That's nothing to write home about; especially in South Africa where 12 to 15% equates, conservatively, to R2 to 3 billion being injected by the major manufacturers into trade investment on an annual basis. The numbers are staggering. In Europe, this represents €100 billion in trade promotion spend by the 50 biggest CPG companies. Yet, many rely on spreadsheets and point solutions to manage these huge investments
Promotion activities such as temporary discounts, extra volume free of charge, loyalty programs and in-store promotions all aim to achieve certain strategic objectives. These include increased sales, increased customer loyalty, increased purchasing frequency and securing new customers.
Accenture's research suggests that as many as 90% of trade promotion events fail to deliver a positive return on investment. And, if spending continues at current levels, the pressure on profits can only increase. A recent Accenture trade promotion study concluded that some 60% of consumers stated that trade promotions do not affect their buying choices. Furthermore, 51% of promotions go unnoticed by the consumer. To add fuel to the fire, around 70% of manufacturers are unaware of the incremental impact on volume and profitability associated with promotions.
Notwithstanding the dire diagnosis, the concept of trade promotions makes economic sense: in theory, it is possible for manufacturers to increase short-term volume (and profit) by offering financial incentives to their trading partners to enhance the presentation of their products to consumers.
Accenture believes manufacturers can achieve a 40% improvement in return on spend in trade promotions by managing promotion driven costs and re-deploying inefficient spending through careful study of promotion investment and results.
Overcoming the problems of trade promotion is difficult—but not impossible. To be effective, companies need to establish a closed-loop promotion management process to better plan, execute, and evaluate trade promotion activities. In order for this to be sustainable, rather than a one-off pilot, these efforts will require the support of the appropriate tools and organisation structure.
Planning...
Execution
Evaluation
Supporting tools play a vital role in executing an effective trade promotions strategy. Efficient, profitable and effective trade promotion is information-intensive. Information must be collected, aggregated and shared across business units. Many programmes founder due to a lack of infrastructure, tools and skills to organise, analyse and synthesise vast quantities of input and output data.
The cost of implementing a holistic, capability-based promotion management programme can be daunting, ranging from R10 to R30 million. But the upside of a 2.5 to 4% increase in net income outweighs the downside of continuing business-as-usual.
