Consumer goods manufacturers focus on margins and profitability which is why a solid annual planning process for the trade promotion plan for each coming year is critical. These plans would be signed, sealed, and delivered, but variables that throw curveballs at planning efforts get in the way.
To learn more about the problems and solutions that create these curveballs, we consulted CPG TPM retail expert and Sr. Vice President of Global Operations at AFS Technologies, Sharon Fay.
Q: Who needs to be engaged in the annual planning process?
A: Multiple departments of the company. The sales, finance, supply chain, and marketing teams need to be engaged. They must buy into the process and support it throughout its life cycle in the value chain. Sales objectives, volume objectives, and contribution objectives are pushed down from senior management during the annual planning process.
Specific deals have to be run as is at the defined time while other promotions allow some flexibly in order to achieve the best combination of sales, profitability, and budget.
Q: That sounds like a lot of variables.
A: Well, that’s true. A process has to take into account a massive amount of information from different departments and external sources from previous years, sales, figures, performance data, cost associations to promotions, and post-event analyses reports.
Then they have to look at current and future events to estimate and predict future market conditions with consumers and their retail partners. For each product, there needs to be an understanding regarding its appeal and demand level.
Having an annual plan that works in a vacuum only for the manufacturer will generally not fly with their retail partners and ultimately won’t play out for a win with the consumer.
Q: Tell us about the value of scenario planning and how that fits into the process.
A: Scenario planning allows a business to look at many different ways to get its product front and center with consumers. It allows them to make better decisions when optimizing their promotions.
With every promotion, there are associated costs that fluctuate based on variables of volume, logistics and the supply chain that impact the business.
These are critical aspects that need to be considered. Companies will use scenario planning to complement their annual planning roadmap. It works in collaboration with their partners to adjust promotions on an ongoing basis to make sure promotion objections are achieved with benefits to the manufacturer, its retail partners and ultimately the consumer.
Q: Does that always work out well?
A: No. Sometimes the best intentions of a promotion fall flat. They have to be reevaluated and re-crafted to try and move products and achieve objectives.
Q: Tell us about the kinds of data sources that are used in scenario planning.
A: Data is pulled from a variety of sources. Historical promotions that are relevant to an upcoming event and from nearer promotions from prior years.
Current events and marketing conditions all provide data to help make better decisions. Your TPM tool can quickly show you how effective and profitable a prior year’s promotions with a specific retail partner had been and if there are events with different partners that can be mapped to use this time around.
As you are preparing for a future event, understanding consumer trends, market conditions and report all affect variables in a promotion and have to be taken into consideration.
Q: Is there an idea process workflow that companies should follow?
A: The basic approach to scenario planning is to know your company’s core competencies and make sure companies stand out. What brands ride our bottom line? Understand the people who need to engage in the process. Get them engaged so you can agree on the right choice of a campaign.
Know your organization’s planning strategy and what advantage you have in the marketplace that drives your business. Look at market trends and evaluate the opportunity with the best information on hand. Then you will be able to run scenarios for promotions and be able to get to a decision efficiently and expeditiously that will work for all parties involved.
Q: Well, that sounds like great advice. Meanwhile, I’m sure technology has changed scenario planning. Tell us how.
A: Over the last few years, the value of scenario planning to complement the annual planning process has created a demand from users to have functionality tied to their TPM tools. So they can be flexible and offer retailers options and alternatives with trade promotions.
Scenario planning for most consumer goods manufacturers still resides within Excel documents. However, with many TPM software solutions incorporating scenario planning into their system, there is a shift taking place to move to software that can provide deeper insight more quickly than with Excel and with a lot less work.
Before scenario planning is integrated into a solution or if a manufacturer is using a spreadsheet, scenario planning would be created in Excel. Once approved, it would have to be replicated back into the TPM tool.
This adds extra steps to the process that come with the cost of business that would ultimately affect the ROI of the promotions in a negative way.
Q: We’re getting a lot of good information about scenario planning. How beneficial is it?
A: Scenario planning within a software solution directly reworking the annual planning program lets the promotions department makes sure its trade promotions are efficient.
Nobody wants to spend too much without achieving their goals and being profitable. It lets you enter draft views and scenarios into the annual plan without them going live immediately or seeing how they move the needle. It is a way for account reps to allocate their budget and spend it with their partners to get the most beneficial result.
It helps build a more efficient and optimized calendar. In cases when a retailer approaches a manufacturer with an opening for a promotion, scenario planning gives the manufacturer the ability to quickly evaluate if it can work within their budget and if the actual promotion makes sense for them at this moment in time.
For bigger retailers, a manufacturer would want to be able to offer a variety of scenarios and they can find a promotion that also fits with that retail partner.
Q: Well, scenario planning sounds like a great business process. Any closing thoughts?
A: There is a consensus opinion within the industry that trade spending is inappropriately high for the return on investment. After leveling off in 2010, trade promotion management spending still stands at around 20 percent of a company’s revenue.
So finding ways to trim even small amounts can lower that number and add to a company’s bottom line for reinvestment back into the business. It combines a spend with the insight that 40 percent of all promotions do not achieve the desired result and you cannot afford to ignore the latest functionality and options available for scenario planning inside trade promotion management tools.
Sharon Fay is just one of many experts at AFS Technologies, where we work with more than 20,000 CPGs across 120 plus companies in TPM planning process management. To speak to her or any one of our experts, contact us or visit www.afsi.com.