Shelf space, flyer deals and aisle ends are all elements of trade promotion in the consumer products industry. Manufacturer and suppliers pay to help defray the cost of customer promotion and advertising and provide incentives to increase store sales. Trade promotion spending in consumer packaged goods accounts for up to 25% of gross revenues and represents the second largest line item in CPG company financials. Managing this spending is mission critical for every company. Now the industry is beginning to see the potential of blockchain and the use of cryptocurrency as a viable platform for future trade promotion financial and data transactions.
Recent financial news has fixated on the volatility of the cryptocurrency market as Bitcoin reached a high of more than $19,000. Even with this volatility, cryptocurrency and the ledger system known as blockchain are being seen as an acceptable method of trading and financial transaction management. The future sees blockchain as a method of managing not only money, but other forms of data across numerous industries and lines of business. Cryptocurrency is expected to become a standard but blockchain is garnering its own support and interest far beyond financial services. One possibility is in the consumer goods industry and specifically, the practice of trade promotion management and execution.
Is Blockchain the future?
Blockchain is hailed as a more secure, faster and highly flexible network to transmit data. Security and transaction speed have not been major issues in trade promotion because it is typically managed over highly-segregated technologies behind the corporate firewall. But with the advent of cloud-based technology, several major TPx vendors have moved to a cloud platform. Even with the cloud cost and performance advantages, many major CPG companies still restrict sensitive information such as trade funds, expenditures and performance to on-premise databases and processing technology.
With nightmarish data breaches at Target, Equifax and Uber, even the most secure, firewall-protected data seems vulnerable. Manufacturers seek to protect their sensitive trade promotion funding, spending and plans as a priority, and are often leery of new technologies with multiple access points. Blockchain may be the technology that changes this attitude.
Blockchain’s conceptual operational view has some merits for trade promotion. For instance, the use of smart contracts for trade promotion plans presents an interesting use case because it could be a way to encapsulate the often rigorous and voluminous tactical activities, business rules and performance requirements for each promotion committed by the supplier and the retailer. Using a standard format will enable far more consistency, easier compliance verification and a more detailed set of data that A/R, settlement and deduction managers can review to offset deductions taken off-invoice for trade promotion.
Blockchain and Trade Promotion
For consumer durables, fashion, high technology, consumer electronics, automotive aftermarket and household products industries where cooperative advertising and market development funds are transacted based on the receipt and audit of proof of performance documentation (claims), this could represent a more efficient and certainly faster method of reimbursement process – a major headache for both the channel and supplier.
Trade promotion is the second largest line item after cost of goods in consumer goods so there are obvious implications. With the amount of money involved, the levels of security present in blockchain will need to be far more established and provide significantly higher trust than its current state.
By its very nature, trade promotion spending is one of the most highly protected business processes in any company selling products through any channel of distribution. Blockchain and its prophesied future inevitability is on everyone’s mind as are the problems and inherent dangers that are more than widely articulated across the spectrum of global business. However, the ship is slowly turning toward relevance and acceptability, even among the most conservative views.
Even those fiercely opposed two years ago are starting to have conversations about blockchain and cryptocurrency as a potential for trade promotion and beginning to embrace the idea as a legitimate option. But there are obstacles to overcome such as how companies would be able to control the blockchain nodes to achieve the level of consensus required and how credentials are managed to engage blockchain security.
Private blockchains can attain a higher degrees of security by controlling the individual nodes, their ownership and the limitation of so-called “Forks” that cause slowdowns in the process. Trade promotion compliance can be full of overrides, changes, reversals and an extraordinary turnover of retailer and/or reseller personnel at the channel points. It creates a fear that even a blockchain has a limited capability and, at worse, could cause dangerous overpayments, higher deductions due to dropouts, loss of credentials causing failure to comply and undermine in confidence that is so important for it to work.
Any attempt to jump into the blockchain operational use today would be a continual battle with updates and changes even more than with the early TCP/IP infrastructure of the internet in the 80’s and 90’s.
After a detailed review of the trade promotion vendor arena, there is far more emphasis on the advancement of artificial intelligence-driven cognitive and machine-learning predictive analytics in planning promotions than in operational transformation leveraging blockchain technology.
Feedback on a Blockchain future
A trade promotion management solution vendor CEO says: “Our priority is to drive the percentage of high ROI trade promotions to the near 100% level.” He states that they have exhausted their future technology budget in shoring up their promotion planning and optimization technology, and blockchain is only a lunch discussion.
The CTO for consumer goods distribution company says that he has a team considering the blockchain as a network to manage promotion activity by their second and third tier retail customers for trade promotion performance compliance. He says: “Our research on the blockchain indicates that we may be able to create documents that identify specific tactics, costs, time, media and other details as smart contracts to prove performance and get paid trade funds directly without going through the distributor.” He goes on to say that this could drastically cut the time and expense incurred from suppliers who do not pay until they can prove compliance at the indirect level.
Blockchain and POS
Finally, downstream data plays a huge role in trade promotion today. Point-of-Sale (POS) data has become the mainstay for both retailer and supplier companies to understand the immediate impact of trade promotion. Blockchain could provide POS data in real-time with significantly higher capabilities to carry critical promotion, sales, inventory and consumer marketing data to deliver real-time insights into consumer shopping activity, promotion response and supply chain optimization.
Given the volume of POS data, combined with shopper marketing, in-store traffic, category lifecycle and online purchases, blockchain may be an appropriate medium to transmit big data. This may end up being the first major consumer goods use case for blockchain before any real design thinking happens around funding and trade spending.
Blockchain is coming
Considering the financial exchange element of trade spending, the use of blockchain also presents the opportunity to create new cryptocurrency for promotion settlement. Speaking with a blockchain and cryptocurrency domain expert recently, he believes that the scope of trade channel promotion presents one of the best opportunities he has seen in this emerging field to be a cryptocurrency source, where manufacturers offering trade promotion incentives could benefit significantly through the creation of a new cryptocurrency specific to promotion spending. Trade spending represents at least a very interesting use case for blockchain and cryptocurrency experts.
Blockchain is a foundational technology so like the TCP/IP protocol advancement with the internet, we will clearly see these kinds of activities. But for trade promotion, an area of business process under intense scrutiny these days and one of the areas of functionality that is often at the top of the list of transformational IT initiatives, the path to commercial application of blockchain is just now hitting the whiteboard. The question of the applicability of cryptocurrency as a future trade spend option is a bit further out.