Booz co getting-post-event-analysis-right to drive trade promotion roi

Perspective Hans Van Delden Jon Van Duyne David Ganiear Steve StefaniGetting Post-EventAnalysis RightSeven Core Principlesto Drive TradePromotion ROI

Contact InformationAmsterdam Dallas London/MunichCoen De Vuijst Trey Alexander Michael PetersonPartner Partner Partner+31-20-504-1941 +1-214-746-6506 +44-20-7393-3310coen.devuijst@booz.com trey.alexander@booz.com michael.peterson@booz.comChicago Hans Van Delden New YorkPaul Leinwand Partner Edward LandryPartner +1-214-746-6523 Partner+1-312-578-4573 hans.vandelden@booz.com +1-212-551-6485paul.leinwand@booz.com edward.landry@booz.com David GaniearSteve Stefani Principal SydneyPrincipal +1-214-746-6512 Tim Jackson+1-312-578-4776 david.ganiear@booz.com Partnersteven.stefani@booz.com +61-2-9321-1923 London tim.jackson@booz.comCleveland Richard RawlinsonSteven Treppo PartnerPartner +44-20-7393-3415+1-216-696-1570 richard.rawlinson@booz.comsteven.treppo@booz.com Jon Van Duyne Senior Executive Advisor +44-17-3274-0880 jon.vanduyne@booz.com Booz & Company

EXECUTIVE Most companies in the consumer packaged goods (CPG) sector want a post-event analysis (PEA) capability to help them understandSUMMARY the effectiveness of their trade promotion spending. Yet, as history would attest, this is an extremely difficult capability to implement. A large percentage of companies have no analytical function whatsoever; others apply a manual approach, building unique spreadsheets for individual events, which restricts their analysis to a handful of promotions and a minority of overall trade spending. A strategic PEA capability offers clear benefits, specifically a better ability to evaluate promotions quantitatively and determine the causal factors behind good—and bad—performance. Executed correctly, PEA can help companies increase the return on investment for their trade spending by as much as 10 percent, and these gains fall straight to the bottom line. We have identified seven core principles for companies seeking to build a PEA capability: (1) understand the limitations of your source data; (2) automate the process wherever possible, primarily in amassing and integrating source data; (3) intervene with human insight when necessary, especially in order to eliminate data errors and correct models; (4) identify and account for one-time events, including “black swans,” which can skew your analysis; (5) realize that a more accurate ROI calculation should be a starting point to improve performance; (6) embed the PEA capability throughout the organization; and (7) use the right tools, as most internal trade promotion management (TPM) software packages are not sufficient for many enterprises. Implementing a PEA capability can be challenging for companies because the technologies are sophisticated and the data sets are often complex and unwieldy. However, this capability can create a clear competitive advantage by helping organizations improve their trade spend ROI and giving them critical insights into what really drives their business results.Booz & Company 1

KEY HIGHLIGHTS • Trade promotion spending is a significant cost item in the consumer packaged goods sector—as much as 25 percent of gross sales— yet many companies do not routinely measure the ROI for their promotions and thus cannot analyze the effectiveness of these investments. • A strategic PEA capability can help companies determine the performance of promotions and improve trade spending A DISCONNECT such as reorienting funding results, increasing the return structures to incentivize retailers on investment for their trade BETWEEN and sales teams, allocating resources promotion spending by as INVESTMENT to more profitable products and much as 10 percent. customers, and improving retail AND ANALYSIS execution. Yet for many companies, • The right PEA solution PEA is the single largest lever they should strike a balance can pull to improve the financial between automated functions performance of trade promotions, that integrate and align with the potential to increase the complex source data, and return on investment from their human insights that allow At many CPG companies, trade trade promotion spend by as much as business analysts to correct promotion spending—such as 10 percent. These gains fall straight for data errors and other short-term price discounts, buy-one- to the bottom line, improving overall discrepancies. get-one-free offers, and the like— operating income. accounts for as much as 25 percent • The information provided of gross sales. This makes trade PEA is not new—the concept has by a PEA system is not the spending the second-largest item been around for at least 15 years— end result of this process on the P&L, right after the cost of and virtually every CPG company but rather a starting point goods sold. Yet companies typically understands the importance of for internal discussions on underleverage these investments, measuring the performance of how best to improve trade due to an inability to measure and individual promotions against promotion effectiveness. improve the effectiveness of their expectations in order to improve Accordingly, companies trade spending. results. Yet many manufacturers must undergo transformation cannot accurately and consistently initiatives to make the best use There are several options for differentiate between profitable of the information that PEA improving promotion effectiveness, promotions and underperforming yields.2 Booz & Company

events. They simply do not know dilemma for organizations—they and consumption information tohow well their promotions are can either use brute force and throw provide clear feedback on the actualworking, and why. resources at the problem, or limit performance and effectiveness of the their analysis to a minority of their event. As a result, marketing andA surprisingly large number of promotions each year. (See PEA in sales leaders can identify the specificCPG companies do not conduct Action,” page 8.) factors that drive positive or negativeany formal PEA. Instead, they results, allowing them to moretend to focus on volume increases, Overall, the disconnect between the accurately target future promotionswhich can mask substantial scope of investment on promotions by account, category, and geography.inefficiencies. Others, especially at and the lack of comprehensive PEA can also identify unprofitablethe early stage of this work, adopt analysis leaves management promotions, and improve customera manual approach, building an effectively flying blind, planning a dialogues with fact-based analysis.individual spreadsheet for each strategy for trade events using littlepromotion across the organization. more than intuition and experience. In our experience, a strategic(One company recently identified capability in PEA incorporateshundreds of spreadsheets that it had A PEA capability addresses this several common elements:been using to manage, deploy, and shortcoming. Implemented correctly, consistency, process discipline,analyze the results of trade spend.) it can integrate the predicted analytical tools, and the right levelThis approach is so time-intensive performance of a given promotion of automation.and laborious that it creates a with actual shipment, spending, A PEA capability can provide clear feedback on the actual performance and effectiveness of the event.Booz & Company 3

Workload Profil Risk AssessmeSEVEN CORE of other internal data. All of these sources have inherent limitations and 2. Automate the Process Wherever Possible, Particularly the DataPRINCIPLES errors (see Exhibit 2, page 5). This Integration Phase. is especially true regarding TPM As noted above, many companies at data. A large company may have an early stage of their PEA process several hundred employees using adopt a manual approach, building its TPM system, leading to a strong an individual spreadsheet for each likelihood of data-entry errors, with promotion. Such an approach the probability and severity of errors requires minimal investment and GuidA strategic PEA capability can growing in line with the size of the is a good way to learn how the 11.0be thought of as two conceptual organization and the complexity of process works. Some companies even aölkdhalves—a “data factory” that trans- input. It is unrealistic to assume that assemble small teams of five to 10forms raw data on individual promo- dozens of employees—especially people who focus on PEA. However, 32.8%tions into reliable promotion metrics, time-squeezed key account manual PEA is not generallyand an “analysis factory” that can managers—can continuously sustainable—it entails a tremendousgenerate insights from those results maintain error-free promotional amount of rote data manipulationin order to improve promotion ROI data. Syndicated data from third- and other mechanistic work that(see Exhibit 1). Both are critical. party providers is potentially cleaner is often unappealing to highly but also contains errors, such as educated corporate employees. This A4 foBased on our experience, we have missing causals or inaccurate base- approach increases the potential for - widtidentified seven core principles that incremental splits. errors, and it allows the company - widtcompanies must apply in developing to focus only on select accounts and Lettethis capability. The key learning from this insight is products. - widt - widt to build a PEA system that is flexible1. Understand the Limitations of enough to deal with significant and In fact, a large part of the process LinesYour Source Data. ongoing limitations in source data. can and should be automated. This is LinesSuccessful PEA requires integrating Among other things, it must include a significant component of the datalarge, diverse data sets from multiple mechanisms to intervene and over- factory aspect, which integrates raw Note:sources, including market data, ride source data on a case-by-case source data and generates baseline Pleas otherinternal databases, and manual loads basis when needed. results. Within the data factory, file. These ApprExhibit 1The Process for Successful PEA High-Quality Data Factory PEA Data & Analysis Factory Insights Business Leaders Metrics Raw Data Actions Input - Automation of data - Library of fit-for-purpose - Use of key insights by - Sell-in integration and reports that facilitate all levels to drive better - Sell-through transformations via identification of key customer dialogues - Sell-out ETL technologies insights … and more effective - Trade spend - Manual adjustments - … and ongoing PEA promotion investments - Planned to the transformed data processes promotions via a PEA workbench - Easy access to - Merchandising - Transformation of cleansed PEA data causals adjusted data into an for ad hoc analysis - Financials analysis-friendly format - Hierarchies (usually BI cubes)Source: Booz & Company4 Booz & Company

companies can automate processes third of its promotions or more. That of sales volume to the promotion such as pulling data from source sys- output is clearly wrong. Typically, itself. On a substantial number of tems, translating disparate customer such results stem from a failure of events, key data—such as the prod- and product identities to a common, the “automation” to match likely ucts being promoted, or the dates of comparable code, and doing bill of incorrect promotion data with the the event—is wrong. Some of these materials explosions (if necessary). incremental volume it produced. errors are due to data entry. In other Just as it is impractical to expect cases, retailers may run the promo- 3. Intervene with Human Insight hundreds of field-staff employees to tion a week early, or a week late. When Necessary During the Data maintain perfect promotional data Companies cannot simply automate Factory Phase to Calibrate Source in the company’s TPM system, it their way out of this problem; in Data, Models, and Outputs. is equally impractical to expect a practice, a fully automated process Conversely, there is a real risk of computer program—no matter how cannot accurately identify, diagnose, relying too heavily on automation, sophisticated—to be able to correctly and correct every possible case of especially during the data factory identify every case of erroneous misaligned data. Instead, a set of phase. In fact, many companies source data and correctly adjust for “intelligent operators” will have to spend millions to implement sophis- it. In addition, there are often vari- intervene to ensure that the data ticated PEA systems that can put able and complex factors—outside factory is producing accurate and the entire data integration and of data errors—that significantly coherently integrated results. manipulation process on autopilot. impact the results of individual Such systems often generate reports promotions. In these cases, auto- Building an effective PEA system that are littered with obvious inac- mated software applications cannot requires striking a middle ground curacies and errors. Worse, it is possibly understand the business that optimizes both your labor and nearly impossible to tell whether the context, and thus will not be able to technology assets. This involves remaining data (information that is accurately identify what happened or automating as much of the process not obviously wrong) is accurate or apply the appropriate corrections to as possible—such as high-volume inaccurate. the data. data integration and algorithm components—while still allowing For example, it is not uncommon to A ready example of the need to for human insight in order to correct hear that a company’s PEA system is balance systems automation and errors in source data and provide a showing ROIs of -100 percent for a human insight is in the association reality check on results. Exhibit 2 Common Errors in Source Data Market Data Manual Loads of Internal Databases (often missing data, Other Internal Data (often contain input with incorrect base (often result in incorrect errors, or do not capture or incremental splits) product and customer mappings) changes to promotions) Consumer - Promotions Syndicated Market → - Payments UPC → DM TPM System Customer Product - Invoices POS Base Price Variable - Product Shipment Contribution Elasticity - Customer Margins Hierarchies - Time Source: Booz & Company Booz & Company 5Actions

4. Identify and Account for One- improve the effectiveness of future the same time, a formalized reviewTime Events Such as Black Swans, promotions. This process requires and reporting structure shouldWhich Can Introduce False the analysts to dig into the data be established to ensure that theCausalities into Your Output. and identify both positive and analysis and reporting are consistent,A related principle applies to negative causal variables and their accurate, and distributed to keycalibrating PEA data to account for relative impact. decision makers at all levels.one-time events. Unanticipated blackswan events can throw a wrench Moreover, this conversation should Finally, companies should acknowl-into the standard PEA process. For expand beyond the account manage- edge that PEA is a discretionaryexample, product recalls, meteoro- ment function to incorporate sales, activity—organizations can functionlogical events, or major regional or marketing, brand management, and without it, but they are more effec-national events—such as 9/11 or the even retailers in order to establish a tive with it. Embedding this capabil-oil spill in the Gulf of Mexico—can consensus on the business drivers for ity in the organization via processes,significantly hurt the performance of individual products and categories. people, and systems ensures thatpromotions. More comprehensive communica- PEA will not be sidelined when tion will lead not only to a deeper something seemingly more urgentFailing to identify these external understanding of the forces shaping appears and requires criticalfactors and their impact on promo- your trade promotion results but also resources.tion performance can cloud the to a more team-oriented approach, incompany’s analysis. As with data which individual departments share 7. Use the Right Tools.errors, the solution is a system that is a common goal of maximizing the Due to the widespread interest inflexible enough to allow you to inter- effectiveness of the trade spend. PEA, many TPM software vendorsvene and account for these events— purport to offer PEA solutions.requiring custom corrections in each 6. Embed the PEA Capability Within These vendors typically do not havecase—so that artificial results don’t the Organization. a foundation in business intelligencealter the company’s strategy regard- PEA will generate actionable infor- (BI) technologies, and in our view,ing future promotions. mation, but ultimately the company their claims for these solutions are must take action by redefining the often optimistic at best. In general,5. Realize That a More Accurate appropriate processes and organiza- they offer only a superficial layerROI Calculation for Individual tional considerations to utilize the of PEA reporting, without the dataEvents Should Be the Beginning of insights from individual promotions. factory component that is crucial forthe Process, Not the End Goal. These activities include, among delivering meaningful insights, yet soThough the technology behind others, coordinating across accounts, difficult to get right.PEA algorithms can lend an air of analyzing tactics, and identifyingdefinitive science to PEA reports, and reviewing nuances specific to the A PEA system is really a specificthe results themselves are merely a event or trade programs in general. application of BI technologies. Asstarting point. Simply issuing PEA such, most companies choose toreports will not drive the changes In addition, the company should implement PEA systems in their BIrequired to fundamentally improve construct a team composed of environment using their corporate BItrade operations. To that end, members from all key disciplines and extract, transfer, and load (ETL)PEA reports should foster internal related to trade, including (but not technologies. We believe this is thedialogue among key stakeholders limited to) representatives from sales, right way to think about PEA, andin order to better understand what trade marketing, brand management, the right set of tools with which tois driving the business and how to demand planning, and finance. At build PEA systems.6 Booz & Company

CONCLUSION At a time when technology informs a large number of business allows companies to better assess profitability and individual events, decisions, it is surprising that driving top-line sales and operating many CPG companies continue income. The ideal solution balances to make large investments on advanced technology with human trade promotions without a solid insight by automating much of the understanding of the effectiveness data integration and calibration but or value generated by those allowing for manual overrides when investments. A strong post-event necessary. The result is greater analysis capability can address ROI on individual events and a this shortcoming. Implemented more coherent approach to trade correctly, such a capability promotion spending overall.Booz & Company 7

11.0 mill aölkdfölk 32.8% PEA in Action Until recently, a global CPG company conducted its PEA entirely with manual spreadsheets, which it created through brute force once a year as A4 forma part of its annual reporting cycle. The sales finance team of five—all highly - width fo educated people—had extremely low morale, as they were forced to do - width fo rote data manipulation in high volume. As a result, the company could Letter for analyze only a small minority of the promotions it ran each year, and it had - width fo - width fo little insight into the ROI for the rest of its portfolio. To build a more effective PEA capability, the company tailored an ROI Lines: 0,5 Lines for workbench for its specific requirements. The workbench is a set of standard tools—such as data integration and standard calculations—along Note: with customizable elements to accommodate the company’s product Please al and promotion structures. Collectively, this workbench meshes with the otherwise file. company’s existing internal TPM system and business intelligence system These co (see Exhibit A). Approve Exhibit A The ROI Workbench FUNCTIONAL OVERVIEW ILLUSTRATIVE Data Integration Promotion Review/Overrides Reporting Market Data Promotion Alignment Tool Ad Hoc Retail Nielsen Reports link - Review market data POS - Review shipment data IRI - Review promotion alignment weekly - Override dates Predefined Reports - Override volume Key Event / Key BI-LO Customer Event Comparison F10 PROJECTED F11 PLANNED F11 ACTUAL Thanksgiving Core Thanksgiving Core Veg AD- Thanksgiving Core Veg AD- Vegetables AD-Display Display Display 300 CORE VEG - 24pk TPM System 1-1NE8HV 1-28NRJC 1-28NRJC 11/18/09 - 12/01/09 11/17/10 - 11/30/10 11/17/10 - 11/30/10 F&D 87% - 93% Feature Only 100% - 100% Display Only 96% - 27% - Promotions - Payments daily - Invoices Load Save Mar plan user (often m EDW/ODS and overrides with in - Product actual or incre - Customer daily - Time Business Intelligence Syn ROI ROI workbench workbench data warehouse data mart daily Shipment Source: Booz & Company8 Booz & Company

About the Authors Hans Van Delden is a partner with A key objective was to automate as much of the data manipulation as Booz & Company based in Dallas. possible. To that end, the workbench aggregates data from multiple He focuses on sales and marketing sources (including point-of-sale information, syndicated data from third effectiveness, and he works with parties, the company’s TPM system, and its internal data warehouse). companies in the consumer products industry. The workbench aligns this data to consistent parameters and associates actual shipment and consumption information to specific promotions. Jon Van Duyne is a senior executive It also automates standard functions such as the calculation of base/ advisor with Booz & Company based incremental splits for POS data. in London. He is a senior member of the leadership team for the firm’s trade Significantly, the new system includes an override element to allow the promotion excellence practice and company—at its discretion—to manually correct for errors in the data, focuses on increasing trade promotion, one-time events, or other external factors that can throw off the analysis. sales, and marketing effectiveness Elements that can be overridden in this way include shipment dates, through process, technology, and performance data, actual base and incremental volumes, and others. organizational improvement. Finally, the workbench runs this data through a business intelligence David Ganiear is a principal with system to generate performance reports on individual promotions. Booz & Company based in Dallas. He Implementation began in the middle of fiscal year 2012 and took about is a senior member of the firm’s trade promotion excellence team, specializing nine months. Since the workbench became fully operational, the company in helping organizations drive significant has doubled the number of promotion events it is able to analyze—from operating income improvement through 2,500 in fiscal 2011 to 5,000 in 2012. It increased its percentage of trade the development of world-class TPE spend analyzed from about 60 percent (with no everyday low-price capabilities with a focus on value analysis, or EDLP) to about 80 percent with EDLP and its number of retail , realization, program structuring, and customers from 25 to 40, or most of those that offer source sales data. platform strategy. The PEA capability has already generated clear savings by identifying low-performing events that the company was able to cut, and higher ROI Steve Stefani is a principal with Booz & Company based in Chicago for the remaining portfolio. and a senior member of the firm’s trade In all, the company freed itself from a laborious, cumbersome promotion excellence team. His specialties include developing trade promotion and spreadsheet process and implemented an approach that allows it to analytical planning systems for CPG cover far more of its business with the same amount of resources. As companies, and he is a recognized a result, the sales finance team was no longer stuck doing rote data expert in requirements analysis, systems manipulation and instead could focus on strategy and implications. That design, business processes, and project not only improved morale within the division but also led to markedly leadership. better promotion performance.Booz & Company 9

The most recent Worldwide Officeslist of our officesand affiliates, with Asia Middle Eastaddresses and Beijing Brisbane Helsinki Abu Dhabi Detroittelephone numbers, Delhi Canberra Istanbul Beirut Florham Parkcan be found on Hong Kong Jakarta London Cairo Houstonour website, Mumbai Kuala Lumpur Madrid Doha Los Angelesbooz.com. Seoul Melbourne Milan Dubai Mexico City Shanghai Sydney Moscow Riyadh New York City Taipei Munich Parsippany Tokyo Europe Paris North America San Francisco Amsterdam Rome Atlanta Australia, Berlin Stockholm Boston South America New Zealand & Copenhagen Stuttgart Chicago Buenos Aires Southeast Asia Dublin Vienna Cleveland Rio de Janeiro Auckland Düsseldorf Warsaw Dallas Santiago Bangkok Frankfurt Zurich DC São PauloBooz & Company is a leading global managementconsulting firm focused on serving and shaping thesenior agenda of the world’s leading institutions.Our founder, Edwin Booz, launched the professionwhen he established the first management consultingfirm in Chicago in 1914. Today, we operate globallywith more than 3,000 people in 60 offices aroundthe world.We believe passionately that essential advantage lieswithin and that a few differentiating capabilitiesdrive any organization’s identity and success. Wework with our clients to discover and build thosestrengths and capture the market opportunitieswhere they can earn the right to win.We are a firm of practical strategists known for ourfunctional expertise, industry foresight, and “sleevesrolled up” approach to working with our clients.To learn more about Booz & Company or to accessits thought leadership, visit booz.com. Our award-winning management magazine, strategy+business,is available at strategy-business.com.©2012 Booz & Company Inc.

Booz co getting-post-event-analysis-right to drive trade promotion roi

by Fred Zimny on Aug 06, 2012

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Booz co getting-post-event-analysis-right to drive trade promotion roi Document Transcript