The operations carried out by Consumer Goods sales teams and ancillary functions (such as accounting and finance) to manage sales strategies and "trade spending" - the costs often associated with distribution, pricing, and promotion – are referred to as trade promotion management. Setting volume and expenditure target/budgets, planning and implementing distribution adjustments, price changes and promotions, projecting sales & spending, and resolving spending commitments with customers are a few examples of trade promotion execution.
When does a TPM system come into the picture?
Each of these activities involves a number of procedural phases, including activity approval, the implementation of pricing conditions (such as off-invoice allowances), supplying demand planning with sales projections, investigating deductions, and the month-end trade accrual forecast. Some foreseeable difficulties arise as a brand's sales, distribution, promotions, and deductions increase and more people get involved in the process: Transactional, business-critical tasks take longer to complete, information is disorganized and quickly becomes old, and performance evaluation and re-forecasting are challenging. Another expected result is a rapid increase in trade expenditure costs, which frequently reaches a dollar amount equal to 20% of gross income. At this point, a TPM system can be useful.
TPM enhances trade management and sales planning through structure, control, automation, and insight. The system becomes the sales team's "Operating System." It centralizes and standardizes information and provides procedures to guarantee that the right approvals are obtained and recorded. Reports on sales, trade expenditures, and promotions are readily available thanks to data management.
From management to optimization
Trade promotion optimization, or TPO, is the process of better understanding how well your promotions are performing, determining whether or not the return on investment (ROI) is favorable, and developing strategies to increase performance and ROI by altering the mix of tactics, price reductions, and/or frequency of promotions.
Understanding performance and ROI is the first TPO deliverable, often known as post-event analysis, or PEA. Point of sale (POS) data, which shows how many products were sold to customers on promotion, is a fairly common input to PEA.
Predicted baselines and simulation can be used to improve the second TPO task, which involves developing performance improvement strategies. The simulation determines how a promotion will turn out for a variety of strategies, often price reduction, advertising, and display.
Breaking down walls
There are many "walls" between sales and demand planning teams in consumer goods organizations, both actual and metaphorical. Organizations, goals, inputs, outputs, processes, and metrics can all vary, and there are even occasions when metrics with the same name but various definitions exist. Additionally, they don't employ the same systems.
Many consumer products organizations have implemented an Integrated Business Planning (IBP) process to encourage information sharing and collaboration between the functions in an effort to tear down these barriers. Sales and operations planning, or S&OP, is a well-liked variation of IBP. The objective of S&OP is for the various company stakeholders to concur on a "consensus prediction." The forecast that the sales team provides to S&OP contains their future projections.
Pricing
The following task is referred to as Revenue Growth Management, or RGM. RGM's focus is overall revenue management and TPM and TPO's is promotion (revenue) management. Given this scale, the non-promoted portion of your business, the pricing that drives this, and the mix of pricing and promotion tactics to meet your goals are given more attention. To do RGM properly, a data science team is typically required. RGM incorporates price elasticity models in addition to the promotion models used in TPO simulation to assist you to comprehend how much volume is likely to shift when prices change. Both forward-looking forecasts and backward-looking analyses can make use of these.
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