Optimizing trade spend management
Discover why optimizing trade spend management is a critical investment for CPG companies and how your business can improve your trade spend decision making.
Consumer packaged goods (CPG) companies put a lot of faith in trade spending – but it shouldn’t be blind. Effective vs ineffective trade spend management can make or break a business’s bottom line.
Table of Contents
What is Trade Promotion Management in CPG?
The key components of trade spend management
Why effective trade spend management is critical?
Advanced analytics and trade spend management
Leveraging post-event analysis for trade spend management
Optimize your trade spend management
What is Trade Promotion Management in CPG?
Within the CPG industry, trade spend management is the process of planning, allocating and managing funds that a manufacturer invests into trade promotions for their products. Trade promotions are used to incentivize retailers to stock and promote products in stores.
Trade spend is often invested into promotional elements like:
Discounts. Price breaks on products designed to incentivize retailers to purchase them
Rebates. Financial incentives offered to retailers that attain a specified sales volume during a promotional period
Slotting fees. Fees paid out to retailers to secure prime shelf space in retail stores
In-store displays. Temporary product displays installed in retail stores that promote products and offers and are designed to grab consumers’ attention
Merchandising support. Sending staff to set up and/or maintain promotional product displays in retail stores
Most CPG companies create a promotion strategy and carefully divide and invest their trade spend budget across a variety of trade promotions and promotional campaigns to drive sales for different products – hence the need for good trade spend management.
The key components of trade spend management
Trade spend management has two key components: transactional trade spend management and trade spend strategy and optimization.
Transactional trade spend management
In transactional trade spend management, a budget is created and earmarked for Key Account Managers (KAMs), typically individuals in sales and marketing teams, to spend on promotion plans and programs within their accounts. KAMs then create an annual plan by working directly with retailer partners. Their promotions are then executed and expenses are reconciled. Post-event, their promotions are assessed and analyzed. This can all be managed manually in spreadsheets or with a trade promotion management software solution. Using the right software can enhance speed, efficiency and accuracy and enable KAMs to make better decisions.
Trade spend strategy and optimization
This component of trade spend management is all about making the right decisions and investments for current and future promotions. The right data and insights help KAMs gain a deeper understanding of their promotions to effectively plan and modify them. Trade promotion optimization software solutions offer tools to measure and optimize promotional plans to drive good return on investment (ROI) and improve volume, revenue and margin.
Why effective trade spend management is critical?
If done right, trade promotions can dramatically increase a product’s market share. That’s why trade spend is often a larger and more important investment than traditional marketing for a CPG company. Around the world, companies collectively spend more than $500 billion on trade promotion annually. It’s the second largest budget line item for most CPGs and accounts for more than 15% of a CPG’s total revenue.
Effective trade spend management is critical because it can enhance trade promotion ROI and profitability. In contrast, poor trade spend management can lead to budget overruns that diminish the overall performance of promotional activities.
Striking the right balance
Successful funds management can come at a significant cost – overburdening KAMs and reducing their potency. It’s critical to strike the right balance between controlling trade spend and facilitating flexibility for KAMs – which can be challenging due to the close collaboration required with retailers and the rapid, and often customized, promotion program evolution that results.
Trade promotions can be complex and multifaceted, requiring intricate planning, execution and monitoring. A lack of real-time visibility into funds can delay decision making, leading to missed opportunities. And ensuring that promotional funds align with the retailer’s strategies and capabilities is an ongoing challenge. As a result, KAMs may spend a lot of time using trade promotion management solutions.
Advanced analytics and trade spend management
Insightful data and analytics is key when it comes to making informed decisions that lead to trade spend optimization. Which of your promotions worked, which didn’t and why? Trade spend analytics can be used to assess and analyze past trade promotions, sales data and customer behavior. This facilitates informed decision making which is paramount in effective trade spend management. Trade promotion management and optimization solutions offer data gathering and harmonization capabilities and advanced analytics for this reason.
Both manufacturers and retailers can benefit from advanced analytics and use it to guide future trade spending. It helps them identify and assess their most effective trade promotions and plan future promotions that are likely to be successful.
Leveraging post-event analysis for trade spend management
Post-event analysis is extremely insightful because it enables CPGs to learn from wins and losses and adjust and plan future promotions accordingly. While post-event analysis is crucial for good trade spend management, too much time spent gathering and analyzing data can slow down decision making in fast-changing environments.
Instead of bogging your KAMs down in analysis paralysis, empower them with real-time insights from advanced trade promotion management solutions. This can enable them to respond more rapidly to market changes and boost promotion effectiveness. The right solution should enable KAMs to focus on their relationship with the retailer, rather than responding to continual requests for additional funds or complex analytics.
Optimize your trade spend management
To enhance and optimize trade spend management, CPGs must adopt an agile approach to funds management within a broad structural framework. Establishing well-defined objectives and measurable KPIs can streamline both planning and evaluation.
Effective trade spend management can lead to more sales and stronger relationships with retailers. But it requires walking a tightrope between rigorous control and agility. Companies must remain vigilant in monitoring promotional investments to ensure they align with their business goals, while fostering flexibility to adapt to changing circumstances. Choosing the right trade promotion management solution can help.
Get buy in for the right trade promotion solution
Download our guide to lead your organization toward a value-added trade promotion solution.
The right tool makes all the difference
TELUS Consumer Goods offers advanced software solutions for CPGs. TELUS Trade Promotion Management (TPM) is the perfect solution for effective trade spend management. It enhances your workflows, investments and operations and optimizes ROI for your trade promotion spend. It’s designed to improve profitability, visibility, agility and responsiveness resulting in reduced trade spend waste, more efficiency and less risk.
What you can do with TELUS Trade Promotion Management
You can leverage it to manage and plan your promotions and gain a deep understanding of their performance; and measure and strengthen future promotional plans to drive ROI, volume, revenue and margin growth. You and your retail partners can use it to conduct joint business planning and analyze manufacturer and retailer profitability. Its data harmonization capabilities empower you to compare and align consumer activity, retail consumption, shipment information, trade spend and more.
You don’t work alone, so enhanced sharing capabilities are essential. The software enables you to easily identify and share insights with reports and visual analytics which drives informed decision making by improving forecasting, supply chain and spend management.
If you or your team are still managing trade spend manually, it may be time to streamline the process with TELUS Trade Promotion Management.
