The Trade Promotion Hierarchy of Needs: A New Framework for Growing Your Brand.

In the competitive world of consumer packaged goods (CPG), mastering trade promotion management (TPM) is essential for driving growth and maintaining market presence. Drawing inspiration from Maslow's Hierarchy of Needs, which outlines the stages of human fulfillment, we’ve developed the TPM Hierarchy of Needs. This model breaks down the crucial steps for creating an effective trade promotion strategy, helping brands navigate the complexities of the market and achieve optimal performance.

Introducing the TPM Hierarchy of Needs

Trade Promotion Management in the CPG industry is riddled with challenges, from dynamic shelf conditions to competitive promotions and unreliable distributors. To effectively manage these challenges and optimize your trade plan, it’s essential to understand the TPM Hierarchy of Needs.

Step 1: The Fundamentals: Event-Based Promotion Planning

A common but flawed approach to planning trade promotion spend involves taking the previous year’s gross sales and applying a standard trade rate. This quick method sacrifices valuable insights into the performance of individual events and overall demand. Event-based planning, though more detailed, is indispensable. Engaging buyers and brokers to secure accurate promotional calendars allows for a deeper understanding of promotion performance versus your baseline. This method not only provides better insights but also enables the supply chain to forecast demand more precisely, improving stock levels and financial planning.

Key Benefits of Event-Based Planning:

1. Detailed Performance Insights: Understand the incremental lift from each promotion.
2. Supply Chain Alignment: Forecast demand accurately to maintain optimal stock levels.
3. Financial Precision: Improve cash flow forecasting and trade finance accruals.

Step 2: Ensuring Full Supply Chain Inventory Availability

An often-overlooked element of TPM is ensuring consistent in-stock levels throughout promotions. The success of a promotion can be significantly hampered if products sell out prematurely. Brands must take ownership of their supply chain from end to end, ensuring adequate stock at warehouses and retail locations. This proactive approach ensures promotions run smoothly, providing a clearer view of true performance metrics.

Steps to Ensure Inventory Availability:

1. Event-Based Planning Coordination: Align supply chain teams with promotional calendars to forecast product needs accurately.
2. Distributor Collaboration: Ensure orders from distributors are sufficient to meet retail demand.
3. Retailer Engagement: Work with category managers to confirm retailer orders and expectations.

Maintaining strong in-stock levels allows for an accurate analysis of promotion effectiveness, driving better decision-making for future promotions.

Step 3: Post-Event Analysis and Confirmation

With reliable in-stock data, brands can perform detailed post-event analyses to understand performance across the supply chain. Using scanned consumption data, brands can evaluate shelf-level execution, average retail prices, and store-level sales. This analysis confirms whether promotions were executed correctly and identifies any discrepancies that could affect performance metrics.

Key Metrics for Post-Event Analysis:

1. Shelf-Level Data: Verify average retail prices and store sales.
2. Execution Accuracy: Ensure promotions were implemented as planned, with no out-of-stocks impacting performance.
3. Incremental Lift: Assess the additional sales generated by the promotion.

Brands that excel in TPM continually analyze these metrics, working with category managers and brokers to adjust and optimize future trade events.

Step 4: Deduction Management Feeding FP&A

Managing revenue deductions is a critical yet challenging aspect of TPM. Many promotions and supply chain programs are charged through deductions, which can be difficult to track and understand. When selecting a solution for deduction management, several factors should be considered:

1. Human Oversight: Ensure there’s a human element to validate AI outputs, as pure AI solutions often struggle with the variability of deduction documents.
2. Document Retrieval: The solution should facilitate the retrieval of documents from various customer portals.
3. Granular Documentation: Categorize supply chain and unplanned event deductions in detail to enable precise analysis.

Once deductions are accurately parsed, the information should flow into Financial Planning & Analysis (FP&A) for re-forecasting and accrual creation. An effective FP&A process includes mechanisms to escalate deductions for clearing or dispute resolution, ensuring financial accuracy at both the customer and retailer levels.

Step 5: Trade Promotion Optimization: Spending Less to Sell More

With a solid foundation in forecasting and actualization, brands can leverage data to optimize trade promotion efficiency. For example, identifying that a 2-for-$6 promotion yields similar volume to a 2-for-$5 promotion but is more cost-efficient can lead to significant savings. A brand with $100 million in sales and a 20% trade rate could save $2 million annually by optimizing trade promotions by just 10%.

Strategies for Trade Promotion Optimization:

1. Analyze Cost per Incremental Unit: Determine the most cost-effective promotions without sacrificing volume.
2. Leverage Historical Data: Use past performance data to inform future promotion strategies.
3. Continuous Improvement: Regularly review and refine trade promotion tactics to enhance efficiency and effectiveness.

In Conclusion

Building a best-in-class Trade Promotion Management organization requires a strategic, holistic approach. The TPM Hierarchy of Needs provides a structured framework for brands to assess their current practices, develop new processes, and integrate technology to ascend the hierarchy and achieve greater success.

Ready to Transform Your Trade Promotion Management?

At Modus Planning, we specialize in guiding brands through their TPM journey. Whether you’re just starting out or looking to refine your existing strategies, we’re here to help you climb the TPM hierarchy. Contact us today to discover how we can support your brand in optimizing trade promotions and driving growth.