Explore the debate between Trade Promotion Management and Optimization in the CPG industry. Find out which one should come first for maximum growth.
Data modeling in the trade promotion management and optimization landscape
Today, trade promotions are no longer just a marketing strategy, they are an essential component of the revenue growth management system of any CPG company. The challenge lies not just in managing these promotions but in optimizing them for maximum return on investment. This is where accurate data modeling steps into the limelight.
Trade promotion management (TPM) is the process of planning, executing, and evaluating trade promotions to drive sales growth.
On the other hand, the goal of Trade Promotion Optimization (TPO) is to optimize promotional spending and ROI by:
Aligning promotions with strategic objectives: TPM should be aligned with the company's overall strategy to support its objectives
Analyzing customer behavior: TPM should take into account customer behavior to create promotions that are targeted and effective. All modeling activities should happen at the lowest level, account/SKU/week in order to be applied differently across channels. The price sensitivity of a customer shopping at Target may be different from one shopping online, for example.
Measuring promotional effectiveness: TPM should include measures of promotional effectiveness to learn from and optimize for future campaigns
Let's delve into the intricate world of data modeling and explore how its accurate implementation can revolutionize your TPM and TPO strategies, driving superior business results.
What makes an effective TPM and TPO Strategy?
Data is both the key to enlightenment and the thorn in our sides! Whether you are just at the point of moving from spreadsheets to TPM software, or you are further along with TPO and RGM, one thing is for certain; data will drive your success in trade promotion management and optimization.
What type of data is crucial for effective TPM and TPO strategies?
Data is the compass that guides decision-making. The right data can illuminate the path to successful promotions, while a lack of data can lead to missed opportunities and ineffective strategies.
Here are key categories of data that can significantly enhance your future strategies:
- Historical sales data
- Promotional data
- Customer data
- Market data
- Product data
- Channel data
By combining and analyzing these data sets, companies can gain valuable insights that help in designing more effective and profitable promotions. This data-driven approach aids in understanding how various factors interact and influence promotional outcomes, thereby allowing companies to optimize their TPM and TPO strategies.
How can I use data to improve my trade promotion management and optimization?
Trade promotions are the lifeblood of the CPG industry. Yet, managing and optimizing them can often feel like a high-stakes balancing act. Leveraging data effectively can empower your organization to make informed decisions, optimize spend, and enhance promotional effectiveness.
Here are some ways you can use data to improve your trade promotion management and optimization:
Benchmark your performance: Compare your trade promotion results to those of your competitors. This can help you identify areas where you can improve your performance.
Optimize your spend: Use data to optimize your trade promotion spend. This means allocating your budget to the promotions that are most likely to generate the highest return on investment.
Forecast your sales: This information can help you determine how much you need to spend on trade promotions in order to meet your sales goals.
Identify trends: Use data to identify trends in your customer behavior, such as what products they are buying, where they are shopping, and how they are responding to promotions. This information can help you create more effective trade promotions in the future.
Measure your success: This data can help you identify which promotions are working well and which ones need to be improved.
For an effective TPM and TPO strategy, accurate base and uplift modeling is the foundation for measuring your success through reliable analytics and ROI evaluations.
What are base and uplift modeling in trade promotion management and optimization?
Base and uplift modeling are two statistical techniques that can be used to improve the effectiveness of trade promotions.
In the world of consumer-packaged goods, promotions are a vital way to increase sales and drive growth. However, without accurate base and uplift models, it can be challenging to measure the trade promotion effectiveness of historical promotions and apply learnings to future promotions.
What is a base model?
A base model is a statistical model that predicts the expected value of a response variable without considering any covariates. In other words, base modeling predicts the sales that would have occurred without a promotion.
For TPM – you need to deliver a holistic consumption forecast. That means you need to forecast volume in all product/account/week combinations, not just when you are running promotions. Additionally, when paired with modeled uplift factors, a TPM built on a solid baseline foundation will enable your sales team to enter promotional variables and have a solid projection of sales, spend, and ROI.
For TPO – accurate (i.e. modeled) baselines are the foundation for optimization. We have to know with a fair amount of certainty the result of all of our potential combinations of price, product, and tactic.
For RGM – baseline models are the start for accurate price elasticity work, and our pricing work and predicted results must also inform our base models, it is a cycle.
What is an uplift model?
Uplift modeling predicts the difference in sales between customers who are exposed to a promotion and customers who are not exposed to the promotion. An uplift model aims to estimate the "individual" response to a promotion, i.e. the expected sales lift generated by a promotion.
The uplift model will allow you to understand how different customer types respond to promotions and tailor your promotional campaigns accordingly.
By using both base and uplift modeling, you can optimize your promotional campaigns for maximum ROI.
Why are base and uplift models important for trade promotion management?
With accurate base and uplift models, you’ll be able to understand the effectiveness of your strategies and tactics.
ROI calculations focus on the incremental volume gained from promotions relative to the cost of those promotions. Without accurate uplift models, you cannot expect to have a real projection of return on investment.
CPG companies who are tied to disjointed spreadsheets and disparate tools are finding it is just not possible to keep up in today’s economic environment.
With accurate base and uplift models and the right software solutions you’ll be able to:
- Get an accurate projection of your planned sales
- Generate a holistic forecast- all consumption included, whether a promotion exists or not
- Generate optimized promotion plans
- Manipulate a promotional plan and get an accurate impact on total planned sales
- War-game promotional scenarios
- Calculate your overall ROI from trade events
- Perform on-demand price elasticity analytics
Modeling baseline as an annual exercise is no longer enough in today’s environment. We need models at our fingertips and integrated into ongoing business processes. The right trade spend strategy should include ready-to-use and accurate base and uplift models in order to:
- Significantly improve your forecast accuracy
- Access reliable analytics and ROI evaluations
- Feed not only your TPM applications but your TPO/RGM applications
How to maintain base and uplift modeling accuracy over time
There are a few things you can do to maintain the accuracy of your base and uplift models over time:
Retrain your models regularly: As your data changes, so will the accuracy of your models. Therefore, it is essential to retrain your models regularly.
Monitor your data quality: The quality of your data will also affect the accuracy of your models. Therefore, monitoring your data for errors and missing values is essential.
Keep your models updated: As new covariates are introduced; you will need to update your uplift model.
What’s the role of technology in effective TPM and TPO forecasting?
Trade promotion management software is designed to streamline the planning, execution, and evaluation of trade promotions. It provides a centralized platform where all relevant data can be stored, accessed, and analyzed, eliminating data silos and enhancing data integrity.
Let's take a look at how comprehensive software can play a key role, aiding not only in trade promotion management but also significantly enhancing the trade promotion optimization process.
One of the key benefits of trade promotion management software is its ability to integrate data from various sources. This includes historical sales data, competitor data, market trends, and other relevant data sets. By consolidating this data in one place, the software allows for more sophisticated and accurate analysis, leading to better forecasting and decision-making in the trade promotion process.
Most modern trade promotion management software solutions incorporate advanced analytics and AI capabilities. These features enable predictive modeling and scenario planning, allowing companies to forecast the potential impact of different promotional strategies and choose the ones that are likely to deliver the best results.
Furthermore, the real-time tracking and reporting capabilities of these software solutions ensure that companies can monitor the performance of their promotions as they happen. This allows for quick adjustments to optimize outcomes and maximize ROI.
Last but not least, trade promotion management software also improves collaboration and workflow management. Teams can work together more efficiently, track their tasks, and ensure that promotions are executed flawlessly and on schedule.
Read more about How to Implement Trade Promotion Management Software here.
We can help you unlock the power of data with our TPM and TPO solutions
This rapidly evolving business landscape necessitates a shift from intuition-based decision-making to an evidence-based approach. This is particularly true for the complex world of TPM and TPO.
With a comprehensive trade promotion solution like CPGvision, you’ll be fully equipped with real-time data that lets you manage, understand, and optimize your trade spend and pricing.