1) CPG companies are focusing more on improving promotion effectiveness rather than increasing trade spending or improving deduction reconciliation in 2011.
2) While some CPG companies plan to decrease trade budgets in 2011, most will keep budgets flat or increase spending slightly.
3) Rising costs are forcing most CPG companies to plan price increases in 2011, but most believe retailers will pass these costs directly to consumers rather than help absorb any of the increases.
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International Journal of Business and Management Invention (IJBMI)inventionjournals
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Elasticity is a misunderstood and neglected metric that can help marketers choose the best prices, the best promotions, the best media and so achieve optimum brand value, a leading academic has argued.
Writing in the current issue of Market Leader, Robert Shaw, honorary professor of marketing analytics at Cass Business School, described popular metrics such as awareness, engagement, loyalty and satisfaction as being helpful for brand beauty contests.
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Take price – "the litmus test of successful marketing" – where a premium signifies brand strength, differentiation and customer preference.
Cutting the price should theoretically increase revenues and market share, but Shaw pointed to the cautionary tale of General Motors which chased market share and ended up bankrupt.
"Smart decision-makers scrutinise revenue-growth and also take account of cost-growth," he averred, and they can pinpoint the precise price to optimise brand value.
That could mean raising prices and conceding market share while growing brand value. Or the opposite. "There are no cast-iron generalisations and the right decision depends on the details of the value calculations," Shaw advised.
A similarly pragmatic approach needs to be taken to decisions on promotions, which consumers have come to expect, but which can often damage brand value.
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Turning to media elasticity, Shaw said this was typically much lower than price or promotional elasticity, with the law of diminishing returns setting in rapidly.
But knowledge of diminishing returns curves could enable planners to set an overall media budget that would help them both to find the total budget that optimised value-added and to select a mix of media that optimised value for a given total budget.
"Elasticity is not an esoteric concept," he declared. "This neglected metric deserves to be better known and more widely used."
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2011 trade promotion management survey results
1. 2011 Trade Promotion Management Trends
MEI and Consumer Goods Technology have 2011 Marks a Return to Value
teamed up for the second year running to
conduct a comprehensive survey about Over the past several years, we have seen
Trade Promotion Management trends, trade budgets gradually increase as CPG
technologies and benchmarks. The 2011 companies identified the need to spend
survey included 38 CPG firms of all sizes more to compete effectively in a down
across multiple roles within the organization. economy. In 2010, as manufacturing and
The study uncovers a new set of emerging distribution costs began to rise, the
trends in technology adoption, budget consumer economic climate forced many
allocation, pricing trends and downstream suppliers to apply more trade funds to “buy
demand data. down” prices and remain competitive with
private label and store brands.
CPG companies typically spend 10 to 20% of
gross sales on trade promotions to influence However, the 2011 survey showed that fewer
retailer and consumer behavior in the stores. companies are increasing their trade budgets
This volume of spend represents a huge in 2011, and simultaneously more are
portion of the expense budget, yet many shrinking budgets. In 2011, 13% of
firms continue to manage and track trade respondents decreased trade spending
funds with manual processes and desktop versus just 8% in 2010. While 38% planned
tools. Despite signs of economic recovery, to increase spending, this percentage is
CPG companies appear more concerned with down from last year’s 42%. The remaining
getting more bang for their trade dollars half plan to keep budgets consistent from
instead of increasing spend. At the same 2010 to 2011.
time, IT budget constraints are preventing
many from investing in technology to help Figure 1: Planned Trade Spending 2010 & 2011
improve promotion effectiveness.
This year’s survey also added some new
questions pertaining to the likelihood of
price increases, and theories as to who
would have to absorb those costs. Most
manufacturers agreed they will be forced to
raise prices in 2011 after holding back price
hikes for most of 2010. Yet few believe
retailers will raise their hand to help absorb
costs.
2. Perhaps tied to this new budget frugality, Respondents also indicate that the need to
we saw a notable shift in 2011 toward an predict the effects of promotions has
emphasis on improving promotion become increasing important. This driver
effectiveness rather than improving moved into a second place tie, up from
deduction reconciliation. In 2010, survey fourth place just last year which further
respondents ranked “better visibility into demonstrates the trend toward improving
spend/ deductions” as the leading business the results of promotions instead of
problem 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 for
spot to be replaced with “improving second, indicating some challenges remain
promotion effectiveness”. Combined with with the financial settlement process.
the flat or declining trade budgets, this Surprisingly, even though budgets aren’t
trend indicates CPG firms are looking to increasing much, reduced spend remains
get smarter with how they spend scarce relatively low in importance for the second
ollars rather than streamlining the year running.
settlement process.
Figure 2: Importance of Business Problems Related to TPM 2010 to 2011
3. The Retail Gap Widens
While in some instances tough times bring price” was equally as challenging, this issue
trading partners closer together, this isn’t dropped to a clear second place in 2011. As
the case with the consumer products prices finally begin to increase this year after
demand chain. The 2011 results would many years of consistency, fewer
indicate that things have not improved manufacturers are holding out hope that
much as the battle over pricing increases they can keep buying prices down to
has begun. When asked about the greatest compete. In addition, “demonstrating joint
challenges in dealing with retailers,” retailer value with retailers” ranked third in this
execution” and “compliance with year’s survey, further emphasizing the lack
promotions” ranked as the clear leaders. of interest in suppliers and retailers working
While 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).
4. Because the recovery in the consumer
economy has lagged inflation in commodities,
manufacturers and retailers alike did
whatever they could through 2010 to keep Figure 4: Will you raise prices in 2011?
prices steady. While commodity and
transportation costs continued to soar by
mid last year, suppliers kept spending to keep
the prices on the shelves steady for the re-
cession-worn shoppers. But most knew they
could only force prices down for so long, and
not surprisingly the 2011 survey respondents
agreed the time has come.
When asked if they expected to raise prices
in 2011, 51% believed prices would increase
at least for some brands or categories. An
additional 38% were even more pessimistic,
believing that prices would increase across
the board. Only an 11% minority thought they
would not be increasing prices in 2011.
Unfortunately, the majority of CPG suppliers
expect they will likely be the ones stuck with
the bill as manufacturing costs continue to
rise across the board. When asked who they Figure 5: Bearing the burden of rising costs
believed would bear the greatest burden for
absorbing increased costs, nearly 60% stated
that they expected it to be manufacturers.
Another 38% expected consumers will bear
the greatest burden, while a scant 3% (just
one respondent) expected retailers would be
left with the bill.
Admittedly, retailers face challenging
conditions coming out of the recession their
relatively thin profit margins allow them little
room to absorb price increases. However,
the sentiment of the suppliers paired with the
heightened challenges with getting
retailers to comply with promotions indicates
the relationships between trading partners are
showing no signs of improving.
5. Technology expectations improve, although Unfortunately, for many the realities of
IT budgets do not. This year’s survey asked constrained IT budgets may mean these
respondents to cite various business investments will have to wait another year
dynamics that would justify the adoption of – a particularly concerning indicator as the
a packaged TPM software solution and the downstream business challenges continue to
results were encouraging for technology worsen.
providers. Nearly 80% indicated that the
need to improve visibility into promotion When asked what business barriers might
performance as well as improving promotion prevent investments in TPM software
planning and forecasting. Both these solutions, one response rose to the top
needs underscore this year’s trend toward regardless of company size. In all
improving the success of promotional demographics, “cost or lack of budget”
tactics rather than streamlining the emerged as the leading barrier. In the case
processes behind them. of small CPG firms, inadequate resources
further compounded matters (not
That being said, over 30% also indicated that surprisingly, many lack adequate IT and
overspending on promotions and the financial resources).
challenges associated with managing them
manually would also drive them toward a
packaged solution (only 25% thought that
improving the financial settlement process
was a driver).
Figure 6: Drivers for TPM Software Adoption
6. While the requisite dollars may be lacking,
the relative lack of operational barriers was
somewhat encouraging. Very few
respondents cited lack of executive
sponsorship, risk, or lack of need as a
hindrance to technology adoption. Large
With rising costs on one side of the supply
organizations are still skeptical that change
chain, and exceedingly frugal shoppers on
management and user adoption could be
the other end, CPG manufacturers and
an issue, but this concern is seemingly not
retailers are being put more and more at
shared by small and midsize firms. Most
odds with one another. While most agree
firms seem to agree however that there is
that prices are going to increase across
a clear need for technology to solve trade
categories, the vast majority feel the retailers
promotions challenges. Very few companies
will pass those increases directly on to the
cited “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 the
Due to a number of different economic
planned promotions, indicating the level of
factors, CPG manufacturers are once again
compliance is being called into question.
being asked to do more with less. Trade
promotions budgets are not growing and IT
budgets are still clamped down, yet these
organizations somehow need to find ways to
improve promotion effectiveness. No longer
are they as concerned with streamlining the
deduction reconciliation process, but they do
want better visibility into where their scarce
dollars are being spent
About the Author
Lorne Schwartz is Chief Executive Officer of MEI
Computer Technology Group, Inc. – a leading
developer of trade promotion management for
the Consumer Packaged Goods industry.
For more information:
Email CEO@tradeinsight.com or
visit http://www.tradeinsight.com