How to Nurture a Healthy Trade Investment – Part 1: Diagnosis

Topics: Finance, Analytics

This is the first in a two-part series discussing the practical capabilities that CPG companies need to have to create and maintain a healthy and growth-focused trade promotion investment. Part 1 focuses on the need for a trade promotions’ checkup driven by analytical insight.

Many CPG companies face a landscape filled with instability caused by tight margins and potential merger and acquisition threats. The pressure for any investment to pay off is high, trade promotion specifically being one that faces great scrutiny to meet expectations. However, as trade promotion becomes an increasingly data-driven process, there is a growing opportunity to revive trade investments and turn them into robust, profitable and effective business practices using past performance and predictive modeling to guide future growth.

"As trade promotion becomes an increasingly data-driven process, there is a growing opportunity
to revive trade investments and turn them into robust, profitable and effective business practices."

Regarding this opportunity, finance leaders have the unique ability to monitor the health of a company’s trade investment both from an analytical side and a planning side. This vantage point allows finance to facilitate the many benefits of having a healthy trade investment program including fostering a stable marketing investment with predictable returns, sharing better understanding and visibility to retail partner performance to encourage joint business planning. In addition, it can assess the viability of new product or category entry as well as evaluate a potential merger or acquisition. Embracing these benefits unites finance, sales and trade marketing around organizational objectives rather than splintered processes.

Diagnostic - How do I determine current health?pexels-photo-204686.jpeg

The first step in assessing the health of your trade promotions is figuring out what is your current state. What’s working? What’s not? To what extent? To do so, you’ll need the necessary post-event analysis and planning capabilities that should exist in a Trade Promotion Optimization Solution.

One indicator of trade promotion health can be seen through baseline analysis. This creates a visual of base performance over time and the lift provided by promotional events. When this feature is automated to include real-time integrated (POS, Shipment and Spending) data, a actionable picture of your company’s health is possible. This allows for monitoring of promotional performance and the ability to account for and correct data anomalies as a part of post-event analysis. Since the baseline is determined by historical performance correcting these anomalies creates a closed loop where future baseline accuracy will be even more accurate.

Of course, promotions are not run in isolation which is why it is also important to monitor the effect competitive and consumer marketing have on performance. These overlays allow for a more accurate and holistic analysis of promotions performance by opening a dialog about how performance was affected by these congruent events. Without this comparative information, your company is running the race blind and you can’t see what steps you need to take to get ahead.

While the previous understanding is important, it is the ability to calculate a quantitative ROI of events and plans that most directly reflects the health of your trade promotion. This helps you see whether your strategy is meeting its goals. As one of our customers said, it’s one thing to run a promotion with a high negative ROI because it strategically achieves volume objectives, but it’s another to run a promotion with a negative ROI because you don’t know any better. Historically, the CPG industry has not been able accurately evaluate whether promotional goals are being met, which is why so many companies have significant loss on their trade promotion investment.

"It’s one thing to run a promotion with a high negative ROI because it strategically achieves volume objectives,
but it’s another to run a promotion with a negative ROI because you don’t know any better."

When you unveil a clear workup of your trade program’s health performance guided by a comprehensive and quantitative understanding of your actual execution, you can prevent further loss and start working towards creating improving practices and tactics resulting in a quantified gain.

In Part 2 of this series, we will examine the power of predictive and prescriptive analytics to energize the health of your current program and build a strong trade investment foundation that your organizational can depend on as part of its revenue management strategy.

What to read next: How to Nurture a Healthy Trade Investment – Part 2: Treatment and Preventative Care


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