The old paradigm of trade promotion investments has failed. Companies that continue to reinforce the process will realize short-lived, incremental improvements. CPG companies will never achieve the transformational results necessary for being nimble and growing in the new environment without a broader, strategic consumer-focused strategy.
Promotional tools have failed. Study after study has shown that ~80% of promotions fail to meet their stated objectives. And these studies occurred before Covid when consumers were more predictable. AI can help businesses understand their consumers, enhance their promotions, and improve their trade investments. Yet, the results will be incremental and limiting if not part of a larger initiative that extends beyond an organizational silo and measurements.
Let's take a practical example to illustrate the situation. Suppose your assortment is priced, on average, 35% above the competition. You have a premium brand and charge a premium price, but does the consumer perceive it to be premium? Your promotion optimization suggests deep discounts and investments if you want to gain market share and move units. But is this the right overall strategy for the company?
Should you lower everyday pricing by 10%, 15%, 20% to keep your promotions from having to be so deep? What is the right overall balance of regular price and promotion? What's the effect on trade investment? How long will it take for customers to be retrained? If you are only optimizing promotions, you can't find this answer.
Organizational silos create duplicate effort and conflict, diminishing results. A company can have one group developing pricing elasticities for marketing while sales teams utilize a promotion optimization tool with different factors. Additionally, demand planning teams often have their analysts, systems, baselines, and lifts, but aren't taking in marketing projections. Or worse, marketing and demand planning don't even share the exact predictions. The prior statement is the norm, and it's just wrong.
Many CPG companies express these sentiments. In POI's latest research and Enterprise Planning Vendor Panorama, they highlight a "CPG paradigm shift taking place" and stress the need for companies to transform by connecting their planning decisions.
Enterprise Planning is transformative. When cross-functional teams utilize an end-to-end planning ecosystem, business units become connected, and the outcome is effective enterprise planning with efficiencies gained across the organization.
Furthermore, they declare that "When duplicative work effort is exerted across the organization, it hinders obtaining the one version of the truth companies desire."
For these reasons, Trade Promotion (TPx) should be a subset within the larger Revenue Growth Management strategy. RGM teams need to balance initiatives against the short-term and long-term requirements of the company when evaluating and making decisions. And those teams are not isolated to strategic thinking, they still have execution responsibilities. RGM solutions encompass assortment, pricing, and trade promotion optimization solutions. But to be successful for RGM directives, these solutions must share a common platform, data, and information to ensure that they are all communicating together. Additionally, advanced RGM solutions share their forecasts, baselines, and lifts with demand planning teams to align planning decisions and ensure consistency in execution.
Is TPO important? Of course. There continues to be ample opportunity for improvement. But a greater perspective is required to get the best business gains. These include:
- Better collaboration with internal teams
- Integrated business planning and inputs that flow into demand planning and forecasting
- And yes, improved promotion ergonomics make the overall process more intuitive with actionable results – especially when considering the broader flow of the previous paragraphs.
The time is now for Revenue Growth Management.