In addition to simplicity, this measure also has the benefit of being able to be shared with retailers because no sensitive internal costing information is being revealed. We’ve got seven weeks without any appreciable spikes: We then add the three weeks of promotional activity: 700 + 400 + 350 + 600 = 2,050 total units. Consumer packaged goods companies spend billions annually on trade promotion, and pressure from retailers, competitors, and consumers is increasing. Trade promotion remains the industry's biggest marketing line items, accounting for 46.2% of spending, according to about 100 manufacturer respondents. It is hard to celebrate when huge sums of money are spent on various trade promotions and discounts during the busy holiday season. Traditional trade promotion optimization (TPO) solutions are scenario-based and trade promotion management (TPM) tools take into account transactional activity, but the two improve promotion effectiveness within a single retailer alone. For example, ECR (Efficient Consumer Response) was an informal program implemented to identify and eliminate inefficiencies in the supply chain and drive those inefficiencies out of the system. Manufacturers of consumer packaged goods (CPG) can transform their sales systems to drive profitable growth—often adding 10 to 15 percent to the bottom line operating results on an ongoing basis—through improved trade promotion efficiency.Technology facilitates in optimizing trade promotions not just with features to inform, but also to analyze. of trade promotions globally don’t break even – Nielsen Holdings. 1 1. This is where things start to get sticky. 40% of CPG trade promotion spending doesn’t drive the desired results — Nielsen Holdings. The four metrics you need are: Consumer Units, Revenue, The Incremental Factor and Spend Ratio. By continuing to visit our site without changing your settings, you are accepting our use of cookies. We’ll multiply that by the net wholesale price of $3.50 to get $3,675. When sitting down with new clients, TABS guides them through the six essential elements of managing trade promotion. Obviously the actual promotional costs for these active events are not complete. Because this storm has significantly altered the landscape – especially when it comes to trade promotions. Some efforts have been made to more effectively align the interests of all parties in the CPG supply chain. Trade spends accounts for up to 25 percent of gross sales for a CPG company, second only to the cost of goods sold. As you can see, the entire category is highly dependent on their promotional activities. It’s lost entirely, and we will address that question in more detail in later blog posts. Its solutions include RapidDraft that … In addition to cutting the costs associated with promotions, retailers and CPG companies must adjust prices faster than ever to keep up with an ever-changing global market. It includes promotional events, such as price discounts, displays, demonstrations, and the like, conducted in conjunction with retail merchants. (Note:  this statement leads to many readers likely saying, “How do we know it goes away entirely? Over the years, we have seen CPG clients experience a number of challenges, including tracking ongoing trade activity and clearly understanding ROI on trade spend and how it compares to projected lift in sales. Each successive step builds on the one before it, and they are all critical for managing and optimizing your trade spending. Over the next few weeks, we’ll be visiting these elements in detail. Trade Promotion Accruals? In our client relationships, we’ve seen various companies attempting to measure different aspects of their business, from retail dollars, to shipment dollars, to equivalized volume (rolls/sheets for paper, pounds for candy etc.). In short, Incremental Factor is the simplest way to tell just how dependent your business is on promotion. In Europe, where we’re experiencing a broadly deflationary environment, decent returns on trade promotion spend are increasingly hard to generate. If I stop promoting tomorrow, slightly more than half my total business disappears. In this example, let’s say our base sales constitute 100 units per week. Correct Metrics; Correct Measurement; Correct Data Harmonization; Tactics; Planning ; Execution; This set of best practice information is unique in the consumer packaged goods (CPG) industry. 2 Corporate Drive, Suite 254 Shelton, CT 06484 (203) 925-9162 info@tabsanalytics.com. Obviously, the tactical side remains: But then we have the following four steps encompassing optimization: This is an iterative process, where we’re constantly executing, measuring results, refining practices, automating them, and on and on. of CPG trade promotion spending doesn’t drive the desired results – Nielsen Holdings. Even Prego, the brand with the lowest Incremental Factor of the top five brands, still depends on incremental sales for nearly half of their business. His focus is aligning technical solutions with sales, marketing, and organizational needs to drive long-term profitable growth. This is a downstream process. We’ll come back to Revenue in just a few moments, but first, let’s talk about another important metric, the Incremental Factor. And even companies that don’t have direct-to-consumer marketing will still often have retailer driven in-store merchandising. CPG Trade Spending & Promotions: Ignorance is NOT Acceptable. 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