a streamlined, strategic approach to trade spend management is no longer optional—it's essential for sustained success. Investing in the right technology now will empower your teams to execute promotions with greater insight, speed, and effectiveness, positioning your company to win in an increasingly complex market.
Get in touch with us here to learn how CPGvision v5 can revolutionize your trade spend management.
Learn how trade promotion management software can help you manage your trade spend more effectively, ultimately leading to improved profitability.
Discover the secrets of trade promotion management with our comprehensive guide, covering all aspects to increase sales and profitability for your...
Trade promotion management (TPM) in the CPG industry describes the process of budgeting, planning, and reconciling a company's trade spending.
