trade promotion optimization: more relevant than ever · investing in cross-functional training...

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Dale Hagemeyer

Managing VP

Gartner Industry Advisory Services

Trade Promotion Optimization: More Relevant than Ever

Without a change in manufacturer /retailer promotional paradigm, trade spend will be 25% of revenue by 2016*.

It will be second only to COGS in P&L impact and yet both manufacturers and retailers will say that ineffective promotions are one of their top three critical issues.

*up from 6% in 1988, a CAGR of 5.2%

.

Strategic Planning Assumption

Key Issues

1. How can Trade Promotion Management/Optimization deliver more effective promotions while stemming increases in trade spending?

2. How will a new promotional paradigm improve manufacturer collaboration?

3. What is required for consumer goods manufacturers to seize this opportunity?

3

The Journey

1980s

1996s

2002

2008

2012?

Proxy: Checkbook approach

Proxy: End-to-end TPM

system

Proxy: Constraint-

based optimization

Proxy: Insight guiding action

Proxy: Promo

on a golf napkin "If everything seems under

control, you're just not going fast enough."

— Mario Andretti

Chaos

Transactional

Analytical

Predictive

Influence Outcome

Real Retailer Relevancy Threshold

Advanced Analytics: Different Question, Different Tools

Advanced Analytics

• Predictive Modeling

• Optimization

• Scenarios

Analytics

• Dashboards

• Multidimensional Analyses

• Ad Hoc Query and Reporting

Tools:

Regression

System Dynamics

Linear Programming

Then look

to the future.

First

understand

the past.

Tools:

Online Analytical Processing

CRM Suite

Data Mining

Building Blocks of Success

Role of Culture, People & Technology

Culture

Technology

People

Culture

• Foundation of behaviors

• Includes metrics and shared goals

• “Standing for something and knowing what we stand for across the entire organization”

People

• Foundation of execution

• Includes training and support

• “The right people in the right quantities working together”

Technology

• Not foundational because of reliance on culture in order to have a purpose and people in order to get

executed.

• Reinforces culture and people dimensions by facilitating metrics and communication, improving

training, and institutionalizing behaviors

• “Automating and institutionalizing cultures, processes and behaviors”

Manufacturer / Retailer

Collaborative Environment

Methodology

• Users of the assessment can rate their own organizations, their partners, or both

• Self assessment tool is a simple spreadsheet, which goes more deeply into the culture, people and technology aspects in order to compare the fit between a manufacturer and retailer

• The tool then generates a spider diagram in order to see the gaps that should be addressed in order for the two parties to be better positioned to collaborate

• The spider diagram has additional granularity dimensions

Evaluation Criteria for Partner Assessment

1. Culture ”take unfair advantage wherever possible--------”be fair and focus on relationship”

a. Relationships cut across the entire enterprise (merchandising, supply chain, finance, etc)

b. Strategy is focused on long-term, shared objectives

c. Not predisposed to throw weight around

d. Appropriate incentives to support desired behaviors

e. KPIs are shared and focused on mutual wins

f. Willingness to share best practices and to continuously improve

g. Collaborative culture extends to multiple partners, not just select few

2. People ”bare bones and traditional--------”analytical, team-centric and progressive”

a. Sufficient personnel to be more than just transactional

b. Team orientation

c. Appropriate levels of training in the relevant aspects of the business

d. Able to adapt to marcoeconomic or other variables

e. Able to trust and to be trusted

f. Rewards are perceived as real and appropriate

g. Have an understanding of their partners’ business models

3. Technology ”same old same old---------------------------’invest, automate and experiment’

a. Ability to share data

b. Have invested in collaborative platforms

c. Optimization and predictive capabilities to focus on outcomes

d. Traditional ECR capabilities to handle day-to-day burden

e. Analytical capabilities on par with partners

f. Able to continuously reduce latency

g. Data is available at and enterprise level and at all levels of aggregation (geography, line of business, etc.)

Comparative Capabilities Chart

0.01.02.03.04.05.0

Structure

Strategy

Metrics

Organization

CharacteristicSupport

Architecture

Capability

Functionality

Retailer

Supplier

C

C

C

P P

P

T

T

T

C = Culture

P = Personnel

T = Technology

11

Collaborative Promotion Capability Matrix

R

Culture People Technology

1 Looks at Promotion and associated costs, as a “cost of

doing business” or as a “pricing/placement lever”.

Are focused on buyer/seller relationship, and strictly transactional.

Maintaining Status-Quo (distribution, budget, and assortment) is

paramount.

Focused on Control and Accountability of Funds, or dollars that

may fall to the bottom line. Using Spreadsheets to track/manage

Funds/payments.

2 Is beginning to look at performance on a post event

brand specific basis (spend/ incremental volume).

Traditional roles still exist –Merchandising,

Marketing, Sales, Advertising, Finance, Operations

Internal Sales and Marketing are discussing brand plans, communicating

internally and starting to refine budgets based on aggregated sales.

Beginning to use syndicated data with some post event analysis.

Internal systems largely focused on managing/ reducing

deductions balance, and dollars spent per promotion. Investing in

systems to gain accountability, managing spend to budget.

3 Understand change management and internal team

approach is necessary to achieve performance goals.

Investing in cross-functional training (business and financial acumen).

Beginning to understand cause and effect of poor communications. A

team orientation is taking hold, yet metrics have not been fully agreed

upon.

Systems (with the proper data input) are providing post event

information on an event, a SKU, a brand. Inventory management

is across disparate systems.

4 Have changed their approach from hindsight to

foresight. Beginning to sense and shape demand, &

are aware of the effect of promotions on their supply

chain.

Can plan/execute promotions with moderate success. Are focused on a

broader team approach (integrating supply chain initiatives) are

measuring and analyzing performance through a metrics based approach.

Internal systems are integrated; communications are facilitated

between sales, marketing, operations and finance. Improved

reporting, yet largely transactional.

5 Beginning to understand that promotion collaboration

can help improve sales, reduce costs, reduce OOS,

improve margin, and identified base price and

promoted price - volume and profits.

Team members are trained, understand their specialized and cross-

functional roles and responsibilities. Team goals are aligned and

connected from the field to the executive offices.

Able to integrate and interpret multiple data points, order, ship,

POS, loyalty, and some category effects.

6 Has committed their organization to consistently

contribute to the mutual profitability of the

relationship and shared success in serving their

shopper/consumer

Have met on strategy, are flexible, and are beginning to share data,

insights and achieving some wins across identified mutual KPI’s. Have

created trading partner teams, (e.g. Planning, Cat Man, Sales, Shopper,

Research)

Have largely worked out systems, communications, data quality,

and process for sharing data, and information. Data is approaching

real-time, and down to the store level.

7 Best case scenario thinking, sharing culture attributes,

and KPI’s. Partners understand price/promotion and

it’s affect on the basket (volume/profitability) by

store. Partners are willing to invest in blended learning

and continuous improvement.

People can plan and implement to support a shared promotional strategy.

Research – planning, Deal, retail execution, and analysis, and understand

cause and effect promotions on sales and profitability. Training and

incentives are aligned – customers and insights are driving success in

each role.

Scientific approach to customer/shopper definition and

acquisition. Integrating price, promotion, and supply chain.

Partners understand market mix modeling. Able to share “what

if” scenarios, incorporate new media, and can execute on a shared

strategy - targeted and timely promotions.

Perspective on Collaboration

• Most collaboration is more aspiration than execution

• Most supplier/retailer relationships are more about “getting the upper hand” than about being mutually beneficial

• Collaboration will at best be strained and episodic unless supported by culture, personnel and enabling technology

• Technology is only an enabler

14

Data Integration as a “Non-Starter”

Background

• Cannondale Study and others point to promotion issues as “most serious”.

• Most promotions lack analytical foundation for even post event analysis.

• Recent industry event: 80% of those surveyed cannot do post event analysis.

• Data integration cites as most common obstacle to post event analysis.

• TPO requires integration of historical plus at least 2 years of POS data.

Prediction

• Data Integration will be a major dividing line in competency around TPM and a “non-starter” in TPO

User Experience – Key Factors

• TPM and TPO as a single solution and interface

• Number of screens required to set up and optimize a promotion

• Ability to view variations/permutations graphically

• System speed to perform calculation(s)

• Intuitiveness of overall UI

• Stepwise flow (like with chevrons)

• Library of past promotions as a starting point

• Specify constraints on a single page

16

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Source: Gartner Research 2012

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Puzzles versus Mysteries

24

Mystery: Al Qaeda

• Independent cells

• Unknown players

• No pattern

• Monitor phone traffic and wait

Puzzle: Cuban Missile Crisis

• Fly over

• Gather more data

• Track every movement

• Formulate strategy

More Mysteries

• Enron – all unraveled from publicly available sources

• Quarterback performance – drafts 1 to 50 don’t perform as well as 50 to 100

• Stock Prices – most studied system on earth

• Teacher success - what makes a great teacher in the education system

• Promotions………..

25

“There is an irrational appetite for the big solution”.

- Malcolm Gladwell

So what……….

• Is it just about the model, or is it a big, chaotic and mysterious system?

• Increase probability of success by

- Experimenting

- Adjusting

- Making collaboration easy

• Need hybrid thinkers who can handle both puzzles and mysteries

• Be patient, persistent and courageous!

26

trade promotion optimization: more relevant than ever · investing in cross-functional training...

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