Optimizing trade spend management for US 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 across the United States put significant faith in trade spending – but it shouldn't be blind. Effective versus ineffective trade spend management can make or break an business's bottom line, especially in today's competitive US retail landscape.
Table of Contents
What is Trade Promotion Management (TPM) in CPG?
The key components of trade spend management
Why effective trade spend management is critical for American businesses?
Advanced analytics and trade spend management
Leveraging post-event analysis for trade spend management
Optimize your trade spend management
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 US manufacturers invest into trade promotions for their products. Trade promotions are used to incentivize major American retailers like Walmart, Target, Kroger, and Costco 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 programs, and exclusive online offers that drive both in-store and e-commerce sales.
Trade spend is typically invested into promotional elements like:
Discounts: Price breaks on products designed to incentivize retailers to purchase them, often negotiated during annual planning cycles with major chains and increasingly important during peak shopping seasons like Q4 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-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, summer grilling season, and holiday entertaining.
Merchandising support: Sending field teams to set up and maintain promotional product displays in retail locations, ensuring consistent execution across diverse markets from coast to coast.
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, 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 Walmart and Target to regional powerhouses like H-E-B in Texas or Wegmans in the Northeast.
Their promotions are then executed across markets and expenses are reconciled according to standard accounting practices, often requiring compliance with complex retailer-specific invoicing and deduction management systems.
Post-event, promotions are assessed and analyzed to understand performance across different regions and demographic segments, from suburban family shoppers to urban millennials. This process can be managed manually through spreadsheets or with specialized trade promotion management software solutions. Using the right software can enhance speed, efficiency and accuracy while 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 optimization
This component focuses on making optimal decisions and investments for current and future promotions across 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.
Trade promotion optimization software solutions offer tools to measure and optimize 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.
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 are key for CPG companies making informed decisions that lead to trade spend optimization. Which promotions worked in the Northeast versus the Southwest? How did performance differ between urban markets like New York City and suburban areas like Phoenix?
With access to granular POS data, syndicated market research, and consumer panel information, companies can now analyze promotional performance down to individual store clusters and demographic segments. This level of insight is crucial when 68% of shoppers use smartphones while shopping and digital influences increasingly drive in-store purchasing decisions.
Trade spend analytics can assess and analyze past trade promotions, sales data and consumer behavior patterns, including the growing influence of social media on purchase decisions and the impact of supply chain disruptions on promotional effectiveness.
Trade promotion management and optimization solutions offer data gathering and harmonization capabilities specifically designed for retail complexity, providing advanced analytics that account for regional variations, seasonal patterns, and demographic differences across markets from coast to coast.
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
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 today's diverse consumer preferences and shopping behaviors.
You and your retail partners can conduct joint business planning and analyze manufacturer and retailer profitability using data harmonization 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, regions, 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.
