This document is an eBook from DemandTec that discusses the future of trade effectiveness and optimization in the consumer packaged goods industry. It outlines how new capabilities now allow linking top-down and bottom-up trade planning and incorporating shopper insights. These advances can improve returns on massive annual trade promotion investments and help manufacturers build more compelling sell-in propositions for retailers. The size of the trade promotion prize makes even small improvements very valuable.

1. A DemandTec eBook
What’s Next in Trade Effectiveness?
A DemANDTec INDusTry PersPecTIve
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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
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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.
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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
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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”
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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.
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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.
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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.
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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.
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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.
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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
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