The Million Dollar Mistake: The Hazards of Planning your Trade Spend without a System of Record

Every decision is crucial in the consumer goods sector, especially in trade promotion strategies. For consumer packaged goods (CPG) manufacturers, managing trade promotions is challenging and risky. A single error can lead to substantial revenue and profit losses.

We experienced this with a notable CPG company last year, where a forecasting error resulted in a $1 million loss. Our daily work with CPG companies involves providing them with advanced trade promotion management (TPM) software. We've seen how effective promotions can significantly benefit a company and, conversely, how poor planning can lead to severe losses.

In this paper, I’ll discuss the main risks CPG manufacturers face when they don't use a comprehensive system for trade promotion planning. I will highlight the financial risks of neglecting technology in trade promotion strategies and provide you with practical advice on implementing strategies to avoid these pitfalls.

The challenges of traditional trade promotion management in forecasting and setting effective pricing strategies

In trade promotions, success hinges on accurate forecasting. Without a reliable system of record, manufacturers often rely on spreadsheets, outdated technology, or guesswork, which can lead to significant errors. This Gartner Report indicates that around 59% of companies still rely on basic spreadsheets for forecasting, which results in problems like poor visibility, lack of flexibility, and challenges in analyzing data.

Setting the right price demands an understanding of market trends, competitor pricing, and consumer behavior. Without an advanced system, companies may end up with pricing strategies that negatively impact their profit margins. Pricing and forecasting are closely linked, and it's crucial to understand how pricing decisions affect sales volume, revenue, and profits.

1. Inaccurate demand forecasting

Using manual methods instead of TPM or revenue growth management (RGM) software can adversely affect forecasting and pricing strategies. Manual processes, often based on historical data and simple forecasting methods, can result in inaccurate demand forecasting. This can lead to either too much or too little stock, causing lost sales opportunities or the need to sell excess inventory at a discount, affecting profitability. A study by the Promotion Optimization Institute (POI) found that 75% of CPG companies struggle to align their promotions with retail execution, highlighting the challenges of not using advanced trade promotion management or revenue growth management software.

2. Pricing visibility

Limited pricing visibility is another issue with manual processes. Without the right tools for comprehensive market and competitive analysis, companies may set incorrect prices, significantly impacting profit margins and competitiveness.

3. Limited insights

The lack of centralized and automated tracking makes it difficult to analyze promotion performance. Without strong analytics, companies can miss out on insights from past promotions, which are crucial for improving future strategies.

Ineffective pricing strategies can lead to missed opportunities or a slow response to market changes, affecting the success of promotions.

The negative effects of poor forecasting are substantial and affect the entire organization, including its financial health. Implementing a TPM software solution can help overcome these challenges by providing automation, real-time insights, and tools for better collaboration in trade promotion management.

Overcoming promotion visibility challenges

When promotions are managed separately across different channels, it becomes difficult to get a clear picture of their overall performance. This lack of centralized oversight can lead to missed opportunities and financial errors, as well as unintended spending. Centralized management systems, however, improve visibility over promotions, leading to better decision-making.

For CPG manufacturers, not having a clear view of promotion performance greatly affects trade promotion planning. One major issue is the difficulty in monitoring real-time performance metrics during promotions. Without a centralized system, it's hard to track key performance indicators (KPIs) like sales, inventory turnover, or customer engagement, which are essential for refining strategies.

Limited visibility in managing promotions makes it hard for decision-makers to use data effectively. They often lack access to up-to-date and accurate information about how well promotions are working, which forces them to depend on old or incomplete data. This reliance on subpar data affects their ability to make informed decisions, leading to inefficient resource use and difficulties in quickly adjusting promotional strategies with current insights. 

Additionally, this lack of transparency makes it challenging to identify and repeat successful tactics, causing CPG manufacturers to repeatedly guess and test without a clear grasp of what leads to successful promotions.

To overcome these issues, implementing a robust trade promotion management system is key. Such a system offers centralized control, real-time analytics, and reporting features. This enables CPG manufacturers to closely monitor promotions, analyze performance data, and adjust strategies based on solid insights. In the end, this approach leads to more effective trade promotion planning.

How trade promotion management software can aid budget allocation

In trade promotion planning, a common issue is the misallocation of budgets, where companies might spend too much on low-performing promotions and overlook more impactful opportunities.

TPM software tackles this problem by offering features that go beyond what spreadsheets and manual methods can do. These include:

• Accurate data processing and integration: Combines various data sources, such as historical sales, market trends, and detailed distributor and point-of-sale data. This comprehensive data integration leads to a better understanding of what affects budget allocation, a clear improvement over manual methods that might use outdated or incomplete data.
• Advanced forecasting and predictive analytics: Allows companies to foresee the outcomes of different budget allocations, a capability often missing in spreadsheets and manual methods. Users can simulate various scenarios to find the most effective budget allocation.
• Scenario planning and 'what-if' analysis: Lets users explore different budget scenarios and their potential impacts, which is more challenging with spreadsheets.
• Automated budget tracking and real-time updates on spending: Helps users stay within budget limits and make necessary adjustments, a feature that manual tracking methods often lack.
• Detailed data analysis: Integrates data down to the account, SKU, and week level, allowing for flexible use of both descriptive and predictive data across various organizational levels.
• Smooth integration with financial systems: Enhances the budget allocation process and ensures consistency with the company's broader financial strategy. This level of integration is a significant step up from spreadsheets and manual methods.
• Thorough analysis of historical performance: Helps users understand the effectiveness of past budget allocations. While spreadsheets might struggle with large datasets, trade promotion management software provides the tools needed for an in-depth examination of historical data, informing future budget decisions and improving overall trade promotion strategies.

How trade promotion management software can promote collaboration across departments

Trade promotions require coordination across various departments, including sales, marketing, finance, and supply chain. Without a centralized system, effective collaboration is challenging, often leading to communication issues and missed opportunities. A TPM can help improve this collaborative process in a number of ways.

• Interdepartmental teamwork: Crucial for improving teamwork across departments, offering more than manual methods like spreadsheets, emails, and messaging apps can provide.
• Consolidated data and information: Consolidates all relevant information, data, and communications related to trade promotions. This centralization contrasts sharply with manual methods where information is scattered, ensuring everyone has access to the same information in real time for planning, executing, and assessing promotions.
• Real-time updates and notifications: Keeps everyone updated on changes and important events in trade promotions, avoiding the delays and missed information common with manual communication methods.
• Maintains a comprehensive record of information: Maintains a record of all communications, documents, and decisions related to trade promotions. This documentation is easily accessible, ensuring transparency and accountability, and is especially useful for reference during post-audit processes.
• Aids task and workflow management: Offers tools that streamline these processes, ensuring alignment with the promotion plan. This is a significant improvement over manual methods, which can lack clear structure and visibility, making it difficult to manage tasks and meet deadlines.
• Support data-driven decision-making: Provides data analytics and reporting capabilities, enabling teams to make informed decisions based on real-time data, a feature often missing in manual methods. This capability helps optimize promotional strategies based on solid data insights.

The importance of post-promotion analysis

The impact of a promotion extends beyond its end date. Companies lacking a strong system for post-promotion analysis often find it difficult to fully evaluate their performance. The value of post-promotion analysis in the trade promotion management process is frequently overlooked but is crucial for a variety of reasons:

• Learn from past performance: While many organizations focus on planning and executing promotions, they sometimes neglect the analysis phase after the promotion ends. Post-promotion analysis offers a chance to measure the real impact of promotions.
• Understand the successes and failures: Past promotions provide insights that are essential for shaping future strategies. This helps avoid repeating ineffective tactics and improves future campaigns, leading to a more strategic approach to promotions.
• Drives continuous improvement: Rather than viewing the end of a promotion as just the end of an activity, analyzing its performance allows companies to identify what worked and what didn't in their promotional strategies. This ongoing process is essential for staying competitive, enabling refinements and improvements in future campaigns based on past experiences.
• Ensures that promotional activities align with the company's broader strategic goals: These can often be overlooked in the haste to start new promotions. Effective trade promotion management involves more than just individual promotions; it contributes to achieving overall business objectives.

The challenge of post-promotion analysis often lies in the need to integrate various data sources and align plans with actual results to produce accurate ROI data. Embracing this part of the trade promotion management process is vital for long-term success in the fast-paced consumer goods market.

Regain your competitive edge with a trade promotion management system

In a sector where innovation and efficiency are key, not having advanced technology can put companies at a disadvantage. Those using sophisticated TPM software often outpace their competitors, gaining more market share and achieving consistent growth. The consequences of not using such technology are significant:

• Competitive disadvantage for CPG manufacturers: Companies without trade promotion management systems risk falling behind. Competitors using advanced technology for trade promotions tend to capture more market share, win retailer preference, and establish themselves as market leaders, leaving others at a competitive disadvantage.
• Inefficiencies in resource allocation: Using manual or less advanced methods for trade promotion planning often leads to inefficient use of resources. This can result in less effective promotion strategies and wasted expenditure.
• Reduced decision-making agility: Without a TPM system, companies lack access to real-time data and insights, making it difficult to quickly respond to market changes and consumer trends. This can lead to missed opportunities or delayed risk mitigation, affecting the company's ability to swiftly adapt its promotion strategies to match competitors' moves or changes in consumer behavior.

The importance of advanced Trade Promotion Management systems

Most mistakes in business don't cost a million dollars, but some can be even more costly. This resource highlights the essential role of advanced trade promotion management systems in the ever-changing consumer goods industry.

The risks associated with poor trade promotion planning, such as significant financial losses and missed opportunities, become apparent when companies lack a comprehensive system. Issues like inadequate forecasting and insufficient post-promotion analysis are parts of a larger problem that can lead to costly errors for CPG manufacturers.

The key takeaway is straightforward: investing in advanced trade promotion management solutions is crucial for CPG executives. It's necessary to effectively manage the complexities of the retail market and achieve sustained growth in a sector where accurate trade promotion management is key to profitability.

Don't let your trade promotion efforts become a costly mistake. Get in touch with us today to embrace the fully connected and integrated TPx and RGM suite of CPGvision by PSignite.