Trade promotions: competitive edge or fact of life?

25 November 2010

Dan Hawker

Dan Hawker

Former Head of Tobacco, Wholesale & Retail

In an alarmingly short space of time, trade promotions have gone from being a competitive tool for capturing market share (who remembers when they first heard BOGOF?) to a simple fact of life for most companies. This is certainly something I've gathered from my work with Bluefin Solutions' customers in helping them manage their trade promotions.  

So why continue with trade promotions? When do they work? And are there any alternatives?

Let’s start with a new product. Those clever people in marketing have come up with a new concept, and it turns into a new product introduction (deciding where to invest in new products, and which ones to kill off, is a whole other story!) Perhaps this new product moves the company into a new category, or perhaps it is a refresh or extension to an existing range.

Trade Promotions for new products can be an effective way of raising awareness, and acquiring long term market share, although they are a heavy investment to make on a risky product if it has no track record.

TPMPic1

In this context, the ROI for the promotion is much more about the increase in volumes and revenues, than it is about the cost.

However, promotional activity on new products is a small part – most products on promotion are not new, and since 2006, the proportion of consumer spend that goes on products under promotion has gone from 25% to 40%.

So what do trade promotions look like for more mature products? In many cases, the trade promotion is a fact of life. NOT using trade promotions can cost market share if your competitors are continually running them:

TPMPic2

In these cases, planning and executing trade promotions with ruthless efficiency is essential. The cost of the promotion becomes a more important factor in the ROI calculation. Any competitive edge that can be gained by understanding the right timing of the promotion, and the right structure to the promotion is critical.

Furthermore, it is not enough to simply continue with a siloed approach to planning and delivering the promotion - aligning demand and supply to promotions is critical. Spending money promoting a product that quickly runs out of stock is wasted money.

In my experience, one critical success factor in implementing effective, integrated, efficient TPM solutions is the approach you take. It is absolutely essential to involve the business users all the way through the project, from prototyping onwards. Adoption of the TPM tool is essential to delivering the ROI – if the business isn’t engaged properly, the implementation will fail, even if the tool satisfies all the requirements that were specified at the start of the project.

This is because users can always fall back on spreadsheets if they don’t like the tool, and the tool then becomes a simple record of actions that are taken off-system. And in the fast moving world of consumer products, markets and businesses change all the time, so the requirements that were originally specified can become out of date.

So, if you want to deliver an effective TPM solution that recognises that trade promotions are a fact of life, don’t think about technology – think about people.

 

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