Shouldn’t everything be simple? Life would be wonderful if the complexity just fell away, and we were able to drift through each day with decisions that were made straightforward for us!
Planning is one of those activities that typically gets harder the more we think about it, I am sure we have all been there – even the simplest activities like organizing a gents evening out becomes a logistical nightmare as those invited also must balance out partner/dependents/work/finances to join. Where am I going with this train of thought you wonder…well…
Trade Promotion Management (TPM) reflects all the complexities of planning — there are many people and metrics to align on, scenarios to plan and an ever-changing set of numbers to work on and achieve goals against. For anyone that has not worked in TPM, it’s very likely they have still been the subject of the result of this business process, purchasing goods at a discount from a supermarket. Whilst our buying behavior has changed substantially over the past 10 years as a result of the ‘IoT’ effect, groceries are still primarily purchased instore, and along with it the opportunity for both manufacturers and retailers to influence what is actually bought. When you’re next walking around a supermarket, look at the label on a product and see who manufactures them. Manufacturers (and to a degree wholesalers and distributors) are ‘ground zero’ for TPM – this is where the magic must happen!
- gartner peer insights
As with many facets of marketing, there is an endless cycle of activity driving Trade Promotions – why? – well, picking two very well-known brands as an example – if Pepsi isn’t promoting their drink – it’s very likely that Coke will be, and as a result impacting the volume baseline of Pepsi. This is the reality that most Sales / Trade Marketing experts must manage – a manufacturer can’t just stop promoting without expecting a drop in market share / brand visibility and net sales. The result is a need to continually plan, adjust, evolve, and deliver a promotional program through all their routes to market that will satisfy all parties right through to us, the consumer. This leads nicely back to the original point – life would be simple if these sorts of complexities could be avoided. But it gets far more complex!
So, we now have the concept of what a Trade Promotion is in our heads, and we should be able to see physical examples of these when we go out shopping for our groceries. If you’re someone that works for an FMCG company, then you may be directly involved in the process and know some of the planning complexities that need to be managed. Let’s dig into this process a little more..
Typically, the sales organization is responsible for managing trade spend. Trade Spend is usually broken into two high level – discretionary and non-discretionary spend, which is partly related to the types of discounts that are applied as well as the point at which that discount is applied. Pricing is a crucial aspect of TPM, with the concept of a ‘base’ or ‘list’ price that will have any number of agreements with a customer that will reduce that base/list price to what’s called a Net Price. The discounts can come in all manner of forms – this is one of the aspects that makes Trade Spend a challenge. Software designed to support this process has to build a structured model of the commercial relationship developed between the manufacturer and the retailer, and this can be uniquely different for every manufacturer. For software, this means the solution & configuration must be highly flexible – something that can often lead to complexity.
In addition to pricing discounts, there is also the mechanism in which that discount is presented – which in the case of consumer driven promotions reflects the types of displays, banners, position of display in-store and a myriad of other variables that relay how that promotion and discount is presented to the buyer. Some of you may have read some of the blogs on Retail Execution (RE) – here we can see the link forming between Planning and Execution of these two verticals (TPM and RE). There is then a significant amount of financial control and management to trade spend – ranging from Trade Spend Profit & Loss views at a promotion and account level, managing the spend of these activities as they progress through their lifecycle. The finance department typically wants to manage the accrual liabilities on all activities, as well as have control on how they are accounted for and approved. Accruals can be calculated and accounted for in an infinite number of ways – in many cases, though, they will need to know how much has been sold, and for this, a volume forecast is required.
Volume, i.e., how much of any given product is going to be sold to any given customer, is another crucial part to this process. Sales information can be captured at different points as the product moves through the supply chain to a consumer – what leaves the manufacturers warehouse (shipments, or sell-in), what gets sold through distribution/wholesalers (depletions, sell-through), and what the retailer finally sells to the consumer (ePOS, sell-out). This means we can have up to 3 different volume forecasts to assess promotional performance by. Typically, we would hope that if a promotion is directed to the consumer, we measure its performance by looking at that consumer data. The same logic applies to the other sell points above. Getting the sell forecast right is important both for the management of trade spend, but of course also to make sure we get the right amount of product, into the right places, at the right time. This relies on collaboration with Demand & Supply planners to drive the manufacturing process.
I hope it’s becoming clear that to run a full closed loop cycle for a promotion, Sales, Supply Chain & Finance, and ideally Marketing, need to be working in parallel communicating together and collaborating on the same assumptions, prices, and volumes. There is a significant amount of data that is also required to drive the evaluation and decision-making process, so we probably need to add the IT Department into that list as well! This data will come in the form of product & customer master data, pricing & sales history data generally being fed from the ERP (Enterprise Resource Planning Solution). In addition, there are external feeds such as IRI/ePOS/Scan data that can either be provided by the retailer themselves or a 3rd party. This has its own ‘fun’ associated to it since the product/customer information that’s provided will not match what’s in the ERP system – so a constant mapping of product, dates and customers (so in this case Retailer/Wholesaler/Distributor names) back to the ‘source’ data. It sounds like a pain – but for large sections of this industry globally, scan data (i.e., the aggregation of individual consumer sales at checkout) is the ‘Holy Grail’ to plan, forecast and accrue for where it’s available.
The final piece of this data puzzle lies in the financial invoicing, which can happen through Accounts Payable (AP) or Accounts Receivable (AR) typically as remittance advice that the manufacturer must wait for back from their customers. This information is the most complex to ‘digitize’; it can be provided in an infinitely different format, through email, PDF, fax, or other method. The information presented will often have some, or little of the information that is needed to link it back to the promotion that was planned, which is generally required to close the liability for that promotion off. Having been involved in many projects over the years of this type, I take my hat off to the staff involved in this area as it requires the patience of a saint to manage!
We have only scratched the surface of TPM – but I look forward to digging into some other aspects and topics of a subject that has been of interest to me for many years now.
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