Boards, shareholders, consumers are holding Consumer Goods companies and their leadership to higher standards than ever. This not only includes product quality and innovation, but also fiscal responsibility and sustainability. As a result, many practices where the “we’ve always done it this way” stance is prevalent, such as trade promotion investment, are coming under scrutiny.
That said, executives do not have to dictate trade investment strategy, but rather reinforce the organizational objectives that will guide it. This means not accepting the stereotypical “sunk cost” reasoning for trade spending. Instead, avoid it by eliminating the risk associated with your significant investment. (See also: "Chasing Trade Investment ROI - Resentment, Ramification and Realities")
Where the risk comes from
Before addressing how to reduce risk, we must first agree where the risk comes from. Like most risks, the danger is not in the investment itself, but in the lack of understanding, accountability and power to change. We do not know what we are spending or if it is working. We don’t understand how our work impacts the organization. We don’t have the tools or information to make better decisions.
How to reduce the risk
As an executive, your role is to guide the vision of the company, so your leaders can develop strategy
to achieve the vision and empower their teams to execute for the optimal results. To accomplish this,
the most successful CPG companies are eliminating risk by:
1) Prioritizing accurate data availability, data efficiency, and data utilization
No executive wants to be digging around trying to find out how their company’s spending impacts their objectives.
It is equally unacceptable that these same executives have rooms of analysts compiling data to be equally unclear about how spending affects performance. Yet, this happens throughout the industry.
This is why to reduce the risk of poor performing trade investment, CPG executives must prioritize the accurate availability and efficiency of the data. These data practices then must link directly to measurable insight in as close to real time as possible. (See also: "CPG Companies Left Fishing for Answers in Data Lakes")
That said, it is also up to you to continuously ask the question, “how do you know?”. This question immediately gives value to using the data. By challenging your teams to show how they are using this intelligence to drive better results.
2) Asking How, Why Not and What If?
Risk aversion is contagious. A leader who refuses to address the elephant in the room consuming over 20% of their annual revenue invested in in-store promotions will have a staff that will do the same thing.
Calculated risk is also contagious. A leader who poses the questions how, why not and what if and expects the team to use resources such as strong analytical and predictive planning tools to answer them will encourage future-focused thinking that will eliminate risk-filled “same-as-last-year” spending in favor of data-driven decision making.
3) Expecting accountability and governance
If we are going to encourage calculated risk, we are also going to need to put guardrails and expectations in place to position our people up for success. Executives need to have confidence in their leadership team to put the proper guardrails and process governance in place so there are no surprises. (See Also: "How to Build Better Financial Guardrails with TPO")
The most empowering way to encourage this is to define common objectives based on a common understanding of the business. Too often, different goals are set because each department is working from different baselines. Only the executive can hold the organization accountable to have a centralized version of the truth that is used to set and measure objective performance.
4) Focusing on the better
When it comes to trade investment, companies who have very little understanding of what they are spending will implement a trade promotion management solution to calculate and report on how much is being spent. This is a great accomplishment and should not be understated. However, it does not eliminate the risk of poor investment decisions because it does not address how well the spending is working or how we can invest differently.
If we settle for increased capabilities, we miss the opportunity for increased outcomes. Eliminating risk is more than identifying where the risk is, it is prioritizing doing the best to address it. For many companies this is the difference between blindly cutting trade spending to boost the bottom line and using all of the above recommendations to invest better. Today the numbers may look similar, but only one of these options will sustain your growth in the future.