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.

Back to WhitePapers