It’s a challenging time to be a CPG sales leader. As shelf-space competition amplifies and evolves and the COVID-19 pandemic impacts shopping behavior, CPG manufacturers are scrutinizing trade investments more intensely.
Trade promotion is now the second largest expense on P/L and studies estimate that 14 to 20 percent of revenue goes back into promotions and something to consider during your TPM transformation. Unfortunately, trade is still somewhat of a black box for countless companies—many aren’t entirely sure if it is simply a cost of doing business or a strategic imperative.
New technology enables forward-thinking leaders to guide their company through a trade promotion transformation. They are moving past simple spreadsheets and outdated software and into new efficient trade promotion management (TPM) systems and processes. Done successfully, a trade promotion transformation can introduce sophisticated promotional, pricing, and assortment strategies that turn trade into a key strategic differentiator. It allows manufacturers and retailers to work together to engage the consumer in new and innovative ways.
Clarkston Consulting has helped countless CPG sales leaders navigate their trade promotion transformation. While each case is different, we’ve identified five best practices that all companies should consider before embarking on a TPM transformation.
Understand Why the Change is Needed for TPM Transformation
A holistic approach to TPM transformation requires a clear and defined picture from the outset of why change is needed. If a company wants to make a change because of technical issues with an older TPM system, then their initial goal might be to simply move their current process over to a new system. If however, the impetus for change comes from new leadership or as part of a larger overhaul, a reevaluation of trade process may be needed. It also involves an evaluation of the readiness for a transformation within the organization. Manage the expectations of those who resist the changes as well as those who may be anticipating massive, unrealistic improvements as a result of an overhaul.
Scan the Current Landscape of the CP Industry
Before beginning the TPM transformation, analyze the current competitive landscape to better prioritize which skills and capabilities TPM needs to address. Some considerations will vary based on an industry’s competitive landscape. A category with limited barriers to entry may have many small and mid-size companies taking market share from larger manufacturers. Typically, smaller companies are more likely to take risks, offer trendier goods, and provide the product differentiation retailers are seeking, while larger companies have been using M&A to outsource innovation. Both approaches can be enabled in a successful TPM transformation.
Some considerations impact small and large manufacturers alike. For example, consumer power dominates the current market, meaning that all companies must meet consumers in the channels they are in already to hit sales quotas. A trade promotion transformation could enable manufacturers to formulate specific pricing strategies for ecommerce partnerships with groups like Amazon and Walmart.
Go Cross-Department for TPM Transformation
TPM transformation should be more than just an IT or just a sales issue. Trade touches almost all aspects of a CPG organization. When announcing a change, who delivers the message to the rest of the organization matters so that people across departments feel like their concerns have been considered. All parties should understand the benefits of the transformation because including multiple departments and their various perspectives can open a better channel of communication with retailers. Alignment between executive and sales leads to the most effective sales incentive plan to match an updated TPM system. Moving from growth to net growth sales goals can shift the focus to include accountability around promotional efficiency metrics.
Consider the Process, Not Just the System
Check the efficiency of the current process first before implementing a new system. Manufacturers certainly need to pick the best technologies for driving growth, but it is important to recognize that the process by which it is used determines much of its value. Most changes to process center around a shift in sales incentives and in planning cycles. Leverage the opportunity of a new tool to improve your current processes since change is coming regardless. Want to be sure to be upgrading instead of recreating an older tool with its processes in a new system.
Optimize System Capabilities Through Learning and Development
When implementing a new system, optimize its capabilities by providing learning and development and by holding users accountable for leveraging the system to its highest potential. One of the best times to introduce a new TPM is right before next year’s planning cycle. Start change management by focusing on any changes in process before moving to changes in the system, while integrating opportunities for teams to ask questions. Users need to understand the system’s foundations and core capabilities, such as adjusting data and downloading reports, before delving into making strategic insights. Being able to tell a story with the data to retailers shows the highest level of mastery.
Scanning the landscape and defining organizational goals from the outset can set a positive trajectory and tone at the start of a TPM transformation. Involve people from across various departments and equipment them with the tools they need to understand the new system. A better TPM system can improve the relationship between manufactures and retailers and capture data about the efficacy of promotional efforts.