Trade Promotion Optimization (TPO)/Advanced Analytics
The Promotion Optimization Institute defines Trade Promotion Optimization (TPO) as the process of utilizing integrated goals, factoring in promotion (e.g., price, duration) and supply constraints, and predictive analytics to create continuously improving trade promotion strategies and results. Consumer-Packaged Goods (CPG) companies are faced with increased trade spend, the result of pressure from retailers and competitors, diminishing customer loyalty, and the growth of private labels. With 11-27% of revenues spent on trade promotions, it is important to evaluate if the trade spend is able to meet its objective in maximizing the ROI.
Companies that successfully implement TPO spend less time and fewer resources gathering data and make better use of trade funds due to greater visibility to ROI. These manufacturers and retailers share data and apply greater consistency in using tools. TPO enables them to identify the impact of pro-motion factors, like price points and display types.
While we are only scratching the surface of what makes for an effective TPO implementation, the greatest barriers to success can be overcome with planning and preparation. Successful companies are breaking down silos and empowering customer teams for joint business planning. They are committing their organization to consistently contribute to the mutual profitability of the trading partner relationship and success in serving their shared shopper/consumer. Today, questions are still being answered. However, more than ever, leaders are involved in making changes, to instigate, motivate, and provide incentives to accelerate the development of optimal pricing and promotion solutions to serve today’s shopper/consumer.
Multiple automated capabilities are available to improve efficiency and effectiveness of trade: Trade Promotion Management (TPM=transactional), Trade Optimization (TPO=forward looking what-if scenarios), and post event analytics (TPE/ROI). Together these capabilities deliver total TPx functionality. Only recently have vendors been deploying these capabilities in one seamless holistic planning platform. As a result, advancement into TPO capabilities is becoming a best practice for the CPG industry.
As you can see from the chart below, TPx benefits to the organization are transformative. Greater visibility to the business & opportunities/risks (38%), eliminating poor performance (36%), and process improvements (32%) and are top benefits realized. Improvement to the forecast is important (25%) as there is a high cost to over/understating the numbers, and most CPG companies are struggling in this area. 13% of survey respondents noted improved relationships with retail partners for insights generated. Again, usage of optimization tools by HQ has been lagging, yet 21% of respondents have realized improved go-to-market strategies. This is low hanging fruit for organizations to improve plans year over year. All other respondents noted a 5-10% improvement on promotion ROI.
Realized Benefits of TPx:
In the 2021 POI survey, when asked “Which of the following TPx technologies will your company be embarking to deploy in 2021/2022,” 42% said that they are planning to deploy TPO technologies and, 40% are pursuing a holistic tool that has TPM, ROI, and TPO capabilities in one platform and planning flow. Source: POI 2022 State of the Industry Report
Artificial Intelligence (AI) and Machine Learning (ML)
Technological advances in data and analytics have been reshaping the CPG/FMCG environment in recent years. This technology continues to evolve, resulting in new of advances in analytics, artificial intelligence (AI), and machine learning (ML).
Artificial Intelligence (AI) allows CPGs and retailers to gather customer insights in an automated fashion and predict next actions based on previous patterns or images. AI uses predictive patterns to help understand desires, motivations, and actions across both physical and digital channels. This lets retailers and suppliers enhance many functions, such as executing more targeted and personalized marketing campaigns and improving trade promotion efforts. AI can also automate forecasting of inventory needs, more accurately predict out-of-stock incidences, and ultimately help optimize supply chain. Machine Learning (ML), an application of artificial intelligence, enables machines to learn by themselves using the provided data and make accurate predictions.
As you look at the elements keeping organizations from moving from TPM to TPO, holistic enterprise planning with AI has the benefit of eliminating the need to implement TPM prior to TPO. The administrative analytics & planning burden that impact time/people is also reduced. Organizations will need to address change management and breaking down the silos of the organization, as the systems can be used cross-functionally for AOP top down planning, pricing (edlp & promoted), go-to-market strategy development, promotion optimization & planning, forecasting, deductions, & advance analytics across the company. Source: POI 2022 State of the Industry Report.
Benefits of AI-Enhanced Trade Promotion Management
- AI can analyze large amounts of data quickly
- AI analysis detects patterns, opportunities, & issues, evaluates options, and generates recommendations
- Intelligent automation can perform routine tasks: data mining, web scraping, promotion optimization, validation, deduction matching, downloading, and more
- Potential reduction in labor costs and opportunity to re-deploy resources to more strategic functions/work. Intelligent Automation can work 24 hours a day providing enhanced service hours and scalability
- Seamlessly connect all available data, artificial intelligence, and workflow
- Reduces costs and the amount of time it takes to plan trade promotions
- Improves revenue by superior forecasting and the use of a predictive AI technology
Best practices are critical. They are equally as important as the choice of a particular software and/or solution. POI believes when change transformation and user experience issues are managed well, process and tool deployments are successful, user adoption is high, and systems are maximized.
Many tools in the marketplace today are powerful and require project teams to deploy best practices, which will move the organization from transactional to strategic. We continue to see positive progress with companies deploying best practices with their solutions implementations. POI offers the following document to support your effort:
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If you are investigating new solutions and want to know what’s possible in the TPx and RetX space, you can review capabilities and vendor offerings in the POI TPx and Retail Execution Vendor Panoramas.