What is Trade Promotion Management in the CPG industry? A guide to answer all your questions.

Trade promotions are a key component of the overall marketing mix for nearly every brand in CPG. Trade promotions serve a dual purpose, both in helping to drive short-term demand and motivating retailers to showcase and sell more of a company’s products. Trade promotions are a component of revenue management, involving marketing campaigns and activities targeted at selling more to the final consumer in a push strategy through wholesalers and retailers.

Trade promotions can take many forms, including discounts, rebates, bonuses, and other incentives designed to encourage partners to sell more of the company's product. These promotions can be a significant expense for companies, so it's important to manage them effectively to ensure they're delivering a good return on investment.

Without an effective strategy, businesses risk the chance of not delivering profitable results or meeting key performance indicators (KPIs). That’s where trade promotion management (TPM) comes in so that businesses effectively track their results to drive profitable outcomes, learn from past promotions, and apply those learnings to future ones.

What is Trade Promotion Management?

Trade promotion management (TPM) is the process of budgeting, planning, and reconciling a company's trade spending, intending to drive sales and profitability while increasing the productivity of sales and finance personnel.

Trade promotion management, when done correctly, also delivers a full cycle of financial accountability and reconciliation. The process is even more powerful when AI and ML modeling are applied.

The 5 Key Stages of Effective Trade Promotion Management (TPM)

TPM follows a systematic process, featuring several key stages each contributing significantly to the promotion's overall success. A deeper comprehension and effective management of these stages can help optimize trade promotions, fuel sales growth, enhance profitability, and strengthen retailer relationships.

1. Budgeting and allocation: This initial phase involves generating trade budgets and strategically allocating them across specific accounts to construct the promotional plan.

2. Promotion planning and forecasting: At this stage, starting with a baseline, a promotional calendar for each retail customer is devised, leading to a comprehensive business plan encompassing anticipated sales, expenditure, and profits.

3. Execution: Here, the promotion springs into action. It involves communicating the promotional plan to retailers, supplying them with necessary materials, and meticulously tracking the outcomes.

4. Reconciliation: This phase calls for matching the spend with the corresponding activity, validating and balancing financial deductions associated with these expenses in the system.

5. Evaluation: In the final stage, the effectiveness of the promotion is assessed, forming the basis for future improvements. This involves gathering and analyzing promotion-specific data and formulating recommendations for forthcoming promotions.

Why TPM is Important for the Consumer Goods Industry

Consumer goods companies allocate substantial amounts of their budgets toward trade promotions every year.

Regrettably, many of these investments don't yield favorable returns on investment (ROI). However, effective TPM can rectify this by aligning promotions with marketing objectives, deploying apt strategies and discounts, and ensuring efficient execution.

Trade Promotion Management is meant to harmonize operations between sales and demand planning teams, delivering the following tangible benefits to consumer goods enterprises:

• It can increase sales by encouraging retailers to stock more of a company's products and to promote them more prominently.
• It improves profitability by reducing the cost of goods sold and by increasing margins as well as minimizing unauthorized and/or ineffective spending.
• It enhances brand awareness by increasing the visibility of a company's products in stores and online.
• It also helps build stronger relationships with retailers by providing them with incentives to sell more of a company's products.

7 Common Challenges in Delivering ROI Through Trade Promotions

Managing trade promotions effectively comes with its own set of challenges. While most of these obstacles are manageable with the appropriate TPM software, understanding these challenges is key to overcoming them.

Here are seven common challenges faced in TPM:

1. Challenge of budget management & allocation: A major challenge is allocating trade promotion budgets effectively to maximize ROI. Companies often struggle with efficiently tracking their spending and identifying areas for cost savings.

2. Difficulty in targeting the right retailers and consumers: Ensuring that trade promotions are aimed at the most appropriate retailers and consumers is challenging. The success of a promotion largely depends on its ability to attract the interest of the intended audience.

3. Complexities in data management: The vast amount of data generated by trade promotions presents a significant challenge in management and analysis. Companies need to effectively collect, store, and use this data to improve future trade promotion strategies.

4. Accurate forecasting and integrated business planning: Predicting the impact of trade promotions on sales and profits is a substantial challenge. Companies must develop accurate forecasting models and integrate them into their overall business planning.

5. Effective execution of trade promotions: Executing trade promotions effectively is fraught with challenges, including having a clear plan and ensuring the availability of all necessary resources.

6. Adapting to changing market conditions: Rapid changes in market conditions present a challenge for companies to effectively adapt their trade promotions.

7. Lack of technology and digital transformation: The landscape of trade promotions, driven by new technologies and digital transformations, poses a significant challenge. Companies need to stay abreast of these technological advancements to maintain a competitive edge.

You may also be interested in how Good Food Groups boosted its TPM with CPG.

The Spreadsheets Challenge

Surprisingly, many CPG companies still rely on Excel to manage and make decisions for promotions. And the truth is, if your team is tied to spreadsheets and disjointed data, you’re lacking the single source of truth you need to accurately plan and track your current and future promotions.

This means your sales team is likely glued to their desks- forecasting, re-forecasting, answering questions, and justifying promotional spending- when they should be focusing on selling. Worse, you might end up quickly increasing your trade spend budget without an eye to what is efficient.

That’s why more companies are making the switch from manual, time-intensive processes, to account planning that is automated and accurate. That's where Trade promotion management software comes in.

Trade promotion management tools work to connect all aspects of your promotion planning and connect every stakeholder, from retail, distribution, finance, and budgeting. TPM software should act as the 'Operating System' for your sales team. They should give your organization the structure, automation, control, and insights you need to make decisions in real-time

The right TPM tool should be designed for your specific needs, with ease of use in mind. This means giving you the tools you need to optimize trade spend processes and catapult account management to a whole new level. Trade promotions software should be easy to manage, and set up, and easy for your team to evaluate your promotion plans across all levels of your product and account hierarchies. 

What is Trade Promotion Management (TPM) software?

Trade Promotion Management (TPM) software is a type of business application that helps companies plan, execute, track, and analyze their trade promotion process. This software is designed to streamline the trade promotion management process and to provide insights that can help companies make more effective decisions about their promotional strategies.

The use of the right TPM solution can help you manage all your complex distributor relationships, trade arrangements, and reconciliations. This will help you increase your efficiency to achieve better results, boost your ROI, and do the following: 

1. Automate trade promotion tasks and spend less time on manual work

When your sales team isn’t tied to spreadsheets and manually inputting and extracting data across different systems, they’ll spend less time tied to their desks and more time acting on the data and more importantly – more time selling to customers. Similarly, the finance team should be spending their time analyzing data for success, and less time compiling and verifying data.

2. Make better trade promotion decisions to stay competitive and agile

The right system can help you change, replan, and re-roll forecasts quickly and align on one source of truth across all stakeholders - sales, trade development, finance, and revenue growth management. 

3. Effectively set financial targets

The right trade promotion management software should allow you to use your historical spending to set goals. This will give you the framework necessary to optimize your trade promotion efforts and reach financial targets. 

Do I Need a TPM Software?

Whether or not you need TPM software depends on several factors, including the complexity and scale of your promotional activities, and the challenges you face in managing them.

Here are a few situations where implementing TPM software could be beneficial:

1. If your promotional activities are numerous, complex, and span multiple channels or regions, manual management can become error-prone and inefficient. TPM software can automate many of these tasks, reducing errors and freeing up resources.

2. If you're struggling with scattered data and lack of visibility, a TPM solution can help. TPM software can handle vast amounts of data, providing centralized storage and easy access.

3. If you're having trouble understanding how your promotions are performing and why, TPM software can provide advanced analytics capabilities, giving you deep insights and enabling data-driven decision-making.

4. If you struggle with forecasting. TPM software often includes predictive modeling tools that can help you forecast the likely outcomes of different promotional scenarios, enabling you to optimize your strategies. When paired with the prediction of non-promoted sales, the system should help you generate a holistic forecast, not just a promotional one.

5. If your organization faces challenges in sharing promotional plans and data with retail partners, TPM software can streamline this communication, improving collaboration and outcomes.

Remember, the decision to invest in TPM software should be based on a thorough assessment of your business needs and the potential ROI.

Trade Promotion Management Software Must-Haves

The right Trade Promotion Management (TPM) tool should be able to perform the following:

1. Account planning and budgeting

Ensure capabilities include single and multi-promotion cloning and annual plan cloning with an intuitive UI. If your company utilizes contracts and rebates, you’ll want to be able to manage them on the same calendar as your promotions. 

2. Consumption and shipment forecasting

Your account planning should have both promotional and non-promotional volume capabilities for a complete consumption plan, where you can easily lag and modify to account for shipment timing. Make sure your vendor has the capability to model baselines and uplift factors - these are essential to accurate forecasts and true ROI calculations.

3. Deduction management

The trade promotion management tool you choose should make it easier for your organization to reduce deduction aging and improve validation rates. Also, look for a solution that incorporates auto-settlements functionality to help your AR team improve productivity.  

4. The ability to grow with you

Along with all of the features above, your TPM solution should have the option for you to add on advanced trade promotion optimization (TPO) and RGM capabilities as your organizational needs and readiness require. This will help you make the right decisions at the right time and allow you to integrate all of your data in one place. Ultimately, this will give you the buy-in you need across your organization. 

If you’re looking to invest in trade promotion management software, you’ll need to consider the following factors in a TPM vendor:

• Size of vendor: Some vendors may just be too small - make sure the vendor has a stable of ongoing clients, low churn, and financial strength. It can be good to be a big fish in a small pond, but you don’t want to outgrow the pond either!

• Tech stack and platform with:

• Multi-language and multi-currency capabilities

• Open APIs for easy integration 

• A high level of configurability (so you aren’t always paying for customizations)

• In-house artificial intelligence and machine learning capabilities:
  Machine learning is the driving force behind using historical data to make accurate predictions for future promotions. It falls under the umbrella of artificial intelligence (AI), which uses predictive patterns to help you enhance the functions of your promotions, like automating forecasting of inventory needs and optimizing the supply chain.

Introducing CPGvision: Powerful Trade Promotion Management Software for CPG Brands

CPGvision is the best-in-class fully connected and integrated TPM and Revenue Growth Management (RGM) solution suite for Consumer-Packaged Goods, built on the Salesforce platform. With the most advanced functionality in the industry, CPGvision equips you with real-life problem-solving applications for TPM, Trade Promotion Optimization (TPO), and RGM.

What can CPGvision do for your business?

With a Trade Promotion Management software like CPGvision you'll be able to:

• Generate accurate sales forecasts: Say goodbye to manual forecasting processes and errors. CPGvision applies modern machine learning techniques to generate and leverage the right historical data and make accurate promotion predictions.
• Gain real-time visibility into your performance: Analyze actual results as soon as the data becomes available, and make adjustments to the plan accordingly.
• Resolve deductions faster: Manage your reconciliation process in a state-of-the-art UI to clear deductions faster, and reduce that AR aging!
• Cut planning time: Combine your top-down and bottom-up plans, and analyze and close gaps for one source of truth on the forecast.
• Generate promotional predictions all in one place: Increase your ROI on trade spend with artificial intelligence-driven optimization and scenario planning and see the impact on your volume, revenue, and profit immediately.
• What features does CPGvision provide?

There are TPM capabilities inherent in the CPGvision platform that are life-changing for users who were used to spreadsheets.

Some of these "easy buttons" are:

1. Advanced product search

The search function takes advantage of the powerful capabilities that Salesforce has to offer:

• Global search with a search bar at the top of every screen, regardless of where you are in the application, you can search the entire application and see all the places within the solution with matching results.
• Users can search and associate different records with one another using a lookup field
• Users can also take advantage of the “where is this used” function - showing all places across the application where a certain field is utilized.

2. Mass cloning capability

Get powerful cloning capabilities to minimize the amount of manual input. Cloning is a function that copies the parameters of a promotion or plan and applies the appropriate dynamics to the copied version. Users can:

• Clone a promotion to another period on the account plan.
• Clone individual or multiple promotion plans(or an entire plan) from one year to the next.
• Clone multiple promotions at once.
• Clone single or multiple promotions(or an entire plan) to another account.

The clone button is the ultimate EZ button!

3. Mass approvals

Mass Approvals provide the ability to check multiple promotions or settlements and approve them at once. Automated workflows and auto-settlements can provide further levels of efficiency.

4. Predictive planning

You will always have visibility to key metrics of a promotion.

• Plan with a highly configurable promotion calculator.
• Customize the key performance indicators and incorporate workflows around them.
• Change the parameters of an event and automatically see the projected impact on your KPIs.

5. Chatter function

Provides audit trails and documentation. Employees can interact, share data, and store fields. 

• Exceptionally helpful through the promotion reconciliation process.
• Contracts can be attached to promotions as well as proof of performance.
• Deduction personnel can ask questions and all correspondence remains linked to the promotions and reconciliations.
• Provides a reliable audit trail that remains intact through personnel changes.

Let's Boost Your Trade Promotion ROI Together!

As mentioned before, TPM is a complex process, but it can be a valuable tool for CPG companies that are looking to maximize sales and profitability.

By adopting CPGvision’s best-in-class TPM software suite, you can harness advanced functionality, real-life problem-solving, and a range of applications that will help drive your promotional success, and keep your customers coming back for more.

At CPGvision, we take pride in our commitment to your goals. Our dedicated team consists of CPG industry professionals who are fully equipped to support you with your TPM solution.

To learn more about how CPGvision can help you achieve successful TPM, get in touch with us today.

FAQ:

• How does trade promotion management impact sales and revenue?

  TPM uses strategies like discounts or special offers to boost sales volume and attract new customers. The data-driven insights gained from TPM support strategic decision-making and planning, ultimately driving improved sales and revenue. In a nutshell, TPM acts as a strategic lever to enhance sales performance and revenue growth.

• What role does data play in trade promotion management?

  Data helps organizations gain insights into sales trends, consumer behavior, and market dynamics, thereby informing the development of effective promotional strategies. The data-driven analysis aids in forecasting, helping predict the potential impact of different promotional activities. In essence, data acts as the backbone of TPM, enabling companies to make informed decisions, optimize promotional spend, and ultimately drive sales and profitability.

• How can businesses measure the effectiveness of their trade promotions?

Businesses can measure the effectiveness of their trade promotions through a variety of KPIs. These include:

• Sales lift: Measured in terms of units or dollars. If the sales lift is low or non-existent, there's a risk of significant resource wastage.
• Incremental sales: Measures the rise in sales during a promotional event. For internal evaluations, it's helpful to express incremental sales in terms of manufacturer revenue dollars rather than retail dollars.
• Event spend: Assesses the total trade spend on a specific event as a percentage of the overall revenue generated. It serves as a useful guideline and analytical tool when there is no base vs. incremental split (for non-POS accounts).
• Cost per incremental dollar (CID): A straightforward yet potent metric that holds your sales team accountable for their spend and the incremental sales it generates.
• ROI: This metric extends post-event evaluation to gauge profit-based return on investment, crediting the generation of incremental sales.