{"id":7276,"date":"2018-12-11T16:32:06","date_gmt":"2018-12-12T00:32:06","guid":{"rendered":"https:\/\/blog-prod.qad.com\/blog\/?p=7276"},"modified":"2023-08-31T15:57:22","modified_gmt":"2023-08-31T22:57:22","slug":"trade-management-critical-growing-cpg-businesses-and-profits","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2018\/12\/trade-management-critical-growing-cpg-businesses-and-profits","title":{"rendered":"Trade Management is Critical to Growing CPG Businesses and Profits"},"content":{"rendered":"

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The consumer products and food & beverage marketplace is changing rapidly as consumer preferences and tastes evolve. Manufacturers need to innovate to accommodate the evolution of the consumer that is changing the demand for the products they produce. The value chain is expanding and creating new sales channels with the growth of e-commerce and same and next day delivery of products. Manufacturers are evaluating their strategy and product portfolios which have led to brand selloffs and acquisitions so as to position themselves to meet the challenges of today\u2019s market and be ready for tomorrow\u2019s as well. Competition is fierce and an edge is needed to compete for a gain in market share of new products and new consumers while keeping traditional brand sales moving forward. \u00a0<\/span><\/p>\n

Pricing Flexibility<\/span><\/h2>\n

A common method used to compete is to offer pricing flexibility that includes retailer, distribution and end customer pricing options. Consumer packaged goods (CPG) manufacturers commonly have hundreds, if not thousands, of promotional deals of varying types running throughout the year. Trade and promotional activity can be very complex. They can be run at a brand or item level, regional level or for a specific retailer. Over time, these deals can overlap with multiple programs running at the same time as seasonality for some products plays a role. Some promotions are run to minimize excess inventory that did not sell at regular prices. An emerging practice is that of cross-company promotions that have multiple companies joining forces to offer deals for related products. For example, a dairy producer that sells milk might offer a coupon for a cookie product from a bakery manufacturer if a consumer buys their milk. This entails collaboration by both companies. Whatever the promotional or trade situation, poor visibility into these deals places pressure on margins and causes processing inefficiency, errors and auditing difficulties.<\/span><\/p>\n

Targeting consumers with promotions has been in place for years. However, market changes have made this a necessary part of basic CPG business strategy and manufacturers are now required to compete. Trade and promotional programs have grown in scale and the costs of running these programs are staggering. Trade spending and promotional programs can average over 20 percent of gross sales and comprise as much as 65 percent of marketing budgets. It is the second highest cost of business behind cost of goods sold. Determining if these costs are providing any return on investments or whether a promotion is effective is extremely difficult. It is estimated that every year on average, $8 billion is wasted on deduction management and less than 30 percent of all promotions are profitable. With these numbers in mind, it\u2019s obvious that having the ability to effectively manage the trade activities and promotions processes is critical in achieving success. \u00a0<\/span><\/p>\n

Trade and Promotions Management<\/span><\/h2>\n

Manufacturers and distributors involved in consumer-oriented value chains constantly try to improve their return on trade spend. Failing to effectively plan, manage and track trade promotions, which can result in inconsistent pricing, hurts margins.<\/span> There are a number of steps that are needed to ensure that these activities are achieving the goal of increasing sales and profits. The process needs to be organizationally encompassing and integrated with the overall business planning process, or <\/span>sales and operations planning (S&OP)<\/span><\/a> process if one is in place. \u00a0You can think of it as TPM (Trade and Promotions Management) S&OP.<\/span><\/p>\n

[\/vc_column_text][vc_single_image image=”7281″ img_size=”full”][vc_column_text]Due to the high costs and complexity of these promotions, it is essential that sufficient planning is done prior to the start of any activity. Budgets need to be in place and executive management needs to grant approval. It is beneficial to get buy-in from all departments in the organization as these programs typically impact all phases of the business. Once the programs begin, processes and systems are needed to effectively execute them. One of the most important steps in the process takes place at the completion of the program: evaluate and reconcile. This step must be done to determine if the program was a success and if additional activities should be planned. The evaluation and reconciliation steps will gain the interest of key business areas and C-level executives who have a vested stake in the process. \u00a0<\/span><\/p>\n

Sales, Marketing and Finance departments have several goals in this process:<\/span><\/p>\n