CPG Companies: Turn Trade Promotion Mistakes into Accurate Decisions.

Trade Promotion
Date: December 3, 2020
Category: Trade Promotion

Before starting with Wise Athena, I spent more than 15 years leading sales and marketing teams in different CPG companies in Mexico, USA and Europe and the common denominator I can say was the headache that was the planning process of trade promotions. It was a super long, absorbing process, with a lot of management of teams from different areas, and in the end, the result was the same: we always failed in our numbers, and in our calculations. Fortunately, we had an “army” on the street that allowed us to redirect focus, but it was frustrating.

Now, from Wise Athena’s side, and after meeting, sitting down, and talking with hundreds of CPG producers in the USA, Europe, and LATAM, I conclude that things have changed very little. CPG companies continue to invest most of their money in new products, packaging, flavors, and distribution, but very little to improve their decision making, especially related to Trade Promotions.

Through years of studies, we know that trade promotions usually fail which costs companies, and the CPG industry in general, large amounts of money; this is nothing unusual knowing this activity or investment represents 25% of the gross sales of any CPG. If the objective is to attract consumers to consume more of the product, or to make a consumer who normally buys a product from your competition, buy yours, drawn to a temporary price reduction, what is the problem? Why are they not successful? What are the main mistakes CPGs make when planning and executing Trade Promotions?

1. Data Usage

Today more than ever, business decisions must be based on scientific up-to-date data, and not on intuition. The three main data sets that will allow us to have better visibility and planning of Trade Promotions are: Sell-In Data, Sell-out Data, and syndicated information of the competition. With the correct process of these 3 data sets, we can make calculations such as Price Elasticities, Cross Elasticities, Elasticities by region or banner, as well as understanding normal or abnormal sales seasonalities.

We are also able to understand the role that retailers are playing in our pricing strategy. We detect if they are EDLP or High-Low and if, historically, they have been able to pass on to the consumer the different promotions that we have carried out.

On the other hand, the syndicated information, depending on its granularity and availability, will help us to correctly understand the role that our competitor plays in the category in which we participate. Taking into account these 3 data sets, our decision will be made by considering the behavior of our products in the retailer, meaning, how it is scanning at the
point of sale, depending on the day, month, and season of the year. At the same time, we will include the behavior of our competitor, historically, understanding the price/volume changes in each of the categories in which we participate and, finally, the margin of each of our products.

We analyze sales for each of your SKUs, per store, per day, so the price points can be established and identified, according to Sell-Out data that has generated the maximum or minimum volume.

2. Appropriate Tool Usage

Today, spreadsheets are insufficient to plan and manage a Trade Promotions strategy. We are not talking about how to manage your already determined promotional budget.

We are talking about making a strategic plan of how your promotional budget should be.

To do this, you require maximum granularity in data, which can be found in Sell- Out information. We analyze sales for each of your SKUs, per store, per day, so the price points can be established and identified, according to Sell-Out data that has generated the maximum or minimum volume.
With this same data, you may harmonize it with your Sell-In information, both in units and in dollars, in addition to the margins of each of your SKUs. Last, but not least, you may harmonize this information with the syndicated information.

However, this type of harmonization process is impossible to do with traditional tools and solutions. Therefore, it is imperative to find a solution that allows for a correct provision of data, process, and management of the different databases Normally, these databases have different formats and granularities. This allows them to do some automation of a certain process through which they create simulations and experiments of volumes and margins generated by different price scenarios. In this way, they carry out more accurate planning.

3. Difference Between Management and Strategic Planning of Trade Promotions.

There is a big difference between managing a previously established and negotiated budget and the strategic planning of Trade Promotions.

For years, CPG companies have been doing the same promotions, on the same products, in the same chains. To break free of this monotony, they must find a tool that allows them to manage and have visibility of how their budget is being spent on previously established promotions. Until this happens, managing their trade promotion tools will be like balancing a checkbook, nothing strategic, but rather entirely mechanical.

Strategic Trade Promotions planning requires posing questions, facing challenges, and possessing the ability to break paradigms that for years companies and their Pricing Team have had around their Trade Promotions activities and decisions. A serious mistake is not having the vision of the relevance and importance of carrying out correct strategic planning in the construction of the promotional budget by channel, chain, and period of time that allows the maximization of the results sought, either in volume, market share, increased distribution or consolidation of market position.

Today, in an environment as competitive as the one we live in, under the circumstances and contingencies we are facing, it is necessary to be much more cautious and intelligent in the way we make our Trade Promotion decisions.

We must establish a culture of no longer leaving money on the table by being more accurate in our decision making. Let’s learn to trust in science and data over intuition, so the positive outcome will be an increase in stability and sales for our CPG companies.

Written By Octavio H.
Co-Founder and Vice President at Wise Athena, with 24 years of experience in CPG companies, responsible for the management and global expansion of the sales team, including Mexico, LATAM and United States.

Related Posts