Each year, consumer packaged goods companies funnel enormous sums of money into trade promotion. More than $500 billion is spent around the globe on promotional activities such as temporary price reductions, weekly circular features and in-store display placement. Yet the industry overall still has little to show for its outsized trade spending – typically the second-biggest P&L item behind the cost of goods – in terms of consistent or meaningful revenue growth beyond short-term incremental gains.
Thanks to advances in data analytics and technology, today’s CPG marketers have ample opportunities to change that equation. Machine learning and artificial intelligence are accelerating the power of brands and retailers to leverage real-time shipment data, POS data and external factors such as weather to better understand constantly shifting consumer behavior and adjust their commercial programs accordingly. Such forward-thinking approaches are critical in an environment that offers consumers an unprecedented level of pricing transparency and shopping choices.
4. Embed KPIs into the commercial routine
As with any cross-functional approach, an RGM practice requires a shared set of common objectives and buy-in from all departments. Thus, KPIs need to be clearly defined as part of day-to-day business reviews to drive decision-making. “It is not only a question of how much you’re investing but how you evaluate progress at each step,” says Harris. “Are you including supply chain costs, or is it strictly promotion?”
Most contemporary RGM practices are built around four basic pillars: strategic pricing, trade promotion, product assortment, and trade architecture. On the trade promotion component, Kataria urges marketers to consider all the factors that may have affected the program’s success. “A strict ROI analysis is too myopic,” he warns.
For example, a typical ROI analysis of trade promotion does not take into consideration market share rebalancing or penetration. “A company might look at it as a pure play: We spend $100,000 and got two times our return – that’s our ROI,” says Harris. “The response is, “OK, but if that category went down and you didn’t increase share [but] just swapped dollars, what is the point? The whole idea is to build your business.”
5. Be flexible when choosing tools and partners
Increasingly, consumer goods companies no longer see the need for a one-size-fits-all technology solution. “In the last couple of years, we’ve seen a shift in demand for cloud-based solutions and a desire to work with a variety of vendors with expertise in different areas, which affords the company more flexibility,” says Gabriele Plate, client services director for EMEA (Europe, Middle East & Africa) at UpClear.
Finding promotion management tools that are intuitive to use and (therefore) more likely to be adopted by sales teams is often a sticking point, says Ferrero’s Granfelt. “The front-end piece is always a challenge because we tend to build tools that are not user-friendly,” he says. “There is often a gap in data and planning due to the clunky nature and non-integration of those tools.”
When selecting tech partners, Danone’s Hoder looks for the ability to adapt an RGM solution to a company’s needs in different markets, as well as teams who are eager to develop and continually refine the solution together. “What is sufficient today might already be outdated tomorrow,” she notes.
6. Build a portable solution
For multinational companies, an overriding objective is to create a platform that takes into consideration individual market and customer dynamics while providing a consistent approach to the business. “It’s one of the reasons why people have gravitated to RGM: It’s transportable,” says Harris. “Individual components are different by country, but the process is the same. The idea is to take the key people on the job and pollinate them in other markets.”
Besides being portable, experts argue that a newly created RGM practice needs to act as a discrete unit within the organization. “Think of the RGM practice as if it were a product company within the organization,” advises Kataria. “It is an end-to-end service where you bring together the three pieces of the puzzle – technology, analytics, business – in a horizontal connection. That is where it starts to come to life.”
7. Bring retailers into the fold
Brands and retailers aren’t always on the same page when it comes to prioritizing business practices. But despite a trade relationship that is becoming increasingly adversarial in some respects, the two sides share a common desire to remain relevant with omnichannel consumers through digital transformation. Walmart’s recent push to transform itself into a “technology company” through major investments in e-commerce and in-store capabilities like virtual reality is a clear sign of that commitment, says Kataria. “The more retailers can embrace and drive this transformation, the easier it will be for manufacturers.”
“Revenue management solutions, and specifically machine learning-based capabilities, can be leveraged by ‘category captains’ to provide deeper insights into the brand, pack mix, price points and promotional mechanics that can drive category expansion while minimizing negative effects such as product switching,” says UpClear’s Plate. “Such insights can deliver more robust joint business plans, strengthening the relationship between brand and retailers through ‘win win’ category deals.”
8. Take the plunge now
For companies that are stalling or resisting the move to RGM entirely, experts suggest looking beyond the confines of the day-to-day operation at the radically changing world around them. “My advice to any company that is slow to adapt is, wake up,” says Kataria. “If marketers believe their business lines are not going to be impacted by technology, AI and analytics, they couldn’t be any more wrong. It’s going to continue to have a huge financial impact.”
Of course, there is no guarantee for success and companies should be prepared for uneven results initially. “There are examples where it’s already very aligned across the different functions and then, of course, there are always examples where it does not work,” acknowledges Hoder. “We try to fail forward, to learn from what wasn’t working and where – for example, the digital campaign could have been more aligned with the in-store activation or vice versa.”
After all, it’s hard to grow without experiencing some growing pains.