Trade promotion optimization
What is trade promotion optimization?
Firstly, we need to distinguish between trade promotion management (TPM) and trade promotion optimization (TPO).
The former is the planning, management and execution of the activities that require collaboration with a retail partner around promotional activity; the latter is about doing this in the smartest possible way. This includes knowing what to promote (e.g. Mars Chocolate 25g), how (half price deal) and when to execute the promotion (e.g. in 13 weeks).
HIVERY Promote is focused on TPO. It relates to promotions like a two for one deal or 50% discounts that you see in supermarkets. There are often two parties involved - a supplier (the CPG like The Coca-Cola Company) and a distributor (the retailer, such as Kroger). The trade promotion activities for retail nowadays are a little more sophisticated and planned out for weeks or even an entire year. A trade promotion calendar can take several weeks for CPGs to create before being presented to a retailer, resulting in further adjustments before final completion. This is a time-consuming and arduous process. Traditional trade promotion, while effective in the short term, can become relatively ineffective in the long term as competitors replicate the promotions and customers over purchase, leading to promotion fatigue. Better and faster generated trade promotions are needed. This is what HIVERY Promote solves.
What are the benefits of optimizing trade promotion?
Trade promotion done right is a powerful tool. You can time your promotions to supercharge traditionally high sales periods and similarly support sales during low periods, flattening the sales cycle and avoiding large swings in revenue from season to season. This results in a higher level of sales overall, delivering a more consistent revenue stream, allowing you to make future plans with more confidence. For the retailer, it means constant traffic into their stores and bigger basket sizes. After all, people don't just buy that Coke on promotion - they often end up adding corn chips, milk, bread, eggs and more to their basket, too.
How do you optimize trade promotions?
Very carefully. We are bombarded by sales and promotions everywhere these days - in-store, online, anywhere – so you should guard against promotion fatigue and buyers’ regret. Human bias can also enter the planning process, so be aware of this and try to remove it from the process. Once again, history can inform and help predict future events, so examine as much data as you can and make your best guess. Alternatively, invest in technology and plan your promotions with certainty using artificial intelligence (AI) and operations research (OR). Companies invest tens of millions of dollars in their trade promotion calendar each year. Managing this expenditure requires a confluence of data from diverse internal and external sources, requiring considerable time to assemble, aggregate, cleanse and manage. Most of this work is done in spreadsheets, built for different purposes by different people with various levels of skill and rarely shared beyond a functional team within the organization. This analysis fails to include many of the most important factors impacting the effectiveness of promotional activity: promotional fatigue, cross-elasticity, competitors’ pricing, cross-channel effects, special displays, and seasonality. Sales and Revenue Growth Management teams are often under intense pressure from internal stakeholders as well as retailers to achieve sales, revenue, market share, profits and margin targets. Most of their time is spent in data curation, using spreadsheets with simple price models unable to capture all of the factors relevant to produce accurate predictions of demand and incapable of optimizing promotional calendars. Their scenario analysis is extremely limited in its scope and breadth and is restricted to using anecdotal evidence and replicating past success stories. This hinders promotional innovation, leaving significant value unrealized and creating opportunities for their competitors.
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The world’s first AI for retail trade promotion calendars