With good reason, CPG companies are turning to technology to improve the management and performance of their trade investment. Simply relying on the manual compiling and analysis of data is error-prone and ineffective. Even when done on spreadsheets or with custom calculators, processes are often redundant, non-repeatable, and unfortunately inaccurate.
According to the Gartner Market Guide, “The quality and capabilities of today's TPx solutions are at a level that there is really no reason for consumer goods manufacturers to either work from spreadsheets or build their own solutions. Despite this level of solution maturity, a substantial number of companies still have not fully deployed a TPx solution.”
This potentially costly hesitancy is in part due to a lack of understanding about the unique functionality of a Trade Promotion Management (TPM) and a Trade Promotion Optimization (TPO) solution. In fact, many mistake that these solutions are the same when in reality they complement each other to provide both a tactical management and strategic analytical approach to trade investment.
Trade Promotion Management (TPM) – A TPM Solution is best used to manage the execution of trade events and finances. In this way, it can help manage the transactional activity of an event by settling claims, clearing deductions, creating accruals. It can also facilitate limited post-event analysis using a comparison from planned spending and volume vs actual.
Trade Promotion Optimization (TPO) – A TPO Solution is an analytics tool used to perform comprehensive post-event analysis that includes baseline visualizations, quantifiable KPIs and bringing together POS, shipment, and spending data to measure ROI of a promotion. Furthermore, the inclusion of predictive and prescriptive analytics creates a future planning capability for testing event scenarios and calendar building. True optimization occurs by applying constraint-based modeling to define the criteria and then letting the solution run through the various possibilities to determine the optimal event or promotional mix.
As an August 2016 post from McKinsey & Co., “Winning in consumer packaged goods through data and analytics” points out, “All winners use both trade-promotion-management and trade-promotion-optimization tools.”
What is important to recognize here is that McKinsey attributes success to both tools, not one over the other or one before the other. In this way, it is important to differentiate that a TPM Solution will help you answer how you are spending your trade investment while a TPO Solution allows you to answer how effectively you are investing in trade and how you can do it better.
Read more in our e-book, A Trade Marketer's Guide to Strategy Optimization.