what's next in trade effectiveness?
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What’s Next in Trade Effectiveness? A DemANDTec INDusTry PersPecTIve
A DemandTec eBook
WhaT’s NExT iN TradE EffEcTivENEss?
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collaboration
TAble of coNTeNTs
The rules have changed 2
The size of the Prize is compelling 4
Linking Top-down with Bottom-Up 5
What’s Next in Trade effectiveness?A DemANDTec INDusTry PersPecTIve
incorporating the shopper dimension 7
a New day has arrived 9
about demandTec 10
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WhaT’s NExT iN TradE EffEcTivENEss?
The rules hAve chANgeD
Much has changed in the world of trade promotion optimization
during the past several years. advanced econometric modeling
techniques allow consumer products manufacturers to simulate
the impact of proposed plans against volumetric and profit targets.
Manufacturers can now predict how pricing and promotion strategies
will impact not just their own brands, but the retailer’s entire
category—including private label items.
The industry has recognized a short list of innovative consumer
products leaders who have invested in trade optimization with
demonstrated success. and through efficient delivery via software-as-
a-service and a driving need to remain relevant in retail, adoption of
these base-level capabilities has accelerated among a broader set of
manufacturers.
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WhaT’s NExT iN TradE EffEcTivENEss?
New approaches for advancing trade effectiveness are on our doorstep.
Building on a technical foundation of retail data, modeling science, and
software-as-a-service, the new capabilities support two fundamental
principles: 1) linking “top-down” with “bottom-up” trade planning,
and 2) weaving shopper insight into the analytical framework.
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Manufacturers who embrace these techniques stand to benefit from
better internal planning alignment, a more strategic dialog with key
retail customers, and a superior return on the largest area of spend
beyond cost of goods sold (cOGs).
New capabilities support two fundamental principles: 1) Linking “top-down” with “bottom-up”
trade planning
2) Weaving shopper insight into the analytical framework
shopper insights
WhaT’s NExT iN TradE EffEcTivENEss?
The sIze of The PrIze Is comPellINg
Trade promotions is big business. Each year, consumer products
manufacturers invest roughly $125B to $175B into trade-based pricing,
promotion, and merchandising programs.1 according to industry
estimates, this massive pool of spend accounts for roughly 14% to 22%
of manufacturer sales —historically with little to no return to the brands.
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Even small improvements can deliver big returns. for a $5B
manufacturer who annually invests $750MM or more into trade
programs, a 2% improvement in return can yield $10MM or more in
incremental margin—profit that can be dropped to the bottom line
or reinvested into additional trade programs. These numbers make it
nearly impossible for management to ignore the opportunity to plan
trade programs with a new approach.
1 2009 Cannondale Associates, “Trade Promotion Planning & Analysis: A Game that Needs Changing”
TradePrograms
$5BManufacturer
IncrementalMargin Increase
$10MM
$750MMInvestment 2% Improvement
A $5B manufacturer can realize an incremental $10MM or more in margin through trade spend optimization.
WhaT’s NExT iN TradE EffEcTivENEss?
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lINkINg ToP-DoWN WITh boTTom-uP
Trade effectiveness is typically achieved by applying science to the
account-level event planning process. Using an allocated pool of
trade dollars assigned to an individual customer team, optimized
event-level simulations roll up into a fully predicted category
plan. Using this planning approach, customer business teams can
predictively understand the impact of everyday pricing adjustments
and merchandising strategies against promoted items, the total
manufacturer portfolio, and the entire retail category. having this
foundational set of analytical capabilities allows trade planners to
build a more compelling sell-in proposition for the retail category
buyers—a differentiated proposition founded on science and analysis,
versus emotion and conjecture.
But this revolution in using massive data sets, applied math, and
scalable software to optimize account-level trade plans somewhat
ignores how headquarter-level business planning is done. This gap can
now be bridged with headquarter-driven tools for optimizing planning
across broader geographies and time dimensions.
Build a more compelling sell-in proposition for the retail category buyers.
WhaT’s NExT iN TradE EffEcTivENEss?
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SOFTWARE Planning templates
Common science Work�ow
CUSTOMER TEAMSNeed �exibility
HEADQUARTERSNeed consistency andon-strategy planning
Science andGuidelines
Account-Level Plans
ImprovedPlanning
for example, two top-down planning use cases may include developing
an optimal merchandising mix for a given class of trade, and identifying
the depth and frequency of price points and promotion types by
customer. Without this critical macro insight, planning at the customer-
account level runs the risk of being inconsistent and off strategy.
centrally developed insights are delivered to the customer business
teams as planning guidelines, or guardrails, to better balance the
top-down charter with bottom-up account planning flexibility. since
top-down and bottom-up planning can leverage a common software
platform, guardrails may be delivered directly in the planning
application and appear as pre-populated event templates. Templates
may reflect a suggested promotional calendar and incorporate the
pricing floor/ceiling recommendations, along with the event type
frequency insights.
Aligning top-down and bottom-up trade planning processes on a common software platform delivers more effective outcomes.
WhaT’s NExT iN TradE EffEcTivENEss?
segmentsPage 7
INcorPorATINg The shoPPer DImeNsIoN
The second new trade effectiveness plank allows business planners to
optimize for specific shopper segments. There is a revolution taking
place in terms of how retailers are planning for category success. No
longer will a retail merchant simply plan merchandising and marketing
tactics while assuming that all shoppers behave the same. The reality is
that every shopper is unique, and planning can be optimized for clusters
of shoppers who exhibit similar buying patterns and sensitivities. Put
another way, retailers are knowingly making important pricing and
promotion trade-offs that appeal to one valuable shopper segment, yet
alienate another, less profitable segment.
retailers also expect manufacturer trading partners to support this
shopper-centric planning approach. To that end, many retailers across
food, drug, and club classes of trade have begun to free up transaction
log and even loyalty data for manufacturers to analyze. The unfortunate
reality is that manufacturers rarely possess in-house capabilities to
transform massive amounts of raw data into actionable insights. and
whatever insights are extracted from the data will be disconnected from
the trade planning workflow.
WhaT’s NExT iN TradE EffEcTivENEss?
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This new dimension to achieving trade effectiveness suggests that
raw shopper-centric data is modeled up front and woven into the
fabric of how pricing and promotion decisions are made. These critical
trade decisions are often made in the context of a planning software
application. as an example, Manufacturer a can simulate the effect of
taking shelf price down by $.45/unit to address a competitive threat.
The simulation might reveal that moving price to this level will drive
an increase in overall volume and gross margin. Manufacturer B can
simulate the same scenario, yet factor in the shopper dimension. This
analysis might reveal that while taking price down by $.45/unit drives
an increase in volume for the entire population, the shopper segment
that is most relevant to the retailer would have shifted behavior with
a drop of just $.25/unit. This critical insight could save hundreds of
thousands—perhaps millions—in gross margin from evaporating.
Gross Margin
-$0.45
Preferred Shopper Segments
General Shopper Population
RESPONSE
RESPONSEA
-$0.25B
MANUFACTURERCHANGE IN
SHELF PRICE PER UNIT
CompetitiveThreat
Optimizing trade pricing strategies for a preferred shopper segment v. the population as a whole delivers greater margin contribution to Manufacturer B.
WhaT’s NExT iN TradE EffEcTivENEss?
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A NeW DAy hAs ArrIveD
Every fast-moving consumer goods organization has taken measures to
improve the return on their trade promotion investment. Using advanced
software that marries demand modeling with event-level simulations,
many are already reaping the rewards of a more intelligent way to
plan. But opportunities for even greater improvement have arrived,
yielding more shopper-centric promotions and better headquarter/
customer business team alignment. incorporating these techniques into
the current trade planning process will provide manufacturers with a
competitive advantage and an opportunity to deliver truly breakthrough
pricing and promotion plans to the retail customer.
intelligence
Opportunities for even greater improvement have arrived, yielding more shopper-centric promotions and better headquarter/customer business team alignment.
WhaT’s NExT iN TradE EffEcTivENEss?
AbouT DemANDTec
demandTec (NasdaQ: dMaN) enables retailers and consumer products
companies to optimize merchandising and marketing decisions,
individually or collaboratively, to achieve their sales volume, revenue,
and profitability objectives. demandTec software services utilize
demandTec’s science-based software platform to model and understand
consumer behavior. demandTec customers include more than 195
leading retailers and consumer products manufacturers, such as ahold
Usa, Best Buy, conagra foods, delhaize america, General Mills, h-E-B
Grocery co., hormel foods, Monoprix, PETcO, safeway, sara Lee, the
home depot, Walmart, and Wh smith. connected via the demandTec
TradePoint Network™, demandTec customers have collaborated online
with more than 2.5 million trade deals. for more information, please
visit www.demandtec.com.
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coNTAcT us
demandTec1 circle star Waysan carlos, ca 94070Usa
inquiries:Phone: +1.888.676.3626Please visit www.demandtec.com
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