Trade Promotion Cost Cutting Does Not Need to be Your Only Option

Topics: Finance, Optimization

Recently, Procter & Gamble announced a move to cut $12 billion in costs by 2021. But they aren’t the only ones. These same goals are echoed on the earnings calls and corporate objectives of CPG companies across the globe.

Of course, the easiest programs to cut are the ones that cannot quantify their value. For many CPG companies, this often means their trade promotion investment. Historically, trade promotions has been an area lacking in quantifiable insight, making it an easy target on this CPG #2 line item.cut cost-1.png

When organizations announce cost-saving measures, fear can ensue as people question their role and as a result become paralyzingly careful. For example, when trade spending is scrutinized a stalemate of “do more with less” often ensues between leadership and the sales team. However, cost management initiatives do not have to be met with fear when decisions are guided by historical and predictive data. The ability to proactively strategize for different outcomes utilizing a best in class TPO solution, allows organizations to avoid potentially damaging decisions in the name of temporary relief.

A Trade Promotion Optimization solution allows companies considering change the visibility to make better decisions regarding optimal allocation of trade spending. Furthermore, these companies can predictively plan to see the impact of changes to trade spending with specific customers and then adjust accordingly to meet mutual objectives.  When this happens, the conversation becomes not so much about cutting trade spending and scrambling to adjust, but how we can optimize trade investment for a better return – an outcome that is both preferable and sustainable.

Rather than attempting to cut trade spending across the board – a tactic that historically threatens relationships with retail partners – companies can instead see how these types of decisions will impact results. Using constraint-based modeling to optimize the revenue, volume and profit generated on specific customer’s annual plans will ultimately generate a significant annuitized return on the trade spend. Specifically, this success is brought on through a comprehensive, high level analysis of past performance allowing for a quantified benchmark of trade promotion success and also the ability to eliminate poor performing tactics, monitor trends and pivot intelligently.

CPG companies will continue to use cost reduction as a strategy to control the financial outlook for their business. However, it’s important to avoid reactive decision-making tactics that arise from fear. Instead, companies should arm their decision makers with the information to turn this risk into an opportunity to make an impact. Being able to avoid threats to the annual trade spend by utilizing the power and accuracy of TPO means that companies can gain a competitive advantage by generating a better ROI on their trade investment. This competitive advantage in today’s increasing shrinking world of CPG, can be the difference of becoming an acquisition candidate.

What to read next: Is Your Organization’s Focus on the Past Threatening its Financial Future?

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