David Ganiear, Rajendra Parande
December 18, 2014
Consumer packaged goods (CPG) manufacturers have made notable steps to improve the effectiveness of their trade investments over the past several years, yet these efforts have not led to consistently stronger financial performance for most companies. In large part, this is because many of the trade initiatives are piecemeal efforts that lack a central coordinating premise. There are so many emerging options now available — particularly in analytics — that CPG companies try a little bit of everything. As a result, efforts take place at the level of organizational silos, or they rely too heavily on emerging technology without a clear sense of how best to leverage it. In other cases, the company is able to generate analytic insights through a central function, yet those insights are not actionable in the field.
Based on our work with clients, we believe there is a better, more comprehensive approach to improve trade promotion effectiveness. Specifically, this approach entails four key success factors: (1) drive coordinated transformation from the top, (2) set actionable targets tied to incentives, (3) work closely with the field to embed the new capability, and (4) diligently track the value captured.
Implementing this approach is not easy — it requires building a sustained capability and coordinating across multiple functions. However, the results justify the efforts. Our experience shows that a more thoughtful, deliberate, and comprehensive approach can help CPG companies “get the money” from trade promotion — namely, an improvement in trade ROI of 10 to 20 percentage points.
The retail environment is becoming more dynamic and complex, due to emerging new technology, evolving consumer behavior, changes in distribution channels, and a need to increase margins. In such an environment, CPG companies need to improve the effectiveness of their trade investments. Although they are acutely aware of the problem — and are trying to address it — their current efforts are falling short.
Our client experience has shown that a more comprehensive approach — implemented carefully and thoughtfully across brands and functions — can lead to gains that make it to the bottom line. Though this approach almost certainly requires an investment, it will lead to a stronger trade promotion capability, with improvements that build on one another over time. As a result, CPG companies will finally “get the money,” through sustainable gains of 10 percent to 20 percentage points in trade promotion ROI.