CPG Chatter

Trade Promotion Optimization (TPO) and Trade Promotion Management (TPM) may be in the same genus but they clearly are two very different types of animals. TPM is the management of the entire cycle of trade promotions and related spending between CPG manufacturers and their customers including annual planning, creation of events, implementation, post-event analysis and settlement. It is a backwards look at TPM.

TPO on the other hand involves using advanced modeling and predictive analytics to suggest optimized objectives, tactics, or pricing. It is a forward looking approach to trade promotions and an additional process that is overlaid on top of TPM. And when it is done right, it can add tremendous value and profits!  It can be the difference between being among the category leaders and being a category also ran.

Affordable TPO solutions are only now starting to be introduced into the market. Some are sold stand-alone and others are packaged in with the TPM system. However, one thing is already very clear.  If you want to utilize TPO, you must already have a sound TPM program in place. Otherwise it is very much like the old adage – garbage in, garbage out. TPO relies on solid data — timely, accurate and harmonized. Only then can it help you unleash the power of information. It can give you the ability to model the optimal set of promotional events. It allows you to run unlimited ‘what if’ scenarios and quickly compare your options. It moves you away from ‘historic thinking’ to ‘predictive thinking’. Utilizing TPO, you simply won’t re-run a promotion because it worked well last year. You will come to understand the subtle impacts that each factor has on a trade promotion event and you will plan the next promotion with even more precision and effectiveness.

Eventually TPO will provide those that master it with a competitive edge.  We will likely even see businesses hire staff with specific TPO analytical skills.  It could truly shape the CPG and Foodservice landscapes.  But to be successful, your TPM system must be in order and must be effective TODAY!  Thus a number of consultants have reported a sudden increase in manufacturers evaluating the effectiveness of their TPM process.  Homegrown systems and manual spreadsheets will struggle to make the leap. TPM vendors who are underperforming will suffer. CPG and Foodservice companies know the stakes are high and they don’t want to be left behind.

Are you ready?

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