Deloitte's national managing partner of the U.S. CFO Program, Sam Cockrell III, reported in the Wall Street Journal's CFO Journal that "nearly 60% [of surveyed CFOs] said they are biased toward revenue growth, the highest level in more than a year, while only 27% claimed a bias toward cost reduction."
While on the surface this observation may seem very obvious, the reality is that a CFO must balance corporate initiatives that drive revenue growth with necessary practices that add expense. Traditionally, trade promotion falls into the latter category, but ironically, is a sales and marketing program that is designed to drive revenue, profit and volume. It is no secret though that despite its intent, trade promotions typically fall short of expectation, but the risk of reducing the over 20% of annual revenue invested in trade promotion programs is too great for most CFO’s to rationalize as a cost-savings measure.
The result is that most companies continue to do what they have always done and simply write off the less than optimum results.
Deloitte’s WSJ.com column continues indicating, “Surveyed CFOs’ internal concerns, meanwhile, focused on finding growth opportunities, executing their growth initiatives, innovating and executing against their strategies and plans.”
Again, this is an area where trade promotions have been more of a thorn in CFOs’ sides than a viable revenue management strategy. This is furthered by the fact that many classic “TPM solutions “designed to improve trade promotion practices, lack the ability to provide a quantifiable measure of trade marketing health or meet promises of improving promotion performance.
However, the ability to shift from a transactional mindset of managing trade promotions to an analytical mindset of optimizing trade promotions provides new opportunity to reposition trade promotions as a sustainable growth contributor. Why?
1) Focus on outcomes.Trade promotion optimization applies constraint-based modeling to prescribe the optimum promotional mix (tactic, customer, timing, etc.) to achieve organizationally-defined objectives. In doing so, it eliminates the guess work and increases the usability of promotional plans because the predictive capability determines quantifiable profit, revenue and volume of future plans. Your sales and trade marketing teams can now provide to the CFO a total picture of anticipated performance with the confidence that outcomes align with your strategic initiatives.
2) Data-drivenUninformed decision-making is an avoidable pitfall of many Consumer Goods companies. With trade promotion optimization, data integration fuels accurate post-event analysis which in terms provides the foundation of optimized planning in a centralized intelligence hub for comprehensive trade budget oversight. As a result, cross-functional communication between finance, sales and marketing is simplified because the focus is on shared data rather than speculative assumptions.
3) Risk aversiveIf trade marketing is an area where cost-cutting is often too risky, putting blind confidence in a plan without quantifiable results should prompt considerable concern especially if the opportunity exists to have greater oversight and improve the results. Trade promotion optimization allows for monitoring of baseline changes and promotional performance alerting users when data falls out of line with expectations. Similarly, predictive performance and future baseline modeling provide the opportunity for risk identification as part of the planning process.
As Consumer Good companies search for innovative ways to spur growth, shifting the capabilities of internal assets can be a catalyst for greater revenue and elimination of ineffective practices. Trade promotion optimization does more than breathe new life into an historically ineffective practice; it has the ability to quickly drive/optimize promotion revenue management initiatives, by improving the accuracy of existing planning practices resulting in a significant return without any long-term disruption.
What to read next: Breathing New Life into Trade Marketing with Optimization