GMA
Question: In 2003, a record number of new products ---
33,700 --- came on the CPG market, setting off predictable
promotion frenzy, as makers of established brands stove
to defined their shelf space and share, while new-item
marketers strove to gain “prime time” consumer
exposure. If past is prologue (most promotion dollars
produce little or nothing), CPG marketers are thus wasting
more money at a higher rate. What’s the right tool
for you to get control?
The Trade Promotions Issue… The
trade promotion category accounts for 54% of a CPG manufacturers
marketing budget, an increase of 16.6%
from 1999. This significant expenditure is spiraling
out of control with less then half of the money ever
reaching the consumer. During this 5-year timeframe both
the manufacturers and retailers margins have eroded.
In light of these eye-opening facts a majority of CPG
manufacturers have no systems in place to monitor and
evaluate their number 1 expense.
In the past 18 months the trade promotion category has
come under significant scrutiny with such legislative
changes as FASB and Sarbanes-Oxley. In addition to this
legislation the SEC has begun to focus on the age-old
practice of channel stuffing. Major manufacturers have
been audited and been requested to repost earnings and
sales volume as a result of employing this tactic to
meet Wall Streets expectations. There is an estimated
$100 billion spent annually in the United States on trade
promotion and a conservative estimate of 10% of these
funds are used to channel stuff to meet sales volume/financial
goals.
The trade promotion category we once knew, designed
to drive incremental sales volume/profits to both the
retailer and manufacturer, is currently in a dire condition.
The time to shift the paradigm of CPG trade promotion
has never been more critical or evident. The cold war
between the manufacturer and retailer has never been
chillier and the time for teamwork and collaboration
has never been more important.
Today more then 6 out of 10 CPG manufacturers still
rely on stagnant inaccurate spreadsheets to manage their
largest marketing expense. It is not uncommon to have
to go to 4 or 5 different data source silos in an organization
to develop a simple business review. Internal evaluation
of the effectiveness/efficiency of this significant spend
with the retailer becomes an intelligent guess at best.
A true closed-loop trade promotion system will provide
the CPG manufacturer real-time capability to accurately
access the effectiveness/efficiency of the trade promotion
investment at any hierarchy level, but also provide a
means of translating that level of effectiveness or efficiency
into an actionable manner which may effectively be communicated
throughout the enterprise. A closed-loop system must
have the following capabilities residing in one database:
1) Analysis (shipment, spending, and syndicated/POS data
2) Budget reporting
3) Planning (P&L capability at the account level)
4) Payment/Deduction management
The linking of all of these data
sources provides the manufacturer to obtain accurate
P&L reporting at
the account level by sales plan. The real-time access
provides the user the intelligence to shift tactic/strategy
by account if and when specific promotions are not productive.
This information alone can return a 3%-5% effectiveness/efficiency
return on the total trade promotion investment. The deduction/payment
module of a closed-loop system is generally the first
place our new clients generate a significant return on
their investment. The electronic vs. paper processing
of deduction information significantly decreases the
time it takes to clear a deduction. American Dairy Brands
in the first year of utilizing the Account Review closed-loop
TPM application reduced the open deduction balance from
$8mm to $2.5mm. Other clients, like Kozy Shack, have
realized substantial internal savings on both the elimination
of paper-generated spreadsheets and a reduction in the
resources necessary to manage the deduction process.
Jeff Schuler Director of Business Systems was quoted
as saying “ We were the king of Excel. There were
spreadsheets to track our spreadsheets. Now that deductions
are managed through the Synectics Group Account Review
tool, Kozy Shack’s complex paper trail of spreadsheets
is a thing of the past.” The budget module of a
closed-loop system enables all levels of management within
an organization the ability to monitor a budget vs. planned
vs. actual at any hierarchy level during the budget period.
This eliminates the numerous surprises that evolve during
a budget period, enabling the manufacturer to be proactive
vs. reactive to potentially costly overspends.
The Sales Effectiveness/Execution Solution…
For the last several years, leading industry analysts
have emphasized the value of deploying tightly integrated,
closed-loop Sales Force Effectiveness (SFE) / Trade Promotions
Management (TPM) solutions to drive actionable sales
and marketing effectiveness in an increasingly competitive
marketplace. While working closely with a number of leading
consumer goods companies, Dendrite International and
Synectics Group, Inc. formed a close, working partnership
with a common goal of bringing each of our industry-leading
SFE and TPM solutions together to provide turnkey solutions and consulting services to guide our customers through
the next phases of industry change, growth and expansion.
This unique solution becomes even more valuable when
combined with the experience, infrastructure and global
presence offered by Dendrite today.
When trade promotion details
managed within Synectics’ Trade
Promotions solution are dynamically linked to Dendrite’s
Sales Effectiveness dashboards, field sales are provided
with the information and the insight they need to proactively
execute the strategy during critical interactions between
the manufacturer/retailer. In addition, Dendrite’s
back-office solutions – Xtelligent - can also simplify
and automate the data linkages between our integrated
TPM/CRM solutions and all of your ERP, Supply-Chain and
other internal systems. Dendrite and Synectics Group
recently brought this value proposition to an industry-leading
consumer healthcare company who (as a result of using
this unified solution) are looking forward to the competitive
benefits realized as a result of (1) Increased effectiveness
of trade promotions spending and allocation, (2) increased
visibility and profitability (hence revenue) derived
from customers, (3) significantly improved communication
between home office and store-level representatives,
and (4) the elimination of redundant, excessive costs
created by fragmented third party, back-office data and
systems.
The end result for a leading consumer goods organization
is a consolidated, holistic view of each of the critical
enterprise-wide data components, centralized and disseminated
in a manner which provides actionable information in
a personalized format to the fingertips of those closest
to your customers at a time (when and where) this information
is most needed. In addition, real-time access to critical
data also means quality of face time (success from interactions)
and quantity of face-time (number of interactions) is
substantially improved!
Realizing the emotion that can
be generated from the current state of trade promotion,
Dendrite and Synectics
both believe there are brighter days ahead of us. The
need to truly collaborate on maximizing this $100 billion
investment has never been clearer or more imperative.
The systems are now available to electronically manage
and execute the trade promotion process between the retailer,
broker and manufacturer. This system could electronically
monitor a plan through the eventual deduction/payment,
significantly reducing costly overhead on both sides
of the equation. The real-time accessibility of category,
brand and sku profitability in a given promotion week
could provide a truly collaborative environment where
the primary goal would be to mutually drive the profitability
of the category/respective brands. We believe by focusing
in this area the percentage of trade spending reaching
the consumer would dramatically increase resulting in
substantial increases in incremental profit/volume. This
collaborative effort should revolve around a primary
objective to utilize these substantial dollars to emphasize
the power of branding. It is imperative to differentiate
both the retailers image and the manufacturers brand
image, or we will get what we asked for, a generic world
where low price wins and a hypnotized consumer is lead
to the lowest price like sheep. I think we all know who
would be the winner in this world and if we are honest
it is not the conventional retailers and CPG manufacturers,
that made the CPG sector in the United States the world
leader. Through our partnership value proposition, Dendrite
and Synectics Group will continue to provide a vision
and a strategy we call “CPM 360”, a Collaborative
Promotion Management in a 360-degree electronic process
that combines all the elements of promotion and execution
process.
The Synectics Group has been
a leading provider of trade promotion software for
over 19 years, solely focused
in the CPG sector. Dendrite has been a leading provider
of sales force effectiveness solutions for over 18 years.
With the correct closed-loop trade promotion software
solution and commitment – as well as the means
to deliver strategic, KPI-driven insight to the customer-facing
teams when most needed - your largest and least effective
expenditure will become significant contributors to your
profit growth.
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