Digital transformation of trade promotion is a daily activity

It is heartening to see so many consumer products companies beginning to consider trade promotion as a high priority focus area in their digital transformation planning. And why shouldn’t they?  It’s only the second-largest line item in the corporate financials, with trade spending in fast-moving consumer goods accounting for almost one-fourth of gross revenues. All I can say is “It’s about time!”

In this mad rush to elevate TPx (trade promotion management and execution) to its rightful position of revenue, profit, and consumer-engagement mission criticality, some things fail to change; and in the end, it will cause the CPG ship to continue listing to port or starboard, no matter how pristine the decks or powerful the engine.  The problems are not solely the domain of the CPG supplier either – the retailers, wholesalers, and distributors also suffer this issue.

One by one, we see antiquated ideals, paradigms, processes, policies and technologies go by the board in favor of consumer inspired and technology driven alternatives.  That is, except for the measurement of trade promotion performance, and particularly, the old paradigm of weekly performance metrics.

Why weekly?

Because for years, this is the way the consumer goods marketplace has measured demand planning, hence promotions as well.  Nielsen, IRI, GfK, NPD, and all the other syndicated and POS data providers have adapted to this format and, therefore, so have the nearly 30 trade promotion and consumer promotion analytics vendors.  I hate to use the phrase, but in this case, “It’s the way we’ve always done it.”

Well, always doesn’t cut it anymore.

In the age of being able to place an order today and get delivery tomorrow, week-old intelligence is not only guaranteeing latency, but it ensures a level of failure that is no longer acceptable.  “Failure,” in this case, applies to several potential problems, but the most critically important to both the field and the boardroom is continuing the high rate for promotions that fail to achieve positive ROI.  As a CPG company, missing the opportunity to gain incremental income, volume, POS, or profitability is a sales, marketing, and financial failure.

Yet so many corporate sales and IT executives are perfectly satisfied with the status quo for measuring promotion performance at a weekly metric.  That may have been fine in the 1990s, but no longer can this be an acceptable practice, as any millennial will tell you!

Take the most prevalent and pesky of the promotion-failure causals – out-of-stock conditions during promotions. Most, if not all stores that provide outbound POS data to CPG suppliers can easily add daily stock and inventory data they have in their internal systems.

Says Jennifer Beckett, VP Sales & Marketing of Retail Velocity (www.retailvelocity.com), one of the largest POS data providers in the world: “leveraging store-level, daily POS, and inventory in your promotional forecast improves the accuracy of shipment allocation to shopper demand.”

But that is not all that should concern you.

Beckett continues: “one must also understand what happened in the past – good or bad – and incorporate the risks factors for re-occurrence in the forecasting algorithms.  Is a certain DC notorious for lagging in replenishment?  Are certain retailers, and even departments within stores, traditionally slow to stock shelves?  Do you rely on brokers or merchandisers that don’t cover the store in the cadence you need for the particular promotion?”

Excellent questions, indeed.

Simply stated, how can you monitor your inventory activity leading up to and during the promotional event if all you get is weekly data?  You are either too early to make a valid judgement as to what your on-hand stock will be through the promotion, or you will be too late to do anything about it if the stock runs out before the promotion ends. And don’t forget – this problem occurs in more than a third of the promotions out there; and has the biggest chance of dropping your ROI from positive to negative.

Consider this: The holy grail of merging marketing and trade promotion data together also depends upon moving to real-time metrics. Social sentiment, for example, which is growing in commercial analytics use cases is real time, as is consumer response to mobile and online promotions via ecommerce applications. If you cannot break the trade promotion performance data into at least daily increments of promotional POS data metrics, you’ll never be able to take advantage of tactical actions that can impact a promotion in flight.

C-level executives who are now being charged with making this collaboration happen are finding out that this is one of those seemingly insurmountable barriers to a successful blend of consumer marketing and trade promotion performance analysis.

If you are not thinking about ways to improve promotion ROI while reducing spending, you are embracing the status quo and making the statement that 2/3 of your trade spend achieving positive ROI is an acceptable financial position for your company.

Everywhere I go, I hear the same issues popping up – merging trade promotion and consumer marketing, reducing trade spend, improving trade promotion ROI, expand retailer-supplier collaboration on both trade promotion and consumer marketing, and of course, improving the accuracy of predictive analytics.

Everyone is spending huge sums of money on data. They are creating Pacific-Ocean-sized data lakes, leveraging data science like AI and machine learning, and expanding hardware and software resources to accommodate the future of real-time analytics.  If you follow the money, you can easily see how trade promotion management and execution is the elephant in the boardroom.

If you are a CFO searching Google for “How to deliver higher ROI and reduce trade spend,” stop…this is what you need to do.  Make sure your provider can get you daily retail inventory data as part of your daily POS feed, and ensure that your trade promotion analytics solutions and provider(s) can handle it.

Or, you can call us at Capgemini!  We’re here to help.