Inefficiencies and missed opportunities are a key issue in trade management at the moment, leading many companies to rethink their approach. Leveraging new technologies can allow organizations to achieve a higher return on investment for their trade spend, take advantage of opportunities in digital, and have a more beneficial relationship with retailers. In this article, we explain why being tech-enabled makes such a big difference and how companies can reach this goal.
Consumer packaged goods (CPG) companies have been raising their trade allowances in recent years to keep up with changes in the industry, according to a report from Deloitte. Pressures from changing consumer preferences, consolidating markets, and more have caused brands to give even more significant discounts to retailers in order to compete and meet their gross sales goals. But that’s not the end of the story. Even if top-line targets are met, a company’s bottom line can still suffer due to inefficient trade management and spend leakage.
Status quo: Trade management inefficiencies and missed opportunities in digital
A survey by PWC revealed that 85% of CPG companies have issues with overspending and ineffective trade management.
And despite CPG companies collectively spending billions each year, some are still unaware of how they can maximize their ROI. To solve the challenge of how to grow sales profitably, CPG companies will have to take a new approach to managing their trade spend and become more tech-enabled.
While many consumers’ buying habits have gone digital, trade marketing still has some catching up to do. According to a report by DoubleClick by Google, digital continues to be a “significantly underutilized” marketing channel and returns on trade spend have decreased because manufacturers’ budgets haven’t shifted enough toward e-commerce yet. Around 70% of customers’ initial product discovery happens online. That means CPG companies are losing the chance to earn the attention of potential customers while they’re researching products and at the point of sale when they’re ready to purchase with an online retailer.
Furthermore, digital retail media allows for more clarity when measuring campaign performance and even better targeting than in-person, brick-and-mortar retail media alone.
Both retailers and brands are investing more in digital technologies to take advantage of these opportunities.
For example, Macy’s has grown sales in-store and online, increased personalization during the shopping journey, and driven additional value for their suppliers by investing in digital and consolidating their stores and e-commerce into a single buying organization.
Additionally, Hewlett Packard has achieved a 4x increase in ROI from online sales and a 2x increase in conversions. HP achieved this by partnering with retailers to share data and embed conversion tracking on their websites, using cookies to target and retarget consumers, and understanding their customers and ROI better through their digital efforts.
Rethinking trade management: shifting focus from sales volume to ROI
Deloitte emphasizes that trade spend should shift from being seen as an expense to being seen as an investment. Currently, sales managers may simply focus on increasing sales volume through relationship management. Looking forward, new tools will be required to increase profitability.
By leveraging technology, sales managers and organizations as a whole can use analytics and data to better understand their ROI, increase transparency, improve processes, and make more profitable spending decisions.
"Proactively seeking to reduce spend and profit leakage as well as implementing strong policies and process planning can give CPG organizations the tools they need to drive higher profit margins while defending and potentially growing market share." - Deloitte
How tech-enabled trade management is a gamechanger
Companies are seeking new ways to improve the efficiency and effectiveness of trade, and investing in technology is a large part of the solution. Results from the 2022 State of the Industry Survey from the Promotion Optimization Institute show that companies’ biggest priorities for improvement this year are, in order of importance:
- promotion planning and optimization
- post-event analytics
- data cleanliness and management
- automated systems
- analytics in general
- advanced revenue growth management and analytics
- pricing optimization
With promotion planning and optimization being at the top of the list of what companies are hoping to improve upon this year, using more advanced analytics technology is key. Companies working with spreadsheets to track and manage their trade spend are at the beginning of their journey with trade analytics. Using more sophisticated technology, like real-time analytics and predictive analytics, can allow organizations to analyze what is spent and how, and then optimize their budget further.
AI would also help generate what-if scenarios based on tweaking variables like placement or length of a promotion, which has never been possible before.
Another way to improve trade promotion planning is to make it more holistic by using data from across an entire business. The traditional trade promotion planning approach involves using limited, siloed information held by those that own relationships with merchants. Using data from all parts of an organization can lead to more effective promotions, benefitting both CPGs and retailers.
Insights and collaborations across departments can help inform trade promotion management decisions. For example, marketing can give information about target customers, finance can provide benchmarks for return on spend, and supply chain information can take procurement considerations into account.
Tech-enabled trade management also allows organizations to adjust their budgets and processes effectively and efficiently. Trade spend can be better allocated to optimized promotions that take the shopping behavior of specific segments into account, helping sales grow and keeping budgets on track. Companies have been able to use technology to improve aspects of their business by tracking key indicators and incrementally evolving their trade management processes, as well. For example, organizations can keep a close eye on trade leakage and repeatedly recalibrate their processes to reduce leakage after periodic reviews.
What are the benefits of tech-enabled trade promotion execution?
Trade promotion execution, often referred to as TPx, includes the processes and technologies that CPG companies use for trade promotion management and optimization. Having TPx capabilities can result in massive benefits.
A survey from the Promotion Optimization Institute shows that the top realized benefits of TPx for organizations this year are: increased visibility into the business’ opportunities and risks, the elimination of poorly performing promotions, improved processes and forecasting, as well as an increased return on their annual trade spending.
And yet, 32% of companies responded that they didn’t have TPx capabilities at all.
Technology can improve trade management by helping brands overcome their reliance on less profitable tactics and instead focus on more profitable promotions, creating more personalized experiences for their target customers, and building deeper, mutually beneficial relationships with retailers. In turn, retailers also benefit from unlocking larger spend, more revenue, and increased market share.
With our no code trade spend management platform, we've created a central place for retailers and brands to get the most out of trade spend.
Retailers can upload and dynamically manage their database of assets and formats that are available in their various brick-and-mortar stores, ecommerce, social media and events. They can then create, manage and schedule marketing campaigns involving brand partners in one single overview.
Brands get to see the various options retailers have available at their touchpoints and can see their trade spend budgets in action.