2011 Trade Promotion Management TrendsMEI and Consumer Goods Technology have 2011 Marks a Return to Valueteamed up for the second year running toconduct a comprehensive survey about Over the past several years, we have seenTrade Promotion Management trends, trade budgets gradually increase as CPGtechnologies and benchmarks. The 2011 companies identified the need to spendsurvey included 38 CPG firms of all sizes more to compete effectively in a downacross multiple roles within the organization. economy. In 2010, as manufacturing andThe study uncovers a new set of emerging distribution costs began to rise, thetrends in technology adoption, budget consumer economic climate forced manyallocation, pricing trends and downstream suppliers to apply more trade funds to “buydemand data. down” prices and remain competitive with private label and store brands.CPG companies typically spend 10 to 20% ofgross sales on trade promotions to influence However, the 2011 survey showed that fewerretailer and consumer behavior in the stores. companies are increasing their trade budgetsThis volume of spend represents a huge in 2011, and simultaneously more areportion of the expense budget, yet many shrinking budgets. In 2011, 13% offirms continue to manage and track trade respondents decreased trade spendingfunds with manual processes and desktop versus just 8% in 2010. While 38% plannedtools. Despite signs of economic recovery, to increase spending, this percentage isCPG companies appear more concerned with down from last year’s 42%. The remaininggetting more bang for their trade dollars half plan to keep budgets consistent frominstead of increasing spend. At the same 2010 to 2011.time, IT budget constraints are preventingmany from investing in technology to help Figure 1: Planned Trade Spending 2010 & 2011improve promotion effectiveness.This year’s survey also added some newquestions pertaining to the likelihood ofprice increases, and theories as to whowould have to absorb those costs. Mostmanufacturers agreed they will be forced toraise prices in 2011 after holding back pricehikes for most of 2010. Yet few believeretailers will raise their hand to help absorbcosts.
Perhaps tied to this new budget frugality, Respondents also indicate that the need towe saw a notable shift in 2011 toward an predict the effects of promotions hasemphasis on improving promotion become increasing important. This drivereffectiveness rather than improving moved into a second place tie, up fromdeduction reconciliation. In 2010, survey fourth place just last year which furtherrespondents ranked “better visibility into demonstrates the trend toward improvingspend/ deductions” as the leading business the results of promotions instead ofproblem related to TPM. However, in 2011 reducing overhead. That being said,this response dropped to the third ranked reconciling deductions still ranked in a tie forspot to be replaced with “improving second, indicating some challenges remainpromotion effectiveness”. Combined with with the financial settlement process.the flat or declining trade budgets, this Surprisingly, even though budgets aren’ttrend indicates CPG firms are looking to increasing much, reduced spend remainsget smarter with how they spend scarce relatively low in importance for the secondollars rather than streamlining the year running.settlement process. Figure 2: Importance of Business Problems Related to TPM 2010 to 2011
The Retail Gap WidensWhile in some instances tough times bring price” was equally as challenging, this issuetrading partners closer together, this isn’t dropped to a clear second place in 2011. Asthe case with the consumer products prices finally begin to increase this year afterdemand chain. The 2011 results would many years of consistency, fewerindicate that things have not improved manufacturers are holding out hope thatmuch as the battle over pricing increases they can keep buying prices down tohas begun. When asked about the greatest compete. In addition, “demonstrating jointchallenges in dealing with retailers,” retailer value with retailers” ranked third in thisexecution” and “compliance with year’s survey, further emphasizing the lackpromotions” ranked as the clear leaders. of interest in suppliers and retailers workingWhile last year’s survey showed that together to help absorb rising costs.“pressure to buy down.Figure 3: Top challenges in working with retailers (each respondent chose their top 3).
Because the recovery in the consumereconomy has lagged inflation in commodities,manufacturers and retailers alike didwhatever they could through 2010 to keep Figure 4: Will you raise prices in 2011?prices steady. While commodity andtransportation costs continued to soar bymid last year, suppliers kept spending to keepthe prices on the shelves steady for the re-cession-worn shoppers. But most knew theycould only force prices down for so long, andnot surprisingly the 2011 survey respondentsagreed the time has come.When asked if they expected to raise pricesin 2011, 51% believed prices would increaseat least for some brands or categories. Anadditional 38% were even more pessimistic,believing that prices would increase acrossthe board. Only an 11% minority thought theywould not be increasing prices in 2011.Unfortunately, the majority of CPG suppliersexpect they will likely be the ones stuck withthe bill as manufacturing costs continue torise across the board. When asked who they Figure 5: Bearing the burden of rising costsbelieved would bear the greatest burden forabsorbing increased costs, nearly 60% statedthat they expected it to be manufacturers.Another 38% expected consumers will bearthe greatest burden, while a scant 3% (justone respondent) expected retailers would beleft with the bill.Admittedly, retailers face challengingconditions coming out of the recession theirrelatively thin profit margins allow them littleroom to absorb price increases. However,the sentiment of the suppliers paired with theheightened challenges with gettingretailers to comply with promotions indicatesthe relationships between trading partners areshowing no signs of improving.
Technology expectations improve, although Unfortunately, for many the realities ofIT budgets do not. This year’s survey asked constrained IT budgets may mean theserespondents to cite various business investments will have to wait another yeardynamics that would justify the adoption of – a particularly concerning indicator as thea packaged TPM software solution and the downstream business challenges continue toresults were encouraging for technology worsen.providers. Nearly 80% indicated that theneed to improve visibility into promotion When asked what business barriers mightperformance as well as improving promotion prevent investments in TPM softwareplanning and forecasting. Both these solutions, one response rose to the topneeds underscore this year’s trend toward regardless of company size. In allimproving the success of promotional demographics, “cost or lack of budget”tactics rather than streamlining the emerged as the leading barrier. In the caseprocesses behind them. of small CPG firms, inadequate resources further compounded matters (notThat being said, over 30% also indicated that surprisingly, many lack adequate IT andoverspending on promotions and the financial resources).challenges associated with managing themmanually would also drive them toward apackaged solution (only 25% thought thatimproving the financial settlement processwas a driver). Figure 6: Drivers for TPM Software Adoption
While the requisite dollars may be lacking,the relative lack of operational barriers wassomewhat encouraging. Very fewrespondents cited lack of executivesponsorship, risk, or lack of need as ahindrance to technology adoption. Large With rising costs on one side of the supplyorganizations are still skeptical that change chain, and exceedingly frugal shoppers onmanagement and user adoption could be the other end, CPG manufacturers andan issue, but this concern is seemingly not retailers are being put more and more atshared by small and midsize firms. Most odds with one another. While most agreefirms seem to agree however that there is that prices are going to increase acrossa clear need for technology to solve trade categories, the vast majority feel the retailerspromotions challenges. Very few companies will pass those increases directly on to thecited “lack of need”, as a barrier to adopting consumer. At the same time,packaged TPM software. manufacturers are demanding more accountability from retailers to execute theDue to a number of different economic planned promotions, indicating the level offactors, CPG manufacturers are once again compliance is being called into question.being asked to do more with less. Tradepromotions budgets are not growing and ITbudgets are still clamped down, yet theseorganizations somehow need to find ways toimprove promotion effectiveness. No longerare they as concerned with streamlining thededuction reconciliation process, but they dowant better visibility into where their scarcedollars are being spentAbout the AuthorLorne Schwartz is Chief Executive Officer of MEIComputer Technology Group, Inc. – a leadingdeveloper of trade promotion management forthe Consumer Packaged Goods industry.For more information:Email CEO@tradeinsight.com orvisit http://www.tradeinsight.com