Optimising trade spend management for CPG companies
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 significant faith in trade spending – but it shouldn't be blind. Effective versus ineffective trade spend management can make or break a business's bottom line, especially in today's competitive retail landscape where major chains dominate market share.
What is trade promotion management (TPM) in CPG?
Within the CPG industry, trade spend management is the strategic process of planning, allocating and managing funds that local manufacturers invest into trade promotions for their products. Trade promotions are used to incentivise major domestic retailers like Tesco, Sainsbury's, ASDA, and Morrisons to stock and promote products in their stores nationwide.
With the rise of omnichannel retail and changing consumer shopping habits, trade spend has evolved beyond traditional in-store promotions to include digital advertising, click-and-collect programmes, and exclusive online offers that drive both in-store and e-commerce sales across the diverse retail landscape.
Trade spend is typically invested into promotional elements like:
Discounts: Price breaks on products designed to incentivise retailers to purchase them, often negotiated during annual planning cycles with major chains and increasingly important during peak shopping seasons like Christmas, Easter, and summer holidays.
Rebates: Financial incentives offered to retailers that attain specified sales volumes during promotional periods, commonly structured around quarterly performance metrics and often tied to category growth targets.
Slotting fees: Fees paid to retailers to secure prime shelf space in stores, particularly important for new product launches in competitive categories where shelf space commands premium pricing in the concentrated retail market.
In-store displays: Temporary product displays installed in retail stores that promote products and offers, designed to grab consumers' attention during key shopping periods like back-to-school in September, Easter, and Christmas winter holidays.
Merchandising support: Sending field teams to set up and maintain promotional product displays in retail locations, ensuring consistent execution across diverse markets from Scotland to the South West.
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 optimisation.
Transactional trade spend management
In transactional trade spend management, companies create budgets earmarked for Key Account Managers (KAMs), typically individuals in sales and marketing teams who manage relationships with major retailers. KAMs develop annual plans by working directly with retailer partners, from national chains like Tesco and Sainsbury's to regional players like Co-op and specialty retailers like Waitrose and Marks & Spencer.
Their promotions are then executed across markets and expenses are reconciled according to British accounting standards, often requiring compliance with complex retailer-specific invoicing and deduction management systems unique to the domestic market.
Post-event, promotions are assessed and analysed to understand performance across different regions and demographic segments, from suburban families in Manchester to urban professionals in London. This process can be managed manually through spreadsheets or with specialised trade promotion management software solutions. Using the right software can enhance speed, efficiency and accuracy whilst enabling KAMs to make better decisions in the fast-paced retail environment where promotional windows can be as short as 48 hours.
Trade spend strategy and optimisation
This component focuses on making optimal decisions and investments for current and future promotions across domestic markets. The right data and insights help KAMs gain deeper understanding of their promotions to effectively plan and modify them for different regional preferences, seasonal patterns, and emerging trends like the growing demand for sustainable and locally-sourced products that resonate with consumers.
Trade promotion optimisation software solutions offer tools to measure and optimise promotional plans, driving strong return on investment (ROI) while improving volume, revenue and margin across diverse consumer segments, from value-conscious families to premium-seeking households across the varied socioeconomic landscape.
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 significant cost – overburdening KAMs and reducing their effectiveness with key retail partners. It's critical for companies 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 major retailers and the rapid, often customised promotion program evolution that results.
Trade promotions can be complex and multifaceted, requiring intricate planning, execution and monitoring across diverse geographic regions from Scotland to Wales. A lack of real-time visibility into funds can delay decision making, leading to missed opportunities during critical selling periods like Christmas, Easter, and back-to-school periods in September.
Ensuring that promotional funds align with retailers' strategies and capabilities remains an ongoing challenge, as retail chains often have different promotional calendars, consumer bases, and operational requirements ranging from large format stores in suburban areas to smaller convenience formats in city centres.
Advanced analytics and trade spend management
Insightful data and analytics are key for CPG companies making informed decisions that lead to trade spend optimisation. Which promotions worked in London versus the North West? How did performance differ between metropolitan areas like Birmingham and regional centres like York?
With access to granular POS data, syndicated market research from providers like Nielsen and Kantar, and consumer panel information, companies can now analyse promotional performance down to individual store clusters and demographic segments. This level of insight is crucial when consumers increasingly use smartphones whilst shopping and digital influences drive in-store purchasing decisions.
Trade spend analytics can assess and analyse past trade promotions, sales data and consumer behaviour patterns, including the growing influence of social media on purchase decisions and the impact of supply chain disruptions on promotional effectiveness across geographic distances.
Trade promotion management and optimisation solutions offer data gathering and harmonisation capabilities specifically designed for retail complexity, providing advanced analytics that account for regional variations, seasonal patterns, and demographic differences across markets from London to Edinburgh.
Leveraging post-event analysis for trade spend management
Post-event analysis is extremely valuable for CPG companies because it enables them to learn from wins and losses across different markets and adjust future promotions accordingly. Understanding why a promotion succeeded in England but failed in Scotland – perhaps due to different consumer preferences, competitive landscapes, or retail execution – can provide crucial insights for future planning.
While post-event analysis is crucial for effective trade spend management, too much time spent gathering and analysing data can slow decision making in the fast-changing retail environment, where competitors can quickly capitalise on market opportunities and consumer trends can shift rapidly.
Instead of creating analysis paralysis for KAMs, companies should empower them with real-time insights from advanced trade promotion management solutions. This enables faster response to market changes and boosts promotion effectiveness across diverse consumer segments, from price-sensitive shoppers during economic uncertainty to premium consumers seeking quality and convenience.
Optimise your trade spend management
To enhance and optimise trade spend management, CPG companies 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 across markets, particularly important when managing promotions across different regions from Northern Ireland to the South West.
Consider that successful trade promotion management now requires understanding not just traditional metrics like volume lift and market share, but also newer indicators like digital engagement, omnichannel attribution, and customer lifetime value in an era where consumers increasingly use multiple channels during their shopping journey.
Effective trade spend management leads to increased sales and stronger relationships with retailers. However, it requires walking a tightrope between rigorous control and agility. Companies must remain vigilant in monitoring promotional investments to ensure they align with business goals, while fostering flexibility to adapt to changing circumstances in the dynamic marketplace where consumer preferences and retail landscapes continue to evolve rapidly.
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 specifically designed for CPG companies navigating today's complex retail environment. TELUS Trade Promotion Management (TPM) is the perfect solution for effective trade spend management, designed to handle the complexity of modern retail from traditional grocery chains to emerging e-commerce platforms.
The solution enhances your workflows, investments and operations while optimising ROI for trade promotion spend across diverse markets, helping you compete effectively whether you're a multinational corporation or a growing local brand.
What you can do with TELUS Trade Promotion Management
Companies can leverage this solution to manage and plan promotions while gaining deep understanding of their performance across different markets, retail formats, and consumer segments. Measure and strengthen future promotional plans to drive ROI, volume, revenue and margin growth specifically tailored for local consumer preferences and shopping behaviours.
You and your retail partners can conduct joint business planning and analyse manufacturer and retailer profitability using data harmonisation capabilities that compare and align consumer activity, retail consumption, shipment information, and trade spend across markets – essential for success in an environment where collaboration drives competitive advantage.
Enhanced sharing capabilities are essential for businesses operating across multiple time zones, states, and retail partnerships. The software enables easy identification and sharing of insights through reports and visual analytics, driving informed decision making by improving forecasting, supply chain and spend management across operations.
If your team is still managing trade spend manually, it may be time to streamline the process with TELUS Trade Promotion Management designed for the complexity and scale of modern retail operations, where speed and accuracy can make the difference between promotional success and missed opportunities.
Get buy in for the right trade promotion solution
Download our guide to lead your organisation toward a value-added trade promotion solution.
