Quantifying the Cost of the Status Quo

Topics: Finance, Analytics

You can’t measure what you can’t see and many CPG companies find themselves struggling to measure and quantify promotional results. This stems from companies being blinded by running the same plans year after year and failing to see the ineffectiveness of their trade promotion investment and the organizational cost of investing in optimization tools designed to maximize that investment. Without being open to change in the form of powerful analytics and optimization capabilities to build a profitable trade strategy, companies will continue to see less than an optimal return in their future planning initiatives.

The Present

Currently, CPG companies invest a hefty amount in trade promotions, roughly equating to about 20% of their annual revenue. Of this investment, they are compromising significant opportunity due to inaccurate baselines and a limited view of event and plan performance, thus projecting a skewed view of the health of their business. In other words, they are missing out on the opportunity to not only know whether promotions are working, but also have the ability for this intelligence to influence decision making. The confusion over accuracy of data and different measurements of promotional success also leads to internal stakeholders from different departments vying for funds to spur results instead of analyzing the best investment. These competing priorities are impossible to be assessed, but the fear of not meeting objectives results in funds being needlessly funneled into plans that historically do not work.

"Without being open to change in the form of powerful analytics and optimization capabilities to build  a profitable trade strategy, companies will continue to see less than an optimal return in their future planning initiatives."

numbers-money-calculating-calculationNot only does this possibly flawed view of your business affect the bottom line, but as similar companies begin to adopt these advanced analytics and predictive planning capabilities, the competitive gap widens and those who do not adopt  these strategies will fall farther behind.

The Possible

However, this practice of inefficiency and miscommunication no longer has to be the norm. It’s time to begin turning information into profit. All it takes is the commitment to see the results of making one change to one promotion for a company to understand the results they’ve been missing. Multiply that by all of the promotions and retail partners and companies can find themselves as a leader in the industry.

With analytics and optimization, trade planning becomes informed, flexible and intelligent. Thanks to one, harmonious view of the truth, departments can collectively work in synergy with each other to meet company objectives and do so with an accurate understanding of quantified historical performance. Furthermore, a view of competing promotions also allows companies a strategic advantage helping them understand the price points, timing and promotional strategy of competition. Couple this with an integrated view of consumer marketing activity and organizations can begin to look at how they optimize their entire marketing spend.

"As similar companies begin to adopt these advanced analytics and predictive planning capabilities,  the competitive gap widens and those who do not adopt these strategies will fall farther behind."

As companies begin to organize planning around insight from historical data and predictive modeling, they are more likely to align these plans with company objectives eliminating the wait-and-see approach that currently leaves companies caught off guard by poor results.

The sooner companies adopt and open mindset about analytics, the sooner they can become proactive in their approach to their trade investment. No longer will they be searching for answers, but instead they will be creating effective strategies/tactics to execute intelligent promotional plans. All in all, companies need to be aware that the cost of the status quo places them in a position that jeopardizes their growth and competitive advantage. A failure to secure the opportunity to manage their trade investment for sustainable revenue contribution can set a company up for costly consequences that stretch far beyond a single ineffective promotion.

What to read next: Problems and Solutions: Overcoming Turmoil with Joint Business Planning


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