What is Trade Promotions?

Created August 5, 2004

Agenda
• So, what is TPM exactly?
• Trade Promotion: Current Market Place
• Deloitte’s View
• Appendix A: TPM Process Details
Introduction
This document will focus on the promotion planning, execution and post analysis
activities performed by an organization. Marketing, branding, and other activities are not
included.

After this presentation, you should be able to:

• Describe the TPM Process

• Identify challenges associated with Trade Promotions

• Develop a high-level approach to addressing TPM related issues

So, what is TPM exactly?
The TPM Process
Trade Promotion Management (TPM) is defined as the process of planning, budgeting,
presenting and executing incentive programs which occur between the manufacturer
and the retailer to enhance sales of specific products. To provide a better
understanding, we have outlined a typical trade promotions cycle:

See
See Appendix
Appendix for
for Process
Process Step Details
 Promotion Programs
The following diagram provides listings of many of the types of incentives and programs
that are run.

– Promotion programs vary widely from account to account

• discounts on each product sold
• payments of a fixed sum of money
• other special programs
– Incentive programs are based on corporate strategy and account objectives

Costs Performance Benefits

Manufacturers Offer … In Return for Performance… … To Generate Consumer
Incentives to trading Sales…
Partners…
• Off-invoice allowances At Headquarters At Retail • Incremental Sales and Profits
• Favorable payment terms • Plan Merchandising • Merchandising
• Market development funds • Buy in advance of •• Ads
Ads
• Sell-through •• Display
Display
demand
•• Reduced
Reduced prices
prices
guarantees/failure fees • Set prices •• Coupons
Coupons
• Co-op advertising • Authorize new items • “Everyday Low Prices”
• Bracket allowances • Shelving
•• Space
Space
•• Configuration
Configuration
•• Location
Location
• Stock Rotation
 Types of Trade Promotions
Trade Promotion Management (TPM) is the configuration and management of three
types of promotions.
Corporate Promotions
• Company-wide promotions
of a product or a brand in
which accounts can
participate.
• They are run for a specific
time period and contain the
objective of the promotion,
suggested tactics, and other
information.
• For example, a beverage
company decides to promote
a new product with the
recommended tactics of a
temporary price reduction
(TPR) and in-store displays.
Discretionary Promotions
• After a discretionary
promotion has been created,
it is saved as a template.
• The promotion templates
that can serve as the basis
of an account promotion.
• Other key account
managers can use
templates of existing
promotions when
establishing promotions at
their accounts.
Account Promotions
• Based on a corporate
promotion or a discretionary
promotion.
• A plan is a group of account
promotions that depicts the
aggregate results of account
promotions, such as
spending and volume.
 Who Manages TPM?
The National Sales Director leads the
sales force, and gives direction in
terms of merchandising priorities,
product assortment, revenue targets,
products focus (new and established), The key account manager is
budget and thresholds for key metrics responsible for account and promotion
National Sales such as promotion ROI. planning, category management, new
Director product introductions.

The Controller is responsible for the

accurate recording of promotional
results, customer payments, rebates
and the tracking of free product. Key Account
Customer P&L, Product P&L Manager

Controller
The demand planner captures customer
orders, and tracks their progress

The Brand Manager is responsible for

providing strategic direction for brand
growth and managing the P&L. She
develops the consumer plan and
provides guidelines on brand priorities Demand Planner
and price points to the sales force.
Brand Manager
TPM Summary
Trade Promotion Management is the process of planning, budgeting, presenting and
executing incentive programs that are established between a manufacturer and a
retailer to enhance the sales of specific products.

– Planning: In order to meet account objectives, it is imperative to have a solid

promotion plan. This plan should be based on past history, customer history,
brand/product history, corporate objectives, and good judgment. Currently, many
companies have extremely informal or non-existent processes.

– Executing: A primary stumbling block in the execution of the account plan is

accurate and timely payment to retailers for promotion performance. Effective
processes and tools are imperative to avoid costly deduction expenses and
overspending due to poor accounting.

– Analyzing: Studies show that between 50-90% of promotions are not

profitable. Many companies are not performing any post promotion analysis to
determine which promotions are profitable. Without this analysis, the same
unprofitable promotions are run over and over again.

The Goal: Significant increases in effectiveness

coupled with reductions in trade promotion spending.
 Trade Promotion
Current Market Place
The Trade Promotion Environment
Most CPG companies have to plan and manage Trade Promotions in an environment
where they have little control, poor visibility, limited data, and few analytical tools,
resulting in trade spending ineffectiveness and inefficiencies.

Powerful, demanding
customers
High
dissatisfaction Deal-conscious
with promotion consumers
RETAILERS
efficiency CONSUMERS

Not satisfied with Declining

share of trade consumer pass-
spend Pressure to deliver through
volume/$$$ targets
Execution at Multiple,
variance from disparate data
plan sources

Focus on Simplistic, home-

temporary price grown analytical
reductions tools
Misalignment of
SALESFORCE INFRASTRUCTURE
performance objectives
Problems Experienced in TPM
Many companies experience that an increasing spend in trade promotion is not reaching intended targets.

Manufacturers rating TPM inefficiency a very important issue 85%

Retailers rating TPM inefficiency an important issue 63%

% of spend being passed to consumers (per

mfr) 52%

% of manufacturers effective at evaluating

incremental sales during TPM 63%

% of manufacturers effective at evaluating

incremental profit during TPM 40%

% of manufacturers where ROI is the 2nndd

biggest TPM related problem 40%

[ Sample size of CPG manufacturers and retailers = 300]

Problems Experienced in TPM (continued)

CPG Marketing Spend vs. Pass Through

[ % of Total Marketing Spend]
Where The Trade
Dollars End Up
Advertising 24% Retailer Bottom
24% Line
Consumer
Promotions 15%
20% Retailer Expense
Account- 10%
Specific
Marketing Consumer Pass
51% 56% Through
Trade
Promotions

• “Consumer Goods” said of the challenge of TPM is Controlling the Multi-Billion Dollar Hemorrhage. It’s accountable for an annual $18 Billion
loss to the consumer goods industry!

• AC Nielsen once reported, [TPM] is CPG’s #1 problem…$470 Billion is spent annually on it and 3/4 of manufacturers feel they are receiving
fair-poor value!
 The Changing Market
Retail competition is intensifying, consolidation is accelerating, leaders are emerging and
the pressure on suppliers is increasing.

The near future will see the

emergence of 3-5 dominant
global retailers with room for
niche players.

r
The primary issue, however, is that we are b y d esire fo
Driven l Mass
some way off from seeing global retailers C r i t i c a
re
M a r k et Sha
manage the business in a truly global and
fashion.
Dynamics of the Trade Relationship
Although retail competition is intensifying and consolidation is accelerating, the
fundamentals of the trade relationship remain the same.

What display location

What is my Was compliance produces the
ROI? achieved? How often should I
strongest results?
promote Product
X?
Manufacture Retail
r Buyer
Should or how do I
extend a promotion
What is the Did my trade What was the Did my Product X across regions of
residual monies get impact of promotion drive my chain?
impact on my passed along to
other brands? the consumer? Product X on other market
Category Y? basket sales?

The trade relationship is becoming information

and insight hungry
Dynamics of the Consumer Relationship
Similarly, the fundamentals of the consumer relationship with both the manufacturer
and the retailer have remained the same as in the past.

Why do I want a
relationship with a Consumer
retailer or
manufacturer?
Who are my highest
What is my
What is the value shoppers?
ROI?
best mix of
consumer and How can the
trade manufacturers’
spending? Retail consumer
Manufacturer
Buyer insights be used
to improve
What insights can we category
gain from retailer Who are my management?
How do we position How do we increase
customer loyalty highest value
our Private Label shopper loyalty and
programs? consumers?
products? shopper rings?

A challenge for the consumer relationship is better

integration of and insight into the ever increasing
amount of consumer data available
The Business Problem

Trade Promotion Management is complex and requires management of:

– Analytical modeling to determine what to spend each time
– Funding vehicles and tracking multiple ‘buckets’ of money for each customer
– Payment options to maximize value to their customers - deals
– Complex Pricing mechanisms, which will lead to Deductions if they are wrong
– Reporting solutions to analyze performance results and share with customers
– An analytical review process to confirm that planned results were achieved

Problems and inefficiencies invariably result from managing this complex

issue
– Deductions (which are customers short payments for failing to meet promotion
obligations) average 7-9% of net sales for the typical CPG manufacturer
– Field sales representatives typically spend over 60% of their time managing
deductions and other administrative issues…which is more time than they spend
selling to customers
– Analytical review is difficult and requires a large volume of data for accuracy
Deloitte’s View
Trade and Consumer Management Overview
Of these key activities, Deloitte believes there are four umbrella challenges in Trade &
Consumer Management that are of highest priority to CPG manufacturers.

• How can we focus marketing • Which type and level of account

investments on our highest
value consumers?
• How should we leverage
information from retailer loyalty
programs to jointly market to the
consumer?
are the most profitable and how
should we prioritize customer
investments?
• How do we incorporate lessons
Account
learned from past activities into
Planning future planning?

Direct to Trade &

Account
Consumer Consumer Management
Marketing Solutions

• How should we collaborate • What types of promotional events

with the retailer to improve Collaboration and tactics are most effective?
demand forecasts? & Exchanges • How can we get visibility to the
• What supply chain productivity quality of in-store execution?
gains can be achieved by
linking supply forecasting with
CRM information?
 TPM Benefits
TPM, if implemented correctly and efficiently, has a number of benefits that can be felt
across an entire organization.

• Fully understanding the costs of promotions to facilitate running smarter promotions in the
future (what works and what doesn’t) by focusing promotion dollars on what will increase profits,
rather than just increasing gross revenues.

• Ability to forecast with greater accuracy over a longer time horizon to a lower level of detail
than a manual approach would yield. Forecasting affects:
• Promotions
• New Product Development
• Seasonal (Xmas / Easter / Public Holidays)

• Contribute to an accelerated, more precise budget creation process

• Ability to compare promotion effectiveness during planned and unplanned scenarios (e.g.
weather, holiday season, stock market fluctuations, etc.)

• Assist in long range business and capital planning

• Quick, accurate, and appropriate application of market cannibalization* and the associated
phasing-in and phasing-out

Market cannibalization is the impact a new product has on the sales performance of a company's existing, related products. EXAMPLE: Coca
ColaTM puts out a new product called Coke2TM . Market cannibalization is where customers buy Coke2 instead of regular Coke.
Key Management Drivers
Thus far, we have observed several themes that drive both the trade management and
consumer relationship related activities within the industry.

Visibility
 Trade performance
 Customer segmentation & profitability
 Consumer trends and preferences
Integration
 Multi-channel touchpoints
 Front office to back office
Collaboration
 Collaborative Planning Forecasting and

Replenishment
 Trade planning and supply chain integration
Global Account Management
 Coordinated management and planning with
an increasingly global trade
Consumer Intimacy
 Consumer engagement
 Cross brand “lifestyle” solution
How Do We Make It Happen?
To improve current trade spending ineffectiveness and inefficiencies, CPG manufacturers need to adopt a
comprehensive model that incorporates trade program simplification, customer and internal collaboration, and the
use of technology as a key enabler.

Single Data Repository

Controls and Safeguards

Modeling Capabilities

TPM
Flexible and Seamless Workflow Customizable Reporting
 Typical TPM Technical Strategies
To address these CRM ailments, most CPG companies are aligning their business
solutions around three fundamental technology strategies.
Strong Integration Breadth of Offering Depth of Functionality
ERP-based Solution Enterprise Front-office Suite Point Solution for Trade Promotions
(e.g., SAP) (e.g., Siebel) (e.g., CAS, MEI, Vista)

Characteristics • Aggressively invests in • Provide for complete CRM vision, • Deepest support CPG.
CPG offering to complete yet supports an evolutionary path to • Some companies using as a short-
proposition. rollout. term, “throw-away” solution.
Advantages • Single data repository for • Broad and deep functionality. • Can drive near term results in
master data and business • Fewer points of integration and narrowly focused areas.
transactions – clean synchronization then ERP based • Designed with CPG sales person in
integration solutions. mind.
• Leverages prior investment • Supports multiple modes/ channels. • Lower software license investment.
and skills.
Challenges • CPG functionality needs to • May not be “best in class” in any • Requires multiple solutions to
be completed. area. complete CRM picture, difficult to
• Remote, untethered usage • License investment can be upgrade versions.
is new and relatively substantial. • Multiple data repositories must be
untested in CPG. synchronized.
• Long-term vendor viability has to be
evaluated.

Impact on • Integration with back-office • Standard connectivity is available • Some products have standard ERP
Back-office should be easier given one but integration will have to be integration tools, others require
vendor providing the suite achieved with at least two software substantial effort.
of technology. products.
Q&A
 Appendix A:
TPM Process Details
The TPM Process
Trade Promotion Management (TPM) is defined as the process of planning, budgeting,
presenting and executing incentive programs which occur between the manufacturer
and the retailer to enhance sales of specific products. To provide a better
understanding, we have outlined a typical trade promotions cycle:

See
See Appendix
Appendix for
for Process
Process Step Details
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Allocate Budget
Execute
Plan

• The Trade Promotions process begins with a determination of the funds that will be
devoted to various accounts. This step draws on several key inputs:
– historical sales data
– sales quotas by account/brand
– the promotion strategy for the product/brand

• A clear understanding of the types of promotional dollars and activities available, as

well as how the promotional dollars should be spent from a strategic perspective, is
needed to effectively allocate promotion dollars.

• This step produces detailed spending budgets for each account by product or
product grouping.
– For example, an account manager for the XYZ Grocery might have a quota of $250,000
for liquid soaps. To reach that quota, the sales representative might be given $32,500 of
promotional spending allocated for liquid soaps.
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Creating a Promotion Plan

Execute
Plan

• This step focuses on creating a formal trade promotions plan, because a formal
plan helps the company look beyond the short term to consider trade promotions in
a holistic, strategic light. It is the largest component of the Trade Promotions
Management process and the true cornerstone to successful trade promotion
activities.

• The challenge is to understand the thought processes that the best reps are using
to create profitable promotion plans and to translate that into reusable process
steps. Creating a formal promotion plan helps manufacturers to take this longer
term view - typically promotions have been seen by manufacturers as short term
initiatives to meet sales projections for a given period. Instead, trade promotions
need to be considered more holistically to meet long term account objectives.

• Developing the trade promotion plan by account requires a strong understanding of

past sales and promotions and often simply a “gut feel” for future events. Given the
breadth of knowledge required to develop the plan, this process step should not be
solely completed by either marketing or sales.
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Creating a Promotion Plan - continued

Execute
Plan

• Typically marketing will provide initial strategic direction, sales representatives will
use that direction as well as their extensive account knowledge to develop the
detailed plan by account, and promotion specialists as well as sales management
will review and approve the plan.

• The creation of a plan draws on a wide range of inputs, including historical data
about sales, promotions and budgets; best practices in use at other companies; the
company's marketing plan; and an understanding of the customer's strategies, goals,
objectives, and needs in terms of products and services. The effort should involve
both the marketing and sales organizations, with marketing providing the initial
strategic direction, and sales professionals providing specific account knowledge.

• The promotion plan documents what the manufacturer will do for the retailer in
exchange for what the retailer will do for the manufacturer. When complete, the
promotion plan will list the details of events that are to take place with each account,
such as:
– Event start and end dates, as well as order and shipment dates for the promotion
– Products included in the event
– Expected base and incremental sales for each product (lift)
– Event tactics (end-aisle display, temporary price reduction, ad feature, etc.)
– Event costs (per case shipped to retailer, per case sold by retailer, lump sums)
– Expected profitability for the event
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Sell-in Promotional Plan

Execute
Plan

• In this step, the manufacturer puts its portion of the promotion plan into action, and
monitors the retailer's activities, keeping track of shipments, compliance and
consumption. As the promotion proceeds, the process is managed to ensure:
– A completed event/proof of performance: Did the retailer perform as planned? Did
advertisements actually run? Were displays set up? Etc.
– Customer payment - based on the spending agreed to in the promotion plan
– Closed deduction - any deductions and adjustments are reconciled against the
promotion plan and proof of performance
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Monitor Plan
Execute
Plan

• When a promotion is running, sales and marketing teams pay close attention to its
impact on sales and market share so that they can make timely adjustment
decisions using a TPM solution. A manufacturer must also monitor promotions for
success. To do this, it requires shipment data from its own ERP system or, for even
more sensitive monitoring, syndicated data from the point-of-sale systems of
retailers or from an agency like AC Nielsen. Where a promotional event like a
“back-to-school” special is tied to in-store activity, a manufacturer’s sales force
might also collect compliance data in the field.

• As the promotion plan is being executed, managers track actual performance in a

number of areas, including:
– shipments
– revenues
– spending
– profitability
– retailer compliance with promotion parameters

• This actual data is diligently compared with planned performance. The goal is to
maintain a clear picture of how well the promotion is doing, and to revise the plan to
meet any new customer or business demands. For example, the manufacturer may
want to expedite additional shipments to support strong early promotion results, or
commit additional funds if early results are weak.
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Execute Plan
Execute
Plan

• During this step, the manufacturer needs to actually execute their side of the plan
based on previous commitments. This will entail:
– finalizing ads where appropriate
– performing retail activities as needed
– giving appropriate payments and discounts
– monitoring retail activities to ensure that their customers are acting as agreed.
 Monitor
Revise
Plan
Allocate
Create Sell-in Evaluate
Budget
Plan Plan Effectiveness
Accounts

Evaluate effectiveness
Execute
Plan

• This step involves the review and analysis of the promotion, and produces the
critical historical information that is used in the planning activities at the beginning of
the TPM process - identifying what works and what doesn't and providing feedback
that can drive improvements in trade promotions overall.

• The analysis and evaluation should be performed by promotion or customer-

marketing specialists in the sales organization, in conjunction with sales
representatives, to ensure that performance is clearly and accurately understood.
The analysis should include both quantitative and qualitative data about factors that
affected the plan, and be incorporated into a formal scorecard that can be used to
consistently compare the performance of various promotions.

• Post analysis is a critical component of trade promotion planning process to ensure

that the most effective promotions are utilized.
– The easiest way to increase the profitability of trade promotions spending is to shift funds
from what doesn’t work to what does work.
Don’t Delete – Editable Version.

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Don’t Delete – Editable Version.

100% Leading- Edge Best Practices Required to do Business

Working Capital
Reduction
Brand Strategy
SKU
e-Procurement Rationalization
CPC
Outsourcing

eCRM
Adoption Rate

Advertising Effectiveness

Sales Force Redesign

Trade Promotions Management

SAP Beverage Solutions

VMI Mergers & Acquisitions

(multi-partner)

Multi-tier Channel Value Based Management

CPFR Strategy
Multi-tier Design collaboration
0%
Emergent Mature
Strategic Advantage Cost Improvement/ / Competitive Parity
Custom “Home-Grown” Applications “Packaged” Applications
 Don’t Delete – Editable Version.

Financial
To succeed financially, how should we
appear to our stakeholders (Regulators,
Customers, etc.)?

Internal Process Customer

To satisfy our stakeholders and How do existing and potential
customers, what business processes customers view us? How do we
must we excel at? continue to provide value?

Learning & Growth

To achieve our vision, how will we
sustain our ability to change and
improve?
 Don’t Delete – Editable Version.

• Sales Quota by Corporate Trade Marketing Internal/External

Account Commitment Organization Collaboration
• Overall Spending
Budgets

• Historical Sales Data

Monitor
• Historical Revise • Final
Consumption Data Plan Promotion
Allocate
Create Sell-in Evaluate Plan
• Past Promotions Budget
Results Plan Plan Effectiveness
Accounts
• Marketing Plan Execute
Plan
• Promotion
• Promotional Strategy Results
• Account Plan

• Historical Account
Activity

• Customer Promotion Promotion Internet/

Calendar Management ERP Integration Wireless
System enabled
See
See Appendix
Appendix for
for Process
Process Step Details
The Deloitte color palette