cg iqreport 1115 - exceedra · new consumer goods suppliers, distributors and retailers continue to...

REPORT

MANAGING PROMOTIONAL SPEND AND TRADE

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MatUritY ladderCGT REPORT

3. ADVANCED

· The adoption of more digital customer touch points among retail partners up the ante onavailable customer demand and product movement information.

· Automated trade promotions management (TPM) tools begin replacing manual processes.

· Using an analytics engine, TPM solutions are designed to evaluate the planning, budgeting,presentation and execution of incentive programs. The solution gives consumer goodscompanies and their retail partners, visibility into specifi c promotions and can make changesbased on real-time demand.

2. INTERMEDIATE

· Executives across different lines of business continue to operate in vacuums, an issue that can cause inadequatevisibility into trade programs and promotions.

· Packaged, legacy systems and supporting analytics solutions make their way into consumer goods companies’data centers, and begin to streamline reporting efforts.

· Data continues to be supplied by syndicated sources, giving suppliers a two-dimensional view into product movement.

· Historical transactional and operational data is used to create reports and make base business decisions.

· Even though systems are available, there is no formal, integrated data sharing or enterprise analytics strategy.Each department continues to operate in its own silo.

4. STATE-OF-THE-ART

· Consumer goods companies begin adopting trade promotionsoptimization (TPO) tools, which analyze trade promotional activitiesand their timing. Consumer goods companies measure results to ensureprograms will meet the company’s sales and marketing objectives.

· Historic, “hindsight” analysis is replaced by the need for “insight”and “foresight.” This is driven by the use of predictive analytics andoptimization algorithms.

· These predictive tools become more accessible through the availability ofcloud-based solutions, making it easier to adopt reporting tools that cansupport a tailored trade promotions strategy.

· The lower cost, speed to market and fl exibility of web- and cloud-basedplatforms enables consumer goods companies to seamlessly mergehistoric, syndicated information with real-time shared data from retailpartners — the foundation needed to make accurate business decisionsrelated to trade spending.

Maturity Ladder: Managing Promotional Spend and TradeThe CGT IQ Report Maturity Ladder is a diagnostic measurement tool for a consumer goods company’s state of technology advancement in a specifi c category. There are four key phases: 1. Basic – minimal capabilities, 2. intermediate – mostly basic with some advanced capabilities, 3. advanced – mostly advanced capabilities with some limitations, and 4. State-of-the-art – comprehensive capabilities are fully integrated and up to date. Note that it is possible to be on more than one step of the ladder simultaneously as specifi c technology components and processes are upgraded in phases.

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1. BASIC

· Consumer goods companies want to effectively manage their trade spending.

· Trade spending programs are managed manually, and details are recorded on paper-based spreadsheets.

· Spreadsheets are moved to computer applications, however multiple users and static information force planners to work in silos,with access to data that is often redundant or erroneous.

CG_IQReport_1115.indd 2 11/30/15 4:30 PM

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Managing ProMotional SPend and tradeREPORT

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new consumer goods suppliers, distributors and retailers continue to enter

the marketplace on a seemingly daily basis — and all are eager to effi ciently

manage their trade spending, and deliver the most targeted, cost-effective and

profi table promotions to customers. By adopting next-generation trade promo-

tions solutions, consumer goods companies are bolstering internal collabora-

tion and visibility among trading partners to create joint programs, a move that

enables suppliers to create more cost-effective programs that drive customer

loyalty and thus, revenue.

Retail is undergoing a drastic change. A highly interactive omnichannel

retailing model has transformed historically unimaginative weekly in-store

visits into experiential experiences designed to engage shoppers at every

stage of their shopping journey. At the center of this change is the adop-

tion of digital customer touch points.

Whether they are consumer-driven devices, such as smart phones and

tablets, or in-store solutions, such as mobile and self-checkout point-

of-sale (POS) systems, in-store kiosks, even digital signage, consumers

have more information at their fi ngertips — and at the point-of-decision

— than ever before. And during each customer interaction with these

touch points, shoppers leave behind “digital fi ngerprints” that give re-

tailers clues into their purchase habits, merchandise preferences, even

abandoned orders and related factors that may reveal poor experiences

during each store visit.

Now these details are changing the impact of trade promotions. Con-

sumer packaged goods (CPG) brands spend more than $500 billion on

trade promotions annually, yet they estimate that one-third of that spend

generates negative returns, according to “Drive Your CPG Firm’s Digital

Business Initiatives With New Trade Promotion Applications,” a report

from Forrester Research.

And the volume of these robust details are entering organizations at

such high velocities that 50 percent of retailers reported that their data

volume doubles every fi ve years, and this data will continue to grow at

an average of 30 percent each year, according to “State of the Industry

Report 2014: 2nd Annual Stores Benchmark – Future of the Store: Re-

Imagining Stores as Hubs of Omni-Channel Customer Engagement,” a

BILLIONWhat consumer

packaged goods brands spend on trade

promotions annually.

Source: Forrester Research report, “Drive Your CPG Firm’s Digital Business Initiatives With New Trade Promotion Applications”

BILLION$500


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report from Edgell Knowledge Network (EKN).

It is a factor that is pushing savvy trading partners to use the many new

incoming digital data sources to leverage customer insights as a means of

creating more effi cient and effective trade spending programs — a strategy

that can help them add excitement back into promotions.

The Rocky Road AheadWhile many CPG companies are armed with these aspirations, too often,

many continue to struggle with how to better manage and build new pro-

motional plans. In an industry riddled with mergers and acquisitions, and

a variety of non-compatible platforms, systems, even custom coding, en-

terprise visibility remains foggy — a factor that makes it diffi cult to align

demand forecasts with promotional plans.

This new digital data coming into enterprises is also creating roadblocks.

Besides managing this increasing volume of information, it is pouring in

from a variety of sources — a new issue for trading partners. Historically,

companies relied on information purely from syndicated providers, essen-

tially Nielsen and IRI. However, these sources only provide a view into CPG

product movement, suppliers’ stand-alone analytics tools that kept insight

fairly two-dimensional.

Meanwhile, companies often recorded this data in manual spread-

sheets. Besides merely arranging and calculating data, spreadsheet func-

tionality remained fi nite, due to rigid programming and formatting. That

said, they couldn’t adequately combine funding, planning and settlement

data that is essential to managing trade spending. And with multiple users

accessing one static document, data quality is poor.

Automating InsightsTired of being behind the curve, consumer goods companies began de-

manding more effective, automated options to manage their trade spend,

and coinciding promotional programs. Slowly companies began to adopt

stand-alone packaged — as well as homegrown — software solutions to

speed up the planning and decision-making processes. However, these

tools had their own share of limitations. First, many were driven by the fi -

nance department, as they wanted control over trade funds in the planning

The amount of spend that generates negative returns.


The amount of spend One-third



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process. Being a very data-driven, transactional process however, early

trade spending tools remained very cumbersome, even complex for sales

teams to maneuver when supporting sales planning.

These early systems also struggled to create granular, narrow plans,

especially those that can drive profi tability among a fi ckle omnichannel

customer base. Another factor that is tying the hands of promotions man-

agers is that companies continue to support a siloed approach when it

comes to planning promotions. Currently, planning, marketing, sales and

demand planning have very individualized operations — yet all of these

departments and processes should be collaborating when creating trade

promotions. Add in the fact that many companies continue to have to op-

erate by “doing more with fewer resources,” specifi cally in regard to labor

and fi nances, and many companies remain limited in their visibility into

data — and returns on investment.

Ideally, companies need solutions that will help them create more for-

ward-thinking scenarios and trade promotions. This requires companies to

begin integrating planning processes, a move that not only breaks down

silos between operations and divisions, but also creates a collaborative

planning approach.

Working Toward a Common GoalRather than continue with a “blocking-and-tackling” strategy, consumer

goods companies are eager to fi nd new collaborative ways to measure and

track spending and profi tability. It is the desire that is moving consumers

goods companies toward trade promotion management (TPM) tools.

Called a “must” for optimizing and controlling trade spend, TPM solu-

tions are merging the planning, budgeting, presentation and execution of

incentive programs that occur between the manufacturer and the retailer

to enhance sales of specifi c products. It supports collaboration between

trading partners not only during the planning and execution stages, but

also as means of understanding trade compliance, and making updates or

corrections to plans — if needed — in the fi eld versus postevent analysis,

when it is too late. Consider it a closed-loop promotion and account plan-

ning process that delivers clear real-time visibility into trade investments,

spending forecasts and customer profi tability.

Retailers that said their data volume doubles every fi ve years.

Source: Edgell Knowledge Network (EKN) report, “State of the Industry Report 2014: 2nd Annual Stores Benchmark – Future of the Store: Re-Imagining Stores as Hubs of Omni-Channel Customer Engagement.”

50%


Q: What are the critical phases of user adoption and change management? GARY SINGER: Effective change management continues to be critical for TPM and TPO user adoption; yet, surprisingly, most companies de-prioritize this when implementing new capabilities. For example, while they say they believe differently, too many companies still implement new tools/systems as the sole means of enabling change — and then wonder why they are not getting the desired results. To do this right does not require anything revolutionary — rather, it requires an acknowledgement of its importance and investment in facilitating users/stakeholders through the following:

- Awareness: From the beginning, show the benefi ts “why should I change”- Understanding: At each phase of implementation, involve users “what am I getting”- Acceptance: Allow users to “kick the tires” on new processes, tools, etc. “will this work

for me”- Ownership: Provide training and “real-time” on-the-job coaching – and “shut down” old

processes, tools, etc. “how do I make this work”Companies need to defi ne their ‘ways of working’ in relationship to trade promotion/rev-

enue growth management and then design their enabling technology for adoption.

Q: What are suppliers still challenged with when it comes trade promotion opti-mization? SINGER: Many companies still struggle with the following:

- Finding and managing the right balance between cost savings/margin improvementand delivering sales volume/market share

- Moving beyond tactical pilots to fully embrace the ongoing use of analytics to optimizetrade promotion spend many companies have “piloted” TPO solutions; yet, they don’twant to make the necessary investment to institutionalize TPO capabilities broadlythroughout the organization

- Being disciplined enough to make tough decisions about cutting trade spend that doesnot improve bottom-line profi ts due to fear of losing favored position with retailer trad-ing partners

- Identifying the appropriate balance between short-term profi tability and long-term ca-pabilities many companies want short-term results but do not want to invest in what’sneeded to sustain results in the long-term

Q: How has omnichannel changed the game in regards to managing TPO? SINGER: Omnichannel operating models hold the promise of providing signifi cant benefi t across the entire value chain: Consumers gain benefi t of price transparency, convenience of shopping and customized shopping. Manufacturers will gain deeper insights by moving D2C and being able to tailor supply chains, merchandising programs, and promotion schedules to support a one-to-one relationship. Retailers will benefi t if they embrace the technology for not only their own D2C activities, but also cascading into the physical store.

However, it is important to remember that over 90% of total retail sales are via brick-and-mortar stores and are projected to still be at 80% in fi ve years. Thus, organizations should be thinking about how to help manage in-store promotion compliance. Mobile technology can also help suppliers reach their shoppers more seamlessly regarding trade promotion of-ferings. Companies will need to make sure they can deliver in traditional outlets (while not ignoring the role of online interaction).

Q: What are the best practices to enhancing trade management operations? SINGER: To enhance trade management/optimization, we recommend CG companies:

- Stop being afraid to make the diffi cult decisions; however, do so openly with your retailtrading partners

- Think about trade more broadly when considering how to optimize spend- Stop waiting for or expecting “perfect data/tools”The single biggest requirement that companies should be addressing is ‘skill develop-

ment/acquisition’. There are plenty of tools that can do the job, but there is currently a short-age of qualifi ed individuals that possess the necessary analytical skills. The human element of trade optimization is often overlooked in favor of technology/analytics. You need both analytics/technology capability and human capability to advance in tandem, or you’ll have failed trade ROI.

GARY SINGERSales Effectiveness Leader, Partner,

Consumer Products & Retail, EY

You need both analytics/technology capability and human capability to advance in tandem, or you’ll have failed trade ROI.

You need You need You need You need You need both analytics/technology capability and human capability to advance in tandem, or you’ll have failed trade ROI.

You need You need You need You need You need You need You need You need You need You need You need You need You need You need You need You need

EY helps consumer products and retail companies balance strategic choices to reignite performance in a disruptive environment.

See more on: www.ey.com/consumerproducts

inSigHtS

TPM/TPO: Is it time to change your approach?



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Danone Waters China, the maker of Chinese bottled water brands

Mizone, Health and Yili, and a division of Group Danone, can attest to the

value of TPM. Burdened with an unintegrated siloed process related to pro-

motional plans, Danone often experienced variances and inconsistencies

among trade spending. Ready to gain tighter controls, especially across

a wide network of distributors all using different levels of spending and

payments, Danone spent six months evaluating potential trade spend man-

agement systems. The ideal solution could adapt to local requirements, in-

cluding language competencies, in Chinese, Thai, Japanese, among other

languages; as well as drive automation.

After fi nding the ideal TPM solution, Danone began deploying the tech-

nology in 2012. Project champions were trained to lead change manage-

ment execution, and a cost-effective deployment. “Acceptance is based on

the motivation of executives and business functional teams — like fi nance

and supply chain — to automate such processes, as well as the use of

demos and workshops to explain the stakes and added value of the solu-

tion,” Victoria Evans, controlling and project lead for Trade Term Solutions

in Asia, said in a recent CGT article, “Danone Takes a Standard Approach

to TPM in China.”

Based on the solution’s ability to improve control in trade spending,

Danone plans to deploy the solution throughout the rest of Danone Asia

Pacifi c operation; then enlarge the scope to include promotional planning

and analytics, the article said.

Optimizing the PlanWhile companies have made progress with TPM efforts, some companies

still aspire to do more. At the end of the day, the consumer goods com-

pany’s goal is to achieve profi tability.

However, too often TPM solutions cannot support the growing data

sources, trading partner collaboration, or increased trade productivity.

Companies are that are armed with this strong foundation are ready to roll

TPM into stronger trade promotion optimization (TPO) tools.

Designed to analyze trade promotional activities and their timing, TPO

solutions can predict results to ensure programs will meet the company’s

sales and marketing objectives. “Think of TPM as table stakes for control-

The rate that this data will continue to grow annually.


30%


Q: What trends are impacting the usage of TPM and TPO? CHRIS RICE: Pressure continues to mount for CPG company’s to improve sales and profi ts which translates to a continuing focus on trade and revenue management. There is also growing trend of Zero Based Budgeting which means doing more with fewer resources. Driven by these trends, many companies are moving to improve overall performance and execution through better integrated business planning across sales, marketing, fi nance, and supply chain which often means upgrading old systems.

Q: What is the difference between the two solutions, as well as the distinct analytics used in both solutions?RICE: Traditionally TPM has focused on the transactional aspects of trade planning by inputting a shipments plan and paying for trade liabilities. The analytics provided from TPM tend to be reporting of plans, deductions, and fund balances. Whereas TPO can mean the HQ strategic planning of guidelines like pricing architecture, and promotion depth/frequency or customer level predictive promotion scenario planning including cannibalization and halo effects. This requires consumption data for modelling and analysis to better support a collaborative retailer conversation. Historically, the market has considered these separate solutions with limited success for a number of reasons such as lack of integration, addition resource or extra work required, as well as the com-plexity of the solution. Newer integrated business planning solutions incorporate both TPM, TPO, and post event analysis in one system.

Q: Change management and user adoption are often the biggest challenges companies face when implementing TPM and TPO; what can companies do to overcome these obstacles?RICE: The value in changing TPM systems or deploying TPO is to change current pro-cesses and behaviors to improve business results. It is an evolutionary process that must be planned for and managed from beginning to end. Understanding where your company is currently at from a planning & organizational maturity and then creating a roadmap to evolve the process and skillsets to reach the desired end state is the founda-tion to a good change management program. Ease of use is always paramount and an important key to getting user adoption.

The fundamental change from planning shipments in TPM to planning consumption with respect to impact on the category & the retailer in TPO is a signifi cant mind shift which at the root is a shift from volume to profi t. True success comes from deploying a sustainable process in an easy to use system that creates value. I have seen companies deploy a standalone TPO system and have pockets of success from bright individuals but then ultimately struggle to change sales behaviors without the right executive sup-port , the proper alignment of KPI’s and sales incentives, or the elimination of swivel seat and offl ine duplicate planning work.

Q: What internal changes need to happen to make the most effi cient use of these tools and truly streamline trade and promotional spend?RICE: Change management must be addressed including the “as-is” & “to-be” process map, senior executive support, alignment of KPI’s and incentives, project roadmap and end vision.

If the end goal is a sustainable process that improves trade performance, then an in-tegrated business planning system is needed to streamline the process, eliminate the duplicate work and multiple tools, integrate to the enterprise infrastructure, all while keeping it easy to use for each business role. In a world where resources are scarce, then fi nding the right integrated approach is key to getting the optimal balance be-tween ease of use, sophistication, and measurable business results.

CHRIS RICEVP Sales & Marketing,

North America, Exceedra Inc.

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We are all about helping our clients to drive improvements in business planning and results. This comes from a careful balance of easy to use software, a pragmatic project approach, experienced resources, and a desire to make our clients successful. Just ask them.

Exceedra is the leading global provider of integrated business planning and revenue manage-ment solutions for CPG compa-nies. We have a growing cus-tomer base with 70 clients in 15 countries serviced from our UK, US & Australia offi ces. For more information, contact us at www.exceedra.com

INSIGHTS

Integrated Planning & Revenue Management

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ling and understanding trade spend. It is still highly relevant,” Dale Hage-

meyer managing vice president, Gartner, said in the report, “Charting Your

Course to Trade Promotion Optimization.” “The TPO journey, however,

means steadily improving the ability to model and understand promotional

outcomes. It is not only relevant but also critical as suppliers seek to be-

come more relevant with retailers.”

The best successes require companies to change the way they plan and

execute decisions and actions related to trade promotions. These include

developing insights, using new decision frameworks, and measuring prog-

ress. PepsiCo is one company making this transition.

Focused on transitioning its supply chain-driven company to a consum-

er-centric one, PepsiCo is using TPO to improve its promotion manage-

ment capabilities. By applying algorithms to trade budget allocation, the

company is creating more efficient trade spending — a move that enables

it to produce more sales for every dollar spent promotionally. “When we

look historically, one-third of our promotions do not pay off,” Boyd Smythe,

senior director of analytics, PepsiCo, said in a video. “By deploying an [op-

timization] solution, we were able to cut that loss in half. This will translate

into an increase in sales, reduced costs a stronger dollar impact and better

efficiency, in general.”

Headed for the CloudsThe secret sauce for both solutions is their strategic integration of analyt-

ics. This may not be a surprising statement, however the level of granular-

ity needed for a successful trade spending programs may be. For example,

third-party syndicated data is important for the historical point-of-view.

However, to ensure companies can make real-time and forward-thinking

decisions, it is time to integrate third-party data with internal data sources

from retail digital touch points — the “consumption” information that de-

tails what has been sold and purchased at the retail level.

By applying predictive analytics to this consumption information, sup-

pliers can determine the best forecasts and plans in real time instead of

waiting until after a program concludes. It is the metrics needed to un-

derstand forward-looking plans, as well as the means of refining new op-

portunities and aligning trade promotions. More importantly, analytics are

—Dale Hagemeyer managing vice president, Gartner, said in the report, “Charting Your Course to Trade Promotion Optimization.”

“Think of TPM as table stakes for controlling and understanding trade spend. It is still highly relevant.”


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the catalyst needed to measure pre- and post-optimization effects, which

keeps suppliers ‘in the know’ in the entirety of the program.

The easiest way to leverage the power of these sophisticated analytics

tools is to transition TPM/TPO strategies to the cloud. Unlike rigid legacy-

based, “on-premise” computing models, cloud is an open, scalable infra-

structure managed by a third party. Based on a “pay-as-you-go” license

model, cloud enables multiple users to share web-based resources at the

network level, host level, and application level, as summarized in “Cloud

Computing: A Value Proposition,” a blog from ACG Research.

Eliminating the need to invest in traditional IT software, as well as

add computing capacity on-demand, this cost-efficient, virtual comput-

ing model delivers more agility. These factors clearly make the platform a

strategic business differentiator for 56 percent of enterprises, according

to Enterprise Cloud Adoption Survey 2014,” from Everest Group. More

importantly, the cloud enabling manufacturers to finally transition off of

rigid spreadsheets and truly automate their trade spending operations, one

designed to deliver a solid return on investment.

Using a cloud-based predictive analytics solution, Unilever is gaining

a better understanding of consumer demand, a move that enables the

company to achieve brand objectives and support a more strategic level

of collaboration with retail trading partners. “Unilever continues to make

strategic investments that help us better understand shopper behavior

and serve our retail customers more effectively,” Daniel Shaffer, direc-

tor business systems, Unilever, said in a CGT article, “Unilever Uses

Predictive Trade Planning in the Cloud.” “The app arms our field sales

organization with a powerful capability to make the most of our trade

promotion investment.”

Conclusion As the retail industry continues to evolve, it is more important than ever for

consumer goods suppliers to deliver the most efficient, cost-effective and

profitable trade promotions. By transitioning trade spending programs off

of spreadsheets in favor of automated TPM and TPO tools, especially those

managed in the cloud, consumer goods manufacturers are streamlining

collaboration with retail partners, gaining more visibility into processes,

and overall, creating more efficient programs that drive revenue.


“The TPO journey, however, means steadily improving the ability to model and understand promotional outcomes. It is not only relevant but also critical as suppliers seek to become more relevant with retailers.”


Cgt inFograPHiC

Companies investing in cloud computing based in the ability to eliminate traditional IT software investments, add computing capacity on-demand, and gain agility.

Source: Everest Group report, “Enterprise Cloud Adoption Survey 2014”

56%

rePort

What consumer packaged goods brands

spend on trade promotions annually.


$500

The amount of spend that generates negative returns.


The amount of spend The amount of spend One-third

Retailers that said their data volume doubles every fi ve years.


50% The rate that this data will continue to grow annually.


30%


“Think of TPM as table stakes for controlling and understanding trade spend. It is still highly relevant.”


“The TPO journey, however, means steadily improving the ability to model and understand promotional outcomes. It is not only relevant but also critical as suppliers seek to become more relevant with retailers.”


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