Getting post-event analysis right: Seven core principles to drive trade promotion ROI

Executive summary

Most companies in the consumer packaged goods (CPG) sector want a post-event analysis (PEA) capability to help them understand the effectiveness of their trade promotion spending. Yet, as history would attest, this is an extremely difficult capability to implement. A large percentage of companies have no analytical function whatsoever; others apply a manual approach, building unique spreadsheets for individual events, which restricts their analysis to a handful of promotions and a minority of overall trade spending. A strategic PEA capability offers clear benefits, specifically a better ability to evaluate promotions quantitatively and determine the causal factors behind good — and bad — performance. Executed correctly, PEA can help companies increase the return on investment for their trade spending by as much as 10 percent, and these gains fall straight to the bottom line.

We have identified seven core principles for companies seeking to build a PEA capability: (1) understand the limitations of your source data; (2) automate the process wherever possible, primarily in amassing and integrating source data; (3) intervene with human insight when necessary, especially in order to eliminate data errors and correct models; (4) identify and account for one-time events, including “black swans,” which can skew your analysis; (5) realize that a more accurate ROI calculation should be a starting point to improve performance; (6) embed the PEA capability throughout the organization; and (7) use the right tools, as most internal trade promotion management (TPM) software packages are not sufficient for many enterprises.

Implementing a PEA capability can be challenging for companies because the technologies are sophisticated and the data sets are often complex and unwieldy. However, this capability can create a clear competitive advantage by helping organizations improve their trade spend ROI and giving them critical insights into what really drives their business results.

Key highlights

• Trade promotion spending is a significant cost item in the consumer packaged goods sector — as much as 25 percent of gross sales — yet many companies do not routinely measure the ROI for their promotions and thus cannot analyze the effectiveness of these investments.
• A strategic PEA capability can help companies determine the performance of promotions and improve trade spending results, increasing the return on investment for their trade promotion spending by as much as 10 percent.
• The right PEA solution should strike a balance between automated functions that integrate and align complex source data, and human insights that allow business analysts to correct for data errors and other discrepancies.
• The information provided by a PEA system is not the end result of this process but rather a starting point for internal discussions on how best to improve trade promotion effectiveness. Accordingly, companies must undergo transformation initiatives to make the best use of the information that PEA yields.

Conclusion

At a time when technology informs a large number of business decisions, it is surprising that many CPG companies continue to make large investments on trade promotions without a solid understanding of the effectiveness or value generated by those investments. A strong post-event analysis capability can address this shortcoming. Implemented correctly, such a capability allows companies to better assess profitability and individual events, driving top-line sales and operating income. The ideal solution balances advanced technology with human insight by automating much of the data integration and calibration but allowing for manual overrides when necessary. The result is greater ROI on individual events and a more coherent approach to trade promotion spending overall.