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7 Tips for Improving Trade Promotion Effectiveness | Retail Velocity

7 Tips for Improving Trade Promotion Effectiveness

Rob Hand has been one of the consumer goods industry’s leading trade and channel promotion experts working with hundreds of the top companies globally, guiding them along a path that creates a more successful and productive outcome for the second largest line item in the corporate financials. Here is a summary of what he has experienced to be the seven best actions a consumer products company can take to achieve excellence in trade promotion management (TPM), execution, and analysis.

Modern trade promotion has finally been recognized as one of the top priorities for any consumer goods company that wants to ensure the huge amounts of money paid out every year to retailers, distributors, and other consumer-facing channels achieves the highest possible return on investment (ROI). For most companies, it represents the second largest line item in the company financials and, according to most industry analysts, fails to achieve breakeven ROI in more than half of all promotions run.

For most of the last century, trade funding has grown from around 3% to more than 25% of gross revenues. It has largely been viewed as nothing more than an incentive for key account managers (KAMs) and sales reps to dangle in front of the channel customer to get the forecast volume pushed into the deal.

For retailers, trade funds have gone from a primary purpose to provide a small percentage of their local advertising and promotion to becoming the lion’s share of their final corporate profitability.

Trade promotion funding, planning, execution, settlement, and analytics have begun to take a major place within the company’s revenue growth management organizations and leadership.

And it’s way past due.

As I have worked within these internal organizations and functional areas like trade management, supply chain, financial operations, IT, demand planning, transportation and logistics, and sales and marketing, I have seen companies take control of their trade promotion and improve effectiveness, efficiency, and ROI that truly accomplishes the objectives intended for promotional outcomes.

So, here are 7 tips for improving trade promotion effectiveness (TPE).

1. Have the right data.

This is number one for a reason—it is without a doubt the most important aspect of success in achieving every single goal of trade promotion. Without the right data, there is no way trade promotion succeeds. If you don’t believe it, just look at how poor the amount and quality of data has been and how hard and long the industry has worked to improve the technology, science, and understanding of all the data required to effectively run the operations and satisfy consumers’ demands. I will spend more of this article discussing this topic because of its mission-critical status.

With the rapid advance of data science, hardware, software, and talent, we are finally at a point when and where virtually nothing is impossible to predict, prescribe, and drive the desired outcomes. So, we summarize the top elements of having the right data. 

Trade Promotion History

You can’t effectively predict the outcome of a trade promotion unless there is enough detailed history of past promotional performance. Until very recently, there were very few technologies (and no spreadsheets at all) capable of capturing, storing, and rapidly recalling every major element of the results of past promotions.

In other words, if you can’t see the problem, you can’t solve the problem. Without a detailed history of promotions, no amount of sophistication in your advanced AI/ML-driven analytics will enable you to effectively predict and prescribe promotional outcomes.

One example of this is a common issue: lack of hierarchical detail of tactics. For instance, there is a difference in effectiveness, quality, consumer interaction, and COST across the universe of the Display tactic. A front end cap display is going to grab more attention from the shopper than a simple shelf tag is likely to get. End cap displays are more expensive to fund. But if your trade promotion management system is not capable of efficiently capturing the hierarchical detailed definitions of tactics, how will a future trade promotion optimization (TPO) algorithm be able to discern between one or the other? end cap

It can’t. And YOU can’t.

The good news is that most TPM vendors nowadays know this and are building this capability into their trade promotion user interfaces, screen fields, and TPO algorithms. The same applies to product groups and SKUs, account level hierarchies, pricing, and so on.

So, if you are able to capture a recommended three full years of this level of detail, you have a very good foundation from which to build an effective TPO and final TPE analytics.

Point-of-Sale (POS) Data

Many TPx domain experts may argue that POS is actually the most important data element, and I am one of them. There is good reason for that: POS data is the gold standard for understanding how the promotion performs—the actual purchase of the product by the consumer.

In my experience, the most accurate POS data you can obtain comes directly from the retailer. The largest retailers like Walmart, Target, Kroger, Home Depot, and Best Buy have their own systems, vendor portals, and agreements, but virtually every major chain—national or regional—also provides it.

The syndicated promotional data houses like Nielsen and Circana (formerly IRI and NPD) also provide it, but typically aggregated weekly or monthly and as an average or other form of sampling methodology, which has served the purpose for many decades to provide the basis of their analyses of promotional performance. Now, however, the heat of competition between the brick-and-mortar retailers and the online shopping sites has pushed the importance of seeing daily POS data for every retail location, every market, and every product.

What has always struck me in a positive way is the level of quality, reliability, and sophistication of the more specialized, boutique-like POS data-focused solution providers that have pioneered the technology and retail data analytics that center on daily POS and inventory data at an item and store level. Retail Velocity is a great example of this type of service vendor because not only do they provide more direct connections with, and retail data adaptors for, retailers’ POS systems and data, but they also have, for 30 years, developed highly efficient and effective retail data ingestion and management solutions—i.e., POS and inventory data collection, cleansing, and harmonization—with advanced analytical capabilities that enable near real-time measurement of daily POS activity from every single store location, every single day. What that means is being able to know WHAT happened yesterday and, more importantly, WHY it happened, which, in this world of real-time consumer engagement, is a must for every consumer goods manufacturer/supplier, retailer, and distributor.

Demand and Supply Chain Data

While an ongoing mainstay of intelligence, integrating the forecast, baselines, and S&OP plan is no longer an option but a mandate. The improvement in the integrated business planning models and processes must meld with the trade and promotion plans to ensure not only coverage of the forecast but also be able to detect, alert, and sustain the entire plan throughout the year.

Marketing Data

Traditionally, sales and marketing departments have not been known to be on great collaborative terms, and the reasons for that are a separate topic for another time. Now we are seeing a reverse in that trend with the integration of coupon drop and scheduling, ad calendars, and corporate marketing themes and events with the trade and channel promotion plans.

Both organizations benefit from this collaboration. You want to make absolutely sure that your TPM technology can accommodate the extended data from not only corporate marketing plans but also key intelligence from consumer demand research, product research, competitive research, and key data elements from brand and product positioning and messaging. Aligning this data with trade promotion is the new best practice for effective trade promotion.

2. Measure the proper key performance indicators (KPIs).

kpiAnother failure in achieving trade promotion ROI is the lack of knowledge and/or measurement of KPIs. Part of the reason for this is the rapid growth of advanced data science, AI, and the lack of necessary data, as we mentioned above.

The good news, however, is that we are seeing real progress in becoming more adept at measuring the right KPIs and using that intelligence to drive smarter, more productive, and successful promotions. However, the ongoing arguments about the “right” KPIs usually breaks down to one simple question:

What IS ROI?

Don’t laugh. It’s more of an issue than you think, and if you sit at a table with a mix of executives from different internal organizations within the value chain or retailers or distributors or brokerage firms, then you will quickly begin to add pages to what you thought was a rather straightforward list.

It is far too complex to go into here but suffice it to say that in order to effectively measure TPE, you need to consider, at a minimum, the following KPIs:

  • Promotion Elements: promo ID, date planned, run dates (from/to), tactics, cost per tactic, product groupings (with SKU rollup capabilities), volumes, pricing (base, discounts, etc.), lump sum funds, incremental value achievement points (scanner-based), total promotion cost (rollup of individual tactics), themes, and expected ROI values (retail expectations – volumes, price, locations, markets, etc.)
  • Settlement: claim data (receipt dates, processing times, etc.), audit values and noncompliance issues, amounts approved, amounts disapproved, amounts written off, dates of claims and/or deductions, reason codes for reductions or rejections or chargebacks, and final settled values
  • Fund Accounting: accruals, debits, fund transfers and reassignments, etc.
  • Promotion Compliance (See TIP #5)
  • Promotion Cost: the delta between what was planned and what actually happened
  • POS: the heartbeat of TPE
  • Shipment Records: timing, distances, damages, etc.
  • Warehouse Data: on-hand inventory, damaged inventory, spoils, etc.
  • Distribution Center: same as above
  • Baseline Accuracy: updates, planned, actuals, and causal factors
  • Forecast: initial, changes, updates, etc.
  • Demand Plan: updates and changes

Overall, TPE is defined as the ability to drive to the desired outcome. The outcomes are defined before the data is. Remember that.

3. Lose the spreadsheets.

The age of the spreadsheet is over.

This will not sit well with A LOT of very good people, to be sure. However, trade promotion is becoming a priority for a reason, and having to trust individual HUMAN input and recordkeeping (no matter how incredibly detailed and/or cool looking the spreadsheet is) onto a document that can too easily be manipulated by anyone is no longer accepted financial practice. Trade promotion IS a financial practice. 

4. Make trade promotion a permanent and important member of the annual planning process.

If there is anything more satisfying in my nearly five decades of work in trade and channel promotion, it is seeing trade promotion management leaders, stakeholders, and executives become a permanent member of the company’s corporate annual planning team.

Trade and channel promotion operational personnel see the ebb and flow of the customers’ performance daily and probably know more about the status of the account than the KAM or the sales rep.

As the various teams around the value chain contribute their key data “building blocks” of intelligence, the trade and channel promotion teams can quickly and accurately measure these elements against promotion performance, compliance, and spending levels to help provide a more solid basis from which the annual forecast, revenue plan, and direction should be determined.

5. Discipline execution compliance—internally and externally.

When you think about trade and channel promotion compliance, everyone typically thinks about whether or not the retailer ran the promotion as it was planned to be executed. That is true.

But what is also true is the compliance with trade and channel promotion operational discipline, practices, policies, and procedures internally. Too many occasions see the TPM teams running around trying to locate sales reps, KAMs, field merchandisers, financial operations, and sales operations personnel to get answers to critical issues and problems with little or no help from the management executives. comms

Internally, every major organization within the demand and value chain needs to recognize that trade promotion is a vital financial link between the company and its channel partner. Rules, processes, and procedures cannot be ignored or disregarded. Communication lines need to be constantly open and prioritized.

Externally, fighting the retailers’ claim problems, complaints, or failed compliance with stores not putting up displays, labeling the wrong price, or not having inventory on the shelf can be the result of their own failure to ship goods to the locations, force store managers to comply, or simply failing to adhere to the promotion terms and conditions. These noncompliance issues take place every day, and the more the TPM teams have to fight this, the less effective and efficient the promotions become.

And it can easily cost the company a sales deal.

The tip here is to ensure full and clear communication, which means having the technology to enable smooth and comprehensive controls of all aspects of communication with the customer, distribution centers, and sometimes external agencies that all have the ability to torpedo a promotion.

6. Demand and sustain collaboration across the entire value chain.

I have found that most companies segregate and compartmentalize trade effectiveness KPIs across internal organizations to the point where sharing the data is often impossible. Siloed analytics, planning, and scheduling can be a heavily destructive element in overall business operations, especially where trade promotion and all things related to the consumer are planned, executed, and measured.

This is not to say that siloed analytics being done appropriately in key value chain organizations like supply chain, finance, logistics, procurement, marketing, and sales operations are bad—quite the contrary, they are critical. But when KPIs that have cross-organizational causal factors and performance impact are not visible to or available to each organization, there is too much risk of failure for everyone.

The first thing I do when taking on a major trade promotion effectiveness project is to talk to every group, look at their sources and analytics for data, and the technology and processes they use to gain their intelligence.

Collaboration is key, both initially and ongoing throughout the year. Establish a process, procedure, and policy (supported and enforced by corporate leadership) to share and align data and intelligence. It builds trust and expands relationships.

7. Build and sustain strong collaborative relationships with channel partners.

collabThe leading retail and distribution companies will tell you that they highly value those suppliers which can provide immediate and dependable business intelligence about how to plan and execute dramatically successful promotions. No key account manager or sales rep will deny this; and the ability to consistently show how their analysis and subsequent prescriptive recommendations for promotions that always produce high ROI is a benchmark the buyer looks for when they offer their precious shelf space for promotional opportunities. 

What I see in today’s modern account management is a growing trend toward increased collaboration between the manufacturer/supplier and their channel partners. As with the internal collaboration, create a standing process that includes, at a minimum, the following:

  • Promotion Optimization Results
  • Promotion Performance
  • Consumer Demand
  • Inventory Management
  • Supply Chain and Logistics

Trade promotions are designed to do two things: (1) provide an incentive for the sell-in, and (2) provide an incentive for the consumer to buy the product instore or online. Each one of those purposes carries KPIs that drive to those targets.

The definition of Trade Promotion Effectiveness is ultimately the ability to do those two things consistently and reliably. Revenue, volume, profit, market share, financial success, and shareholder value are natural byproducts of doing TPE right.


If you follow these 7 tips, you’re almost there.

With the importance of reliable data that we’ve just spoken about for the three blogs in this series comes both a recommendation and a risk. The recommendation is to have a data specialist manage the data collection, cleansing, and harmonization processes for you. If you need a heart transplant, you don’t go to a brain surgeon, and to manage master data as it must be done, you need someone with hands-on data experience 24/7, 365. There are always consulting companies out there with expertise in data, no doubt, but I have found that the two most critical factors in managing data that matters most in trade promotion are the results at the cash register and the measurement of product sales against inventory. You need a specialist and partner with both knowledge AND science to achieve your revenue and growth objectives.

If we are really going to be serious about ending out-of-stock conditions (the bane of everybody in the consumer goods value chain) and improve trade spend ROI, you have to have an expert in those two areas of point-of-sale and inventory data and measurement. My money rides on the science, and for decades, the best science I’ve seen around these two critical factors is that of Retail Velocity.

I am very thankful to Retail Velocity that I have had the opportunity to present my views in this series of blog posts (Revenue Growth Management and the Critical Data Behind Its Success and The Importance of Data Integrity for Modern Trade Spend Optimization), but as anyone who has ever asked me about my recommendations for a retail data specialist in these areas, they know I’ve worked with everyone, and I always recommend Retail Velocity. The speed, precision, and trust in the science and processes they have created has always facilitated the highest quality—and most actionable—business intelligence.

Together with your trade promotion management team, consider inviting Retail Velocity to join forces and provide the most comprehensive and reliable retail data and analytics to enable the most effective trade and channel promotion planning, execution, and measuring your trade and channel promotion spending.

1In chapter 9 of my book, “The Invisible Economy of Consumer Engagement”, you can see a detailed listing of all the data required to achieve maximum ROI from trade spending.

About the Author

rob hand profile pic for blogRob Hand is the founder and CEO of Hand Promotion Management, a consulting company providing domain expertise across more than 25 consumer-facing industries. Focused on consumer products and retail, he has a 45-year history of helping consumer goods manufacturers improve their trade promotion spending ROI, performance analytics, retail execution, consumer engagement efficiency, and marketing effectiveness.

Rob is a frequent podcaster, blogger, and speaker on the topics of revenue growth management and business process innovation. He is the author of the recently published and popular book “The Invisible Economy of Consumer Engagement,” which outlines how consumer products goods companies can achieve the highest value in both promotion ROI and consumer engagement.