A client of ours heard from their sales team that they have never planned promotional events to the product SKU or product group level; in their words “We don’t plan like that!”. That comment led me to think about why a consumer goods manufacturer deploys a trade promotion management solution, and should it conform to the yesterday process or build to the tomorrow process. Further, what are the objectives of the various stake holders in the organization and are they at cross purposes? This article attempts to explore these issues which ultimately lead to change management issues…or not.
More and more, trade promotion management solution initiatives are being driven by the finance department because, in part, trade promotion spending is growing steadily higher with return on investments growing steadily lower. A noted observer of the trade promotion space recently noted that the average trade dollars expended by CPG manufacturers has exceeded 20% of gross revenues, and that number is approaching double that 20% range in some categories and geographies. This pundit went on to declare that TPM solutions were no longer a source of competitive advantage, but TPM solution are, in fact, a necessity. Why should a trade promotion management solution be deemed a necessity, and why are finance departments driving these projects?
Finance departments are responsible, in part, for knowing how much money is being spent on the trade spending line for each product for each week, or at least for each month or fiscal period. In addition, more and more companies are creating sales finance departments to do more return on invest analyses, and to determine whether each SKU is paying its way. But wait! Your company’s trade promotion process has always just done trade spending at the brand level, and have depended on Excel formulas to estimate how much is being spent for each SKU. That process has not even allowed for an understanding of what actually happened financially versus what was planned. The level of financial understanding is greatly enhanced by a good trade promotion management solution that stores good financial data down to the account, SKU and week level. Measures such as manufacture profit, retailer profit, total OI spend, total BB spend etc. all provide great line of sight to important analyses such as assortment optimization, trade promotion post analyses as well as the financial fundamentals like accruing the right amounts to the general ledger.
So why is the fuss coming from the sales department? Perhaps, there are conflicting objectives. When sales finance is held accountable for getting the right trade spending accrued to the right month and SKU, and to determine whether trade spending has been profitable; sales may have a different agenda. Sales may want to be able to go spend their trade funds at the account without the onus of being profitable held over their head, and they may be concerned that not only will they be held accountable for hitting a volume objective, but also be profitable in the pursuit. This is a Yin & Yang that needs to be addressed, because the goals of each department are simply not aligned. The sales team will fight the movement to a trade planning tool that will bring more efficiency, visibility and at very least sell more goods for the same money. There are numbers that suggest a comprehensive trade promotion management system can drop as much as 10% to the bottom line by just cleaning up unprofitable and inefficient trade spending.
The finance team needs to know how profitable the company’s customers are, and to insure the company’s trade spending dollars are as efficient as possible. Finance also needs visibility to the deduction settlement process to insure deductions and the spending they represent are being properly accounted for. Additionally, finance needs to insure future trade spending liabilities are clearly identified and the proper amount of funding is being accrued. As companies deploy sales finance departments these financially astute people can also help the sales team analyze the financial viability of their promotional plans.
However, the sales team cannot be allowed to fight the effort to move to a more granular planning process; just because “We don’t plan that way”. In order for the tomorrow process to work, everyone from the senior management team to the rank and file account managers must be on board. Often times the account management teams fear that someone is scrutinizing their trade funds expenditures, and sometimes the account managers do spend money unwisely. The fear of big brother watching over their plans or those unwise spending practices can become an obstacle to the account managers willingly adopting the tomorrow process. A trade promotion management solution cannot be viewed as a sales system or a finance system; a TPM solution must be viewed as a company business management solution.
What are some of the ways changing the culture can be accomplished?
- There must be senior management ownership, engagement and mandate that there is a new way of doing business at your company.
- Deploy a stakeholder team that is purposely cross functional, and insure that team has the time to drive the project through to completion.
- A gradual shift from yesterday’s process to tomorrow’s process will help the sales team make the process adjustment.
- Aligning sales’ objectives with those of the sales finance team may help move sales from the idea of selling volume at any price to selling profitable volume.
- Imagine how a sales person might respond if part their compensation package included a percentage of the trade dollar savings they might gain by planning more profitable promotions.
- Find the promotable people in your organization to champion the new way doing business with tomorrow’s process.
- Adopt the same language up and down the organization so that everyone views the same KPI’s in the same manner.
Providing visibility to certain key metrics might also help the sales team understand a good promotion outcome versus a bad one. What percent of dollar revenue, for a promotion, should be spent? How much per incremental unit should be spent? Is $1.54/incremental unit for a $5.99 every day retail priced item too much? Here is a Promotion Scorecard from our Trade Promotion Management solution:
Can your sales and finance teams see this level of information, and react to it with a plan of action driven by facts? A promotion scorecard can bring together metrics such as profit, % of spend to total dollar sales and cost/incremental unit. If your sales team cannot see these types of metrics, then we should make plans to discuss how CPGToolBox.com can help your team drive more profitability into your trade spending practices.
CPGToolBox.com, LLC is a CPG sales and marketing solutions provider building tools on the Salesforce.com platform. We can be reached at 678-503-5001 Ext. 301 or email Rick Pensa at firstname.lastname@example.org. See more information about the CPGToolBox Trade Planner by clicking on the following link https://appexchange.salesforce.com/listingDetail?listingId=a0N3000000B42zhEAB .