For those in the Consumer Packaged Goods (CPG) industry keeping an eye on ‘what’s hot’ and topical, you have certainly come across all the talk about big data initiatives and Trade Promotion Optimization (TPO). And the talk is valid.
But CPG manufacturers can’t simply keep throwing more money into the trade promotion budget. The social media evolution alone is likely to drive up trade spend as it is and retailers show little signs of a willingness to take less. The behemoths of the CPG industry likely relish the opportunity to turn the trade spend game into one of ‘let’s see who can buy the most.’ But the majority of players need to be far more strategic with their spend thus understanding the effectiveness of individual tactics, as well as the true ROI at key levels, becomes very critical. TPO and big data is the solution! But we simply aren’t there yet.
I am very surprised at how many manufacturers are already investing in new technology specifically geared towards TPO. While the power of the ‘what if scenario’ is tempting, TPO is an initiative that requires a significant amount of planning and preparation. It is an art and a science with process and data design as important, if not more important, than analytical power. Unfortunately, this aspect seems to be downplayed during most conference sessions, industry webinars or whitepapers that I have seen.
Here’s another element to add to the TPO storyline: quite a few CPG companies who have already invested in big data and TPO technology are dissatisfied with the early returns. The insights aren’t as clear as expected and there is little confidence that the scenario planning can be trusted. Why the disappointment? Simply put, I think the market is being oversold on the amount of planning, preparation, data and time that is needed to put TPO in place.
To ultimately reach ‘that level’ of being ready to implement and utilize TPO, a company needs to treat the preparation process like training for a marathon. When training begins, one slowly builds the body up in stages to ensure it can endure the long-distance race. You wouldn’t begin training by running the full distance on day one. Let’s review five ‘training stages’ regarding the tracking and analysis of trade spend:
- First, you need to have good fundamentals. A company needs a solid Trade PromotionManagement (TPM) application with sound processes and good data quality. The TPM application should have the ability to incorporate all your data into one simple tool.
- Next, add a sound Business Intelligence (BI) tool. Something that will help the company to describe the results you are getting from your current trade spend. It should guide you in terms of what to do more often and what you should do less. The tool is also meant to help demonstrate joint value with retailers.
- Third, you will need to create a good data warehouse. While BI will help analyze what’s going on today, the goal is to help predict the future. To do that, one needs to keep years of historical data that is consistent and reliable.
- Once you have historic data in place, you can now turn your attention to TPO and those highly desired ‘what if scenarios.’ The winners and losers at this stage will likely be determined by their ability to manage the ‘big data initiative.’
- Finally, you can turn your attention to pricing optimization. If successful, consider yourself a true data geek!
There is no question that Trade Promotion Optimization and the accompanying ‘big data initiative’ is the wave of the future. But buyer beware – don’t buy before you’re ready or you could end up feeling scammed and quite disappointed.