What's Next in Trade Effectiveness?


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What's Next in Trade Effectiveness?

  1. 1. A DemandTec eBook What’s Next in Trade Effectiveness? A DemANDTec INDusTry PersPecTIve Next
  2. 2. WhaT’s NExT iN TradE EffEcTivENEss? What’s Next in Trade effectiveness? A DemANDTec INDusTry PersPecTIve TAble of coNTeNTs The rules have changed 2 incorporating the shopper dimension 7 The size of the Prize is compelling 4 a New day has arrived 9 Linking Top-down with Bottom-Up 5 about demandTec 10 FORWARD TO A COLLEAGUE collaboration Page 1
  3. 3. WhaT’s NExT iN TradE EffEcTivENEss? The rules hAve chANgeD Much has changed in the world of trade promotion optimization during the past several years. advanced econometric modeling techniques allow consumer products manufacturers to simulate the impact of proposed plans against volumetric and profit targets. Manufacturers can now predict how pricing and promotion strategies will impact not just their own brands, but the retailer’s entire category—including private label items. The industry has recognized a short list of innovative consumer products leaders who have invested in trade optimization with demonstrated success. and through efficient delivery via software-as- a-service and a driving need to remain relevant in retail, adoption of these base-level capabilities has accelerated among a broader set of manufacturers. Page 2
  4. 4. WhaT’s NExT iN TradE EffEcTivENEss? New capabilities support two fundamental principles: 1) Linking “top-down” with “bottom-up” trade planning 2) Weaving shopper insight into the analytical framework New approaches for advancing trade effectiveness are on our doorstep. Manufacturers who embrace these techniques stand to benefit from Building on a technical foundation of retail data, modeling science, and better internal planning alignment, a more strategic dialog with key software-as-a-service, the new capabilities support two fundamental retail customers, and a superior return on the largest area of spend principles: 1) linking “top-down” with “bottom-up” trade planning, beyond cost of goods sold (cOGs). and 2) weaving shopper insight into the analytical framework. shopper insights Page 3
  5. 5. WhaT’s NExT iN TradE EffEcTivENEss? The sIze of The PrIze Is comPellINg Trade promotions is big business. Each year, consumer products Even small improvements can deliver big returns. for a $5B manufacturers invest roughly $125B to $175B into trade-based pricing, manufacturer who annually invests $750MM or more into trade promotion, and merchandising programs.1 according to industry programs, a 2% improvement in return can yield $10MM or more in estimates, this massive pool of spend accounts for roughly 14% to 22% incremental margin—profit that can be dropped to the bottom line of manufacturer sales—historically with little to no return to the brands. or reinvested into additional trade programs. These numbers make it nearly impossible for management to ignore the opportunity to plan trade programs with a new approach. $10MM $5B $750MM Trade Manufacturer Investment Programs 2% Improvement Incremental Margin Increase A $5B manufacturer can realize an incremental $10MM or more in margin through trade spend optimization. 1 2009 Cannondale Associates, “Trade Promotion Planning & Analysis: A Game that Needs Changing” Page 4
  6. 6. WhaT’s NExT iN TradE EffEcTivENEss? Build a more compelling sell-in proposition for the retail category buyers. lINkINg ToP-DoWN WITh boTTom-uP Trade effectiveness is typically achieved by applying science to the build a more compelling sell-in proposition for the retail category account-level event planning process. Using an allocated pool of buyers—a differentiated proposition founded on science and analysis, trade dollars assigned to an individual customer team, optimized versus emotion and conjecture. event-level simulations roll up into a fully predicted category plan. Using this planning approach, customer business teams can But this revolution in using massive data sets, applied math, and predictively understand the impact of everyday pricing adjustments scalable software to optimize account-level trade plans somewhat and merchandising strategies against promoted items, the total ignores how headquarter-level business planning is done. This gap can manufacturer portfolio, and the entire retail category. having this now be bridged with headquarter-driven tools for optimizing planning foundational set of analytical capabilities allows trade planners to across broader geographies and time dimensions. Page 5
  7. 7. WhaT’s NExT iN TradE EffEcTivENEss? for example, two top-down planning use cases may include developing an optimal merchandising mix for a given class of trade, and identifying HEADQUARTERS Need consistency and the depth and frequency of price points and promotion types by on-strategy planning customer. Without this critical macro insight, planning at the customer- account level runs the risk of being inconsistent and off strategy. Science and Guidelines centrally developed insights are delivered to the customer business teams as planning guidelines, or guardrails, to better balance the top-down charter with bottom-up account planning flexibility. since SOFTWARE top-down and bottom-up planning can leverage a common software Planning templates Improved platform, guardrails may be delivered directly in the planning Common science Planning Work ow application and appear as pre-populated event templates. Templates may reflect a suggested promotional calendar and incorporate the pricing floor/ceiling recommendations, along with the event type frequency insights. Account- Level Plans CUSTOMER TEAMS Need exibility Aligning top-down and bottom-up trade planning processes on a common software platform delivers more effective outcomes. Page 6
  8. 8. WhaT’s NExT iN TradE EffEcTivENEss? INcorPorATINg The shoPPer DImeNsIoN The second new trade effectiveness plank allows business planners to optimize for specific shopper segments. There is a revolution taking place in terms of how retailers are planning for category success. No longer will a retail merchant simply plan merchandising and marketing tactics while assuming that all shoppers behave the same. The reality is that every shopper is unique, and planning can be optimized for clusters of shoppers who exhibit similar buying patterns and sensitivities. Put another way, retailers are knowingly making important pricing and promotion trade-offs that appeal to one valuable shopper segment, yet alienate another, less profitable segment. retailers also expect manufacturer trading partners to support this shopper-centric planning approach. To that end, many retailers across food, drug, and club classes of trade have begun to free up transaction log and even loyalty data for manufacturers to analyze. The unfortunate segments reality is that manufacturers rarely possess in-house capabilities to transform massive amounts of raw data into actionable insights. and whatever insights are extracted from the data will be disconnected from the trade planning workflow. Page 7
  9. 9. WhaT’s NExT iN TradE EffEcTivENEss? This new dimension to achieving trade effectiveness suggests that an increase in overall volume and gross margin. Manufacturer B can raw shopper-centric data is modeled up front and woven into the simulate the same scenario, yet factor in the shopper dimension. This fabric of how pricing and promotion decisions are made. These critical analysis might reveal that while taking price down by $.45/unit drives trade decisions are often made in the context of a planning software an increase in volume for the entire population, the shopper segment application. as an example, Manufacturer a can simulate the effect of that is most relevant to the retailer would have shifted behavior with taking shelf price down by $.45/unit to address a competitive threat. a drop of just $.25/unit. This critical insight could save hundreds of The simulation might reveal that moving price to this level will drive thousands—perhaps millions—in gross margin from evaporating. General Shopper Population CHANGE IN MANUFACTURER SHELF PRICE PER UNIT A RESPONSE -$0.45 Competitive Threat B RESPONSE -$0.25 Gross Margin Preferred Shopper Segments Optimizing trade pricing strategies for a preferred shopper segment v. the population as a whole delivers greater margin contribution to Manufacturer B. Page 8
  10. 10. WhaT’s NExT iN TradE EffEcTivENEss? Opportunities for even greater improvement have arrived, yielding more shopper- centric promotions and better headquarter/customer business team alignment. A NeW DAy hAs ArrIveD Every fast-moving consumer goods organization has taken measures to yielding more shopper-centric promotions and better headquarter/ improve the return on their trade promotion investment. Using advanced customer business team alignment. incorporating these techniques into software that marries demand modeling with event-level simulations, the current trade planning process will provide manufacturers with a many are already reaping the rewards of a more intelligent way to competitive advantage and an opportunity to deliver truly breakthrough plan. But opportunities for even greater improvement have arrived, pricing and promotion plans to the retail customer. intelligence Page 9
  11. 11. WhaT’s NExT iN TradE EffEcTivENEss? AbouT DemANDTec demandTec (NasdaQ: dMaN) enables retailers and consumer products companies to optimize merchandising and marketing decisions, individually or collaboratively, to achieve their sales volume, revenue, and profitability objectives. demandTec software services utilize demandTec’s science-based software platform to model and understand consumer behavior. demandTec customers include more than 195 leading retailers and consumer products manufacturers, such as ahold Usa, Best Buy, conagra foods, delhaize america, General Mills, h-E-B Grocery co., hormel foods, Monoprix, PETcO, safeway, sara Lee, the home depot, Walmart, and Wh smith. connected via the demandTec TradePoint Network™, demandTec customers have collaborated online with more than 2.5 million trade deals. for more information, please visit www.demandtec.com. coNTAcT us demandTec inquiries: 1 circle star Way Phone: +1.888.676.3626 san carlos, ca 94070 Please visit www.demandtec.com Usa FORWARD TO A COLLEAGUE Page 10