tpm overview for case

5/21/2018 tPm Overview for Case

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Trade Promotions ManagementAn In-depth Review


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Table of Contents

1. Introduct ion .........................................................................................................................................3

What is trade promotion management? ...................................................................................... 3

Why is trade promotion management important?......................................................................... 3

How is trade promotion management performed?........................................................................ 42. Overall Flow .........................................................................................................................................6

3. Process Steps......................................................................................................................................7

STEP 1: Allocate Budget to Accounts .........................................................................................7

STEP 2: Create Promotion Plan ............................................................................................... 12

STEP 3: Sell-in Promotion Plan................................................................................................ 19

STEP 4: Execute Promotion Plan ............................................................................................. 22

STEP 5: Monitor/Revise Promotion Plan ................................................................................... 25

STEP 6: Evaluate Promotion Effectiveness................................................................................ 28

4. Roles...................................................................................................................................................31

5. Key Process Measurements ............................................................................................................32

6. Overall Design Considerations ........................................................................................................32

7. Trade Promotion Best Practices......................................................................................................33

8. Other Facts to Consider ...................................................................................................................34

Glossary .....................................................................................................................................................36


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1. Introduction

What is t rade promotion management?

Trade promotion management is defined as the process of planning, budgeting, presenting and executingincentive programs which occur between the manufacturer and the retailer to enhance sales of specificproducts. For example, a manufacturer paying a retailer to feature their product in the retailers weeklynewspaper advertising or paying a retailer to build a special promotional display in their store are bothconsidered trade promotions.

Why is trade promotion management important?

Between 1978 and 1996 the dollars spent on trade promotions grew on average from 5% of sales to13% of sales. This led to inefficient spending practices in the trade promotion area. There is asignificant benefit potential to improving trade promotion practices by fully understanding the costs ofpromotions, running smarter promotions by knowing what works and what doesnt, and focusingpromotions on what will increase profits, rather than just gross revenues.

Our clients have achieved or are expecting to achieve significant benefits from improving their tradepromotions processes. These include:

Value Proposition

10-25% reduction in trade promotion spending with no change involume

1-4% increase in pre-tax earnings

Trade promotion ROI increase of more than 25% on average (more

than 200% on some events)

40% reduction in outstanding deductions balances

Reduce trade spending from 17% of sales to 13% of sales

Improving trade promotion practices involves the coordination of strategy, process, people andtechnology. This document will focus on providing knowledge of the overall trade promotion process andwill highlight best practices.


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How is trade promotion management performed?

Incentive programs vary widely from account to account. Incentives can involve discounts on eachproduct sold, payments of a fixed sum of money, or other special programs. In return, a retailer isexpected to generate greater volume through special pricing, advertising and other programs. Thefollowing diagram provides listings of many of the types of incentives and programs that are run. Referto the glossary for further definition on these programs.

BenefitsPerformanceCosts

Manufacturers Offer Incentives

to Trading Partners . . .

. . . In Return for

Performance . . .

. . . To Generate

Consumer Sales . . .

Off-invoice allowances

Favorable payment terms

Market development funds

Sell-through guarantees/

failure fees

Co-op advertising

Bracket allowances

At Headquarters

Plan

merchandising

Buy in advance

of demand

Set prices

Authorize new

items Develop

planograms

Incremental Sales and ProfitsAt Retail

Merchandising

Ad

Display

Reduced prices

Coupons

Everday Low Price

Distribution Shelving

Space

Configuration

Location

Secondary

Stock rotation

The determination of the incentive programs that will be run is based on corporate customer and productstrategies and specific account objectives. These programs are documented for each account and productin a promotion plan. For most companies, the account level for which plans are created is a national orheadquarter account (i.e. one plan for the XYZ Grocery Chain); other companies may create a plan for aspecific region of the account if the account is very large, or maybe even for each individual store if thereare not many customers. On a similar note, the product level for which plans are created is often a

group of related products (liquid soaps, breakfast pastries, or personal printers). Plans can be created forhigher levels (soaps, ready-to-eat cereals, or printers) or even lower levels (6 oz. fresh scent soap, jumbobox of corn flakes, or the LT5275 printer).

NOTE: In this document, the words account and product are used to refer to whatever account andproduct level that the customer is planning.

The development of the promotion plan is a subset of the overall account plan for each account. Theaccount plan deals with higher level account issues, goals and typesof promotions that will be run. Thepromotion plan provides a more detailed roadmap of the specific promotions that will be run for a givenaccount.Developing the promotion plan is typically a quarterly or semi-annual process. The purpose of thisprocess is to develop a clear plan for the promotional events that will be run to meet the revenue quotas

and to provide the greatest return on investment. The process for developing the promotion plan for anaccount varies among manufacturers:

Some manufacturers use more of a top down approach where national promotions are developedby marketing for all accounts.


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Other manufacturers employ a bottom up approach where each account representative has freereign to develop individual promotions for their account.

Other manufacturers fall somewhere in between.

This document will focus on the promotion planning, execution and post analysis activities performed bythe sales organization. Marketing and other activities are not included. Variations in the process will be

noted in the design considerations listed under each individual process step and for the overall tradepromotion process.

This document will detail the overall sales process and each of the steps involved. Key points tounderstand include:

KEY POINTS

Planning: In order to meet account objectives, it is imperative to have a solid promotionplan for meeting those objectives. This plan should be based on past history, customer,brand/product, and corporate objectives, and good judgment. Currently, many companieshave extremely informal or non existent processes. One company actually cites sales repscreating their plans on a cocktail napkin.

Executing: A primary stumbling block in the execution of the account plan is accurateand timely payment to retailers for promotion performance. Processes and tools areimperative to avoid costly deductions expenses and overspending due to poor accounting.

Analyzing: Studies show that between 50-90% of promotions are not profitable. Manycompanies are not performing any post analysis to determine which promotions areprofitable. Without this analysis, the same unprofitable promotions are run over and overagain.


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2. Overall FlowTrade Promotion Management is part of an overall Selling Effectiveness Process Architecture:

Business

Plan

Customer

Strategy

Marketing

Strategy

Account-Based Selling

Promotions Management

Category Management

Retail Execution

Account Management Distributor-Based Selling

Sales Planning

Opportunity-Based Selling

Pipeline Forecasting

Opportunity Management

The Trade Promotion Management process is depicted below:

Sales Quota byAccount/Brand

Overall SpendingBudgets

Historical Sales

DataHistorical

Consumption Data

Past PromotionResults

RetailerPerformance

Marketing Plan

PromotionalStrategy for theBrand/Product

Account Plan

CustomerPromotionCalendar

Historical AccountActivity

Understanding ofCustomer

AllocateBudget toAccounts

CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

Final PromotionPlan

PromotionResults


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3. Process Steps

STEP 1: Allocate Budget to Accounts


CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

INTRODUCTION

Before a detailed promotion plan can be developed for an account, there are two important inputs:

Sales Quota by Account/Brand: How much am I expected to sell of each product/brand atmy accounts? Sales quotas by account/brand and sales rep are established in the TerritoryManagement process and are included as an input into this allocate budget to accounts processstep.

Spending Budgets by Account: How much promotional money do I have to spend at this

account? There are several ways that these budgets are determined:

In some instances, the spending budget is determined through a bottom up method andtherefore is not set until after the promotion plan is developed.

In other instances, the spending budget is developed through an accrual method whereaccounts accrue a certain amount of promotion dollars for each unit of product that ispurchased. In this instance, the sales force is provided with per unit accrual rates for eachproduct.

In most instances, however, there is some bucket or lump sum of money that is allocatedto be spent at each account by sales management. This lump sum budget can be inaddition to dollars accrued per unit. It will also most likely be confirmed through bottom upplanning. The top down process of determining how much lump sum money should be

spent at each account is described in this process step.

For additional information on alternate ways of establishing spending budgets, refer to thedesign considerations at the end of this process step description.


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FLOW

EstablishAllocation

Method

Historical SalesData


Overall SpendingBudgets

PromotionalStrategy for theBrand/Product

Spending Budgetsby Account

Allocate toAccount Group

or Region

Allocate toAccount

INPUTS

Historical Sales Data: Historical sales data provides actual sales volumes shipped to eachaccount in prior periods. This data is used when setting spending budgets based on past salesvolume.

Historical sales data needs to be available at the same account and product levelsdesignated in the promotion plan.

Sales Quota by Account/Brand: Sales quotas need to be established for each account and

product/brand. These are established in the territory management process.

The account level to break down sales quotas should be consistent with the level that weare developing promotion plans for. In some cases, each sales representative will be givena total quota for all of his accounts. The sales representative will then want to break downhis overall quota into each of his accounts

The product level to break down sales quotas should be consistent with the level for whichwe are developing promotion plans. In some cases, a sales representative will be given aquota for a given product brand, but will be asked to plan at a lower level. He will want toensure that his expected sales for the individual products roll up to the quota he was givenfor the product grouping.

Overall Spending Budgets: Marketing will typically provide the sales organization with overall

spending guidelines by product group. During this process step, sales management or brandmanagement will allocate the total dollars to spend across accounts.

Promotional Strategy for the Brand/Product: The promotional strategy is developed bymarketing and sales executives to clearly outline how the company wants to promote theirproducts. A key component of the promotion strategy is the role of trade promotions by brand.For example:

Drive incremental sales

Increase market share and brand loyalty

Buy-down everyday retail price

A clear understanding of the types of promotional dollars and activities available, as well as anunderstanding of how the promotional dollars should be allocated by account from a strategic

perspective, is required to effectively allocate promotion dollars to accounts.

Example: The brand strategy at one consumer products company documents what tradepromotion dollars are supposed to accomplish for each brand. For example, trade dollarsshould build brand awareness and trial for new product introductions, while maintainingmarket share without eroding baseline volume for established brands.


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Example: The promotional strategy for a given company focuses on driving incrementalsales. They want to focus on getting current consumers to buy more of the product andgetting new consumers to try the product. End aisle displays and other prominentadvertising to draw attention to the product is important. The promotion plan specifies thatall dollars will be allocated on a per case (rather than lump sum basis). All promotions areset up on an individual account (rather than national) level.

Example: The promotional strategy for an alternate company focuses on buying down theeveryday retail price. This company does not offer any special promotions or coupons toretailers and consumers. The money they save is used to reduce costs everyday. Thisstrategy is often referred to as Everyday Low Price (EDLP). This can be seen at retailerssuch as Wal-Mart and Home Depot which are forcing many manufacturers to follow suit.

OUTPUTS

Spending Budgets by Account: Detailed spending budgets for each account by product, orproduct grouping, will be given as the output.

Example: An account manager for XYZ Grocery is given a quota of $250,000 for liquidsoaps. To reach this quota, the sales representative has $32,500 of promotional spending

allocated for liquid soaps.

ACTIVITIES

Activity 1: Establish Allocation Method

A. Review historical volumes

B. Establish allocation method

Typically based on historical volumes at the accounts. More leading edge companies will baseon account potential.

By law, must equally and equitably distribute promotion dollars to accounts.

Activity 2: Allocate to Account Group/Region (Iterative)

A. Allocate funds into first account grouping

May first divide overall funds from marketing into major customer types (i.e. Club Stores andGrocery Stores) or may allocate by geography, etc.

B. Continue to allocate funds until they are down to a sales representative level

Activity 3: Allocate to Account

A. Allocate spending budgets to account

Typically the person with the most knowledge of the account, the sales representative, will beinvolved in confirming budgets at this lowest level.

DESIGN CONSIDERATIONS

There are several factors that will affect how, or even if, the allocate budget to accounts process stepis performed. These factors are:


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Bottom up vs. Top down Budgeting

Top down Budgeting: Spending budgets by account can be allocated by sales management toeach sales representative or account as described in the above process step. The advantages ofthis method are:

Ensures budgets are allocated based on overall corporate Promotional Strategy for the

Brand/Product.

Ensures that account level budgets will meet overall spending budget.

Bottom up Budgeting: Each sales representative can determine the promotion dollars needed tomeet their sales targets during the Create Promotion Plan process step. In this case, a bottomup approach is used where each individual account budget is rolled up to an overall spendinglevel. The overall spending is compared to the total available dollars prior to approval. In thisscenario, the Allocate Budget to Accounts process step is not performed. The advantages of thismethod are:

Budgets can be generated based on needs at the account.

Account opportunities rather than just historical sales can be included in the budgetingprocess.

Lump sum versus accrual spending budgets: Promotion spending budgets are typically allocated atthe account/product level. Many manufacturers are struggling with whether this allocation should begiven to their account managers in a lump sum or by accrual based spending.

Lump Sum Budgets: Lump sum is when a sales representative receives a set dollar amount tospend on promotions for a particular category at a specific account. As an example, a salesrepresentative may receive 32,500 for promotional spending on liquid soaps.

Some of the advantages of lump sum are:

MaintenanceEasier to maintain and track.

Adherence to budgetLess likely to go over budget than with accrual based spending.It is important to note that with lump sum, there is still the issue of controlling promotionbudgets. As an example, a sales representative may agree with a retailer to do apromotion where they run an ad for $5000 and give the retailer $2.00 off per case of aparticular product. If the retailer buys a greater number of cases of the product thananticipated, the sales representative may go over budget on the promotion budget. Also,sales representatives may over commit on their promotion spending budgets.

Accrual Based Budgets: Accrual based spending is where a sales representative accumulatestheir budget for promotion spending based on the number of cases sold in a particular categoryfor a specific account. For example, a manufacturer may give a sales representative $2.00 forevery case of liquid soap the account buys. Therefore, if the retailer purchased 20,000 cases of

liquid soap from the manufacturer, the sales manager would have $40,000 to spend onpromotions for liquid soaps for that account.

Some of the advantages of accrual based spending are:

Directly incents


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This method directly incents the sales representative to increase the volume of a productfor a particular account.

Customer equityThis method represents a fair way of distributing promotion spending across multipleaccounts.

Greater controlSales representatives prefer this method because it gives them more control over thepromotional dollars they have to spend.

Reduces incentive to forward buy or divert

Forward buy refers to the process of purchasing extra product while it is on promotion forselling at a later date (stocking up). Diverting refers to purchasing product in one area ofthe country or for an account that can get a cheaper price and sending (diverting) it toanother area with a more expensive price. With accrual rates, everyone gets the samerate, every day thus reducing forward buy and diverting incentives.

Some of the disadvantages of accrual based spending are:

Adherence to budgetTend to go over budget easily with accrual based spending.The sales representative is spending the promotion dollars before they earn them. Forexample, the sales representative may estimate that they are going to sell 20,000 cases ofliquid soap with their account and at an accrual spending rate of $2.00 per case, decidesthey have $40,000 to spend on promotions for liquid soap. After spending the $40,000, itmay turn out that the customer only bought 15,000 cases of liquid soap. The salesrepresentative has now gone $10,000 over budget.

MaintenanceAccrual based spending is somewhat harder to track than lump sum dollars as the dollarsspent and accrued are not always part of the same event. In addition, the total spendingbudget is constantly changing as more cases are shipped.

National vs. Account Specific Promotions: One of the issues manufacturers deal with today is whatsort of guidelines to give their sales representatives when planning trade promotions. There are twodifferent methods they may use or they may choose a combination of the two.

Account Specific Promotion Programs

One method companies use, is to give the sales representatives a budget for their tradepromotions and allow them to tailor the promotions individually to the customer with noguidelines from corporate. The spending budgets are developed during this process step.

National Promotion Programs

Another method companies use is to have the marketing department define a list of nationalpromotions. These promotions will be available to all accounts and can not be altered by thesales force. In this instance, the budgeting process step will not be performed. As an alternateexample, a key account manager may identify a list of promotions for the overall account.Individual sales reps that call on the stores of this account choose from this list when definingstore-specific promotional activities.


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Account Specific and National Promotion Programs

A final method is to set up both national programs that sales reps can choose to run at theiraccounts or not and potentially to supplement that with additional funds for establishing accountspecific promotions. In this instance, those spending budgets will be developed during thisprocess step.

For additional information on the lump sum vs. accrual decision, see the Overall DesignConsiderations section of this document.

STEP 2: Create Promotion Plan


CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

INTRODUCTION

Creating the promotion plan is the largest component of the Manage Trade Promotions process. A goodplan is the cornerstone to successful trade promotion activities. Typically promotions have been seen by

manufacturers as short term initiatives to meet sales projections for a given period. Instead, tradepromotions need to be considered more holistically to meet long term account objectives. Creating aformal promotion plan helps manufacturers to take this longer term view.

Developing the trade promotion plan by account requires a strong understanding of past sales andpromotions and often simply a gut feel for future events. As a result, developing this plan can becomea black box with the historical data going in and a promotion plan coming out. The challenge is tounderstand the thought processes that the best reps are using to create profitable promotion plans andto translate that into reusable process steps.

Given the breadth of knowledge required to develop the plan, this process step should not be solelycompleted by either marketing or sales. Instead it should be a collaborative approach. Typicallymarketing will provide initial strategic direction, sales representatives will use that direction as well astheir extensive account knowledge to develop the detailed plan by account, and promotion specialists aswell as sales management will review and approve the plan.

Promotion planning is often done twice a year for six month periods. As companies become moreprogressive in their promotion practices and utilize more tools, the goal is to move to more of acontinuous planning process that allows them to apply learnings from the Q1 promotions to adjust thepromotions for Q2.


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FLOW

DevelopPreliminary

Plan

Roll-upand

Adjust Plan

ObtainInternal

Approval

Promotion Plan byAccount/Product


Spending Budgets byAccount

Historical Sales Data

HistoricalConsumption Data


Retailer Performance

Marketing Plan

Promotional Strategyfor theBrand/Product

Account Plan Customer Promotion

Calendar

Understanding ofCustomer

INPUTS

Sales Quota by Account/Brand: An understanding of the revenue and volume targets thatmust be met for each account and brand is a key input to the promotion plan.

See step 1 inputs for a further definition of sales quotas.

Spending Budgets by Account: If lump sum spending budgets are used, detailed spending

budgets for each account by product, or product grouping, are needed in order to create thepromotion plan. If spending budgets are determined based on accrual methods, the dollarsaccrued for each product sold are needed in order to create the promotion plan.

Historical Sales Data: Historical sales data is used to understand baseline sales for theaccount. (See step G below).

See step 1 inputs for a further definition of historical sales data.

Historical Consumption Data: Consumption data refers to the amount of product the retailersells to the end consumer. If consumption is much less than actual shipment volume, theretailer is not selling as much as he is purchasing. He is stocking up or loading. This loadingis often done during promotion periods when prices are lower. The retailer will then need topurchase fewer products later on when prices are higher.

Because a manufacturers key objective is to have more product consumed by end users, notjust ship it to sit in a retailers warehouse, he needs to focus on consumption data rather thansimply sales or shipment data.

For consumer products companies, consumption data can be purchased from third parties suchas IRI and ACNielsen. Many retailers also have this data making it a best practice for themanufacturer to partner with his retailers to share information.


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The promotion plan should strive to increase the volume of product consumed by the endcustomers.

Past Promotion Results: Knowledge of promotions that did and did not work well in the pastis a key input to planning future promotion events. Results of prior promotions are compiledduring step 6, evaluate promotion effectiveness. It is critical to capture qualitative data abouteach promotion in order for this history to be useful. For example, you may want to captureother causal information that had an impact on the success of the promotion, such as unusualweather conditions, competitive promotional activities, news stories about your company or yourcompetitors, etc.

Example: Ran an end aisle display and reduced the price of liquid soaps in 10 oz. bottlesto $1.59 from $1.89. There was a volume increase or lift over base sales of 25% duringthe time of the promotion. Competitor A also ran a promotion on their liquid soaps withRetailer XYZ during this time. Their price point for the 10 oz. bottles was $1.69.

Retailer Performance: Retailer Performance has two components:

Consumption Data:

Some companies will pay funds to their customers based on actual consumption data (sellthrough) rather than on shipments to prevent forward buying and diverting. In this

instance, actual consumption data will be needed during the execute step as it becomesavailable.

Compliance Data:

Syndicated data sources will provide information that can be used to see if the retailercomplied with the parameters of the promotion (consumer price for the product, number ofparticipating stores, % of stores displaying the product) The manufacturer may also receivesome proof of participation from the retailer (such as a copy of an in-store ad ornewspaper insert featuring the manufacturers product)

Marketing Plan: To maximize the effectiveness of the trade promotion plan, account managerswill want to take advantage of already existing marketing events and consumer promotions. Asan example, if you are going to run a price reduction on bar soaps for Vons, a sales

representative may want to time that price reduction for a time when commercials are runningfor their bar soaps.

Marketing will provide sales with a consumer promotion calendar showing when all events arerunning. They will also provide samples of ad slicks and other promotional materials.

The marketing plan contains four main components.

Advertising: television, magazine, etc.

Consumer Promotions: coupons (Free-standing inserts (FSIs)), rebates, etc.

Marketing Promotions: Win a Trip to the Super Bowl, special packaging and displays, etc.

Sales Promotions: sales contests, bonuses for gaining distribution for new products, etc.

Promotional Strategy for the Brand/Product: The sales force must be provided withinformation about the overall strategy and any guidelines for using promotion funds prior to theplanning period. In addition, they will be provided with information about how to spendpromotion dollars and specific promotion details as appropriate.

A key component of the promotional strategy is the role of trade promotions by brand.

See step 1 inputs for further definition of the Promotional Strategy for the Brand/Product.


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Account Plan: The account plan developed during the account planning process containsinformation about the goals for the account as well as types of promotions that should be run atthe account. The promotion plan should be consistent with the objectives outlined in the overallaccount plan.

Customer Promotion Calendar: Customer promotions are special events that are run by theretailer. Examples of customer promotions may include fall harvest days, turkey giveaways, etc.It is important for the sales representatives to take into consideration the promotional eventsoccurring at their customer sites to ensure their trade promotions compliment the customersplanned promotions and meet the customers needs.

Example: XYZ Grocery may draw customers into their store by giving away a free turkeyat Thanksgiving to customers spending a certain amount at their stores. This would be agood time to run a promotion on specific items due to the increased traffic anticipated inXYZ stores during this promotion. If you carry items that complement a turkey such asstuffing or mashed potatoes, it would be an ideal time to run a promotion on thoseparticular items.

Understanding of Customer: Information required to understand the customer could includethe customers:

Products / Services

Strategy

Goals

Objectives

OUTPUTS

Promotion Plan by Account/Product: The promotion plan for the account will list all of theevents that are planned during the planning period. Information about each event will include:

Event start and end dates as well as order and shipment dates for the promotion

Products included in the event

Expected base and incremental sales for each product (lift)

Event tactics (end-aisle display, temporary price reduction, ad feature, etc.)

Event costs (per case shipped to retailer, per case sold by retailer (scanned), lump sums)

Payment methods (off-invoice, bill back, separate check)

Expected profitability for the event (incremental Return on Investment (OI))

ACTIVITIES

Activity 1: Develop Preliminary Plan

A. Obtain Understanding of Past Performance

Review past sales figures to determine products sold at account and their base volumes

Review past consumption data to understand products sold to the end consumer vs. forward-bought (products purchased by retailers at low promotion prices and stored for future sales).Affect of forward buying on base sales should be accounted for in the promotion plan.


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Review past promotion history to understand learnings from past promotions.

B. Review account plan to understanding account goals

C. Review promotional strategy for the brand/product and marketing plan to understand corporateevents/strategy

D. Gather/Create list of potential events.

E. Historical events can be used as the basis for the plan.

Where national promotions or promotion guidelines are used, a list of potential promotion eventswill be supplied by marketing.

F. Determine which products you expect to sell at the account during the planning period

Based on sales of past products

Based on objectives identified in account plan

G. Enter base or everyday sales for each product

This is equal to how many units that we expect to sell at the account if we were to run nopromotions. The difference between these base sales and the target/quota as identified in theaccount plan is the volume that we need to generate through promotions.

H.

Select or plan the preliminary events to run at that account by product This step is completed based on knowledge of promotions that have successfully run in the past.

For companies who set up promotions at a national level, the sales representative may simply beselecting the promotions to run from a menu of options. In companies that allow for trulyaccount specific promotions, the sales rep will need to develop promotional events from scratch.

I. Determine the volume impact of the event based on past customer performance

Some companies may employ sophisticated computer modeling tools to perform this step.These tools use lift factors that can be purchased from outside sources, such as IRI andACNielsen, or lift factors that have been calculated internally based on past events to estimatethe future volume for similar events.

Other companies intentionally do not employ these expensive tools. Their feelings are that

there are so many factors impacting future performance (competitor events, new productintroductions, even weather . . .) that volume is better estimated by a person than a computer.

Often, manufacturers will have a modeling tool to show the expected sales lift at different pricepoints, based on the historical performance of the brand at that account.

J. Review event profitability/ROI for both the manufacturer and the retailer.

The selection of events is based on profitability for both the manufacturer and retailer. Salesreps must develop win-win promotional events in order to get the retailer to agree to thepromotion. Often, the sales rep will calculate the impact of the event on the retailers bottomline to use as a key selling tool.

In many instances, events are being run simply to generate volume. For example, if we are spending$20,000 to generate an increased volume of 10,000 cases where the net profit per case is $1.50, we maybe meeting revenue goals, but we certainly are not meeting profitability goals.

Activity 2: Roll-up and Adjust Plan as necessary

A. Roll-up each individual event to determine the overall volume and spending for the account byproduct or product group


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B. Adjust plan if necessary to meet corporate guidelines and targets (volume, spending and ROI)

The preliminary plan must be compared to corporate guidelines for promotion spending.

The preliminary plan must also be compared to the sales targets that have been established.

C. Adjust plan if necessary to make it sellable

The preliminary plan may need adjustment based on customer understanding and personal

knowledge of the account. While a plan may look good on paper, meeting the manufacturerstargets and appearing profitable for the account, it may not achieve the accounts statedobjectives.

Activity 3: Obtain Internal Plan Approval

A. Review plan with designated managers for approval

Once the plan has been created, it must go through internal approval before being reviewedwith the customer. The internal approval process and who reviews the promotion plans will varyfor every company. This may include the regional sales managers, a companys corporatepromotion specialists (customer marketing) and the brand managers for each product line.These managers will analyze the following:

Aggregated event plans by Account, Market, and Channel.Each person reviewing account plans will want to ensure that the aggregate of the accountplans that he is reviewing meets higher level spending budgets and sales quotas.

Overall promotional events.Regional managers and promotion specialists will use their knowledge to ensure that thepromotions selected and the expected lift from each seem reasonable. They will provideadvice on ways to obtain the greatest lift for promotion dollars spent.

B. Revise promotion plan as appropriate

C. Get Corporate approval

The finalized promotion plan is signed off by the designated corporate approvers. This will varyfrom company to company but could include people such as the corporate promotion specialist,

division vice presidents, etc.


Level of detail at which promotion planning is performed. At what product level does a company perform its promotion planning process? As an example:

Deodorants - you could plan for all deodorants, or break it up by product type: roll-ons versussolids, or break down into the different scents. The lowest level of detail would be by size andscent (sku level).

Most companies find a happy medium and base the level they perform their planning on anumber of factors, including:

Information needed by other corporate departments such as finance, order entry,manufacturing and production planning.

Cost/benefit of time required to do specific level of planning to the sales force.


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Include customer needs/preferences in promotion planning.

Utilize account teams and joint planning processes where applicable.

With key accounts or national accounts, a new model leading sales organizations areworking towards is one made up of account teams where the members of the teamrepresent areas/services the retailer values. As an example, if a retailer values category

management, a category manager would be part of the account team. For every accountteam member on the manufacturing side, there is a corresponding member on the buyersside. Leading sales organizations are working towards collaboratively developing theirpromotion plans with this knowledgeable account team where the manufacturer andretailer work together to determine which promotions would be most effective for both ofthem.

Take into account customer promotions when creating your promotion plan.

Simulation vs. Historical Planning Many companies simply plan based on their prior year events. This seemed to work last year so

lets do it again. Other, more progressive companies will incorporate these past events withcurrent strategies and guidelines communicated by marketing and sales management for the

coming year. At the leading edge, companies are developing plans based on simulation/what ifprojections of event volume, spending and ROI aggregated into a total projected plan. Software is available to perform this what-if analysis (IRI, ACNielsen and AIM within the

consumer products industry). It is important to note, however, that common sense andhuman interaction is still necessary to incorporate knowledge of upcoming events (i.e. acompetitor just released a new product so past history is not as reliable).

Planning Horizon The length of time that a plan will cover will vary by manufacturer, with event by event planning

at the low end and long term six month to one year plans at the high end. These longer rangeplans should be a collaborative effort created with the customer, based on volume, spending andROI targets.

Approval Process Options Who approves promotions and when they need approval varies by manufacturer. Options

include: All events require approval. Events outside of predetermined guidelines require approval. Total plan determines whether approval is required rather than individual events. Total plan

requires approval only if total projected plan does not meet target objectives (volume,spending, ROI).


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STEP 3: Sell-in Promotion Plan


CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

INTRODUCTION

After a plan is developed and has received internal corporate approval, it is ready to be presented to thecustomer for their approval and to obtain the customers commitment to meeting the sales projectionsgiven the designated promotional spending.

During the account planning process, many companies will be meeting with their customers to finalize theaccount plan. The promotion plan will often be discussed at these meetings as well.

FLOW

INPUTS

Promotion Plan by Account/Product: The promotion plan created in Step 2 is shown to thecustomer during the Sell-In Promotion Plan step.

See step 2 outputs for additional information on the components of the promotion plan.

Prepare forCustomerQuestions

PresentPlan to

Customer

RevisePlan asNeeded

CommittedPromotion Plan byAccount/ Product


Historical shipments Historical

consumption data Past promotion

history Customer Promotion

Calendar Historical Account

Activity

CommitthePlan


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Historical Shipments: Past shipment data will be used to show the customer how the currentplan varies (or does not vary) from the past.

See step 1 inputs for a further definition of historical shipments.

Historical Consumption Data: Past consumption data will be used to show the customer theirhistorical sales to end-consumers and how the new plan compares to the past.

See step 2 inputs for a further definition of consumption data.

Past Promotion Results: Past promotion results are used to show the customer what has andhas not worked in the past and how the new plan compares to the past.

See step 2 inputs for further information about past promotion results.

Customer Promotion Calendar: The promotion plan will be mapped against the customerspromotion calendar to show how the planned events fit with the customers overall promotionplan.

See step 2 inputs for a further information about the customer promotion calendar.

Historical Account Activity: Results of account meetings, activities and issues addressedshould be maintained for each account. Information related to past promotion activities and

issues is useful in anticipating customer questions and objections to future promotions.

OUTPUTS

Committed Promotion plan by Account/Product: At the completion of this step, thepromotion plan developed during Step 2 will be marked as committed to by the customer thecustomer agrees to the volume goals given the spending provided.

ACTIVITIES

Activity 1: Prepare for Customer Questions

A. Review Historical Data

Prior to meeting with the customer, it is important to review historical data on the customer andto understand past issues.

B. Anticipate customer questions and objections

Using his understanding of customer hot buttons, the sales representative can anticipatequestions and objections to the current promotion plan that will be presented.

The sales representative should formulate responses to anticipated questions and objections inadvance.

Activity 2: Present Plan to Customer

A.

Prepare Customer Presentation

Presentation to the customer should include several components:

Calendar showing all the promotional events you plan on running with the customer duringa designated time frame alongside corporate merchandising and advertising events.


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Supporting materials for the promotion (display material, advertising material, contests,packaging)

Clearly stated expectations of the number of cases that the customer is expected to buyalong with what you will be giving the customer to participate in promotional activities.

Anticipated customer volume (consumption) and profitability.

B.

Schedule and Conduct Presentation

Activity 3: Revise Plan as Needed

A. Update Plan based on Customer comments

B. Obtain internal approval as needed

If the customer revisions have an impact on projected revenues or budget, they need to berouted through internal approval once again.

Required secondary approval steps and guidelines will vary by manufacturer.

Activity 4: Commit the Plan

A. Interface plan with manufacturing for volume forecasting

The overall sales plan is initially sent to manufacturing when completed. However, thepromotion plan now gives an even further level of detail on the products to be sold.Manufacturing should reconcile this data to their production forecast.

B. Set up plans in order entry/invoicing system

The specific promotions need to be set up in the order entry and invoicing system so that orderswill be generated taking into account the guidelines and prices specified in the promotion plan.As an example, if part of the promotion plan involves $2.00 off invoice for every cased of barsoap sold to XYZ Grocery during the month of July, this needs to be recorded to ensure that

Vons will receive the appropriate discount on the cases of bar soap they order during the monthof July.

C. Set up plans in accounting system

In order to ensure timely payment of promotion checks and to accurately track promotion spending,it is important to have promotions tightly integrated with accounting systems. If these are notautomated interfaces, promotion information should be entered into accounting systems manually.


Commitment of the Plan

Plan commitment may take place either after internal approval or after the final customeracceptance.

When a plan is committed, some manufacturers will want to save this plan as a baseline tocompare to at the end of the planning period.

Approval of the plan


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Whether or not the plan requires another round of approval after changes are made by thecustomer will vary by manufacturer. In many instances, the plan or events will only requireadditional approvals if the revenue or spending projections have changed.

Companies may utilize the same approval process that was used during the creation of thepromotion plan, or they may have a simplified approval approach for changes to the plan.

Integration with other systems and departments

The promotion plan contains information that is useful across the company (customeraccounting, manufacturing, customer service, etc.). Rather than keep this plan as a sales andmarketing document, leading companies are sharing the plan across departments. This sharingcan be manual or automatic links to other systems.

STEP 4: Execute Promotion Plan


CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

INTRODUCTIONThe promotion plan documents what the manufacturer will do for the retailer in exchange for what theretailer will do for the manufacturer. During this step, the manufacturer needs to actually execute theirside of the plan based on previous commitments. This will entail finalizing ads where appropriate,performing retail activities as needed, and giving appropriate payments and discounts. In addition, themanufacturer will want to monitor retail activities to ensure that their customers are acting as agreed.

FLOW

Assist inMerch and

Advertising

MonitorRetail

Activities

AuthorizePayments

Completed Event/Proof ofPerformance

Customer Payment Closed Deduction


Shipments

Retailer PerformanceResolve Deductions


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INPUTS

Promotion Plan by Account/Product: The promotion plan developed and committed insteps 2 and 3 is required to understand performance requirements of both the manufacturer andthe retailer.


Shipments: During this step, we will view the volume of actual product shipments sent to eachaccount to confirm retailer performance and to make payments as applicable.


Consumption Data:

Some companies will pay funds to their customers based on actual consumption data (sellthrough) rather than on shipments to prevent forward buying and diverting. In thisinstance, actual consumption data will be needed during the execute step as it becomesavailable.


Compliance Data:

Syndicated data sources will provide information that can be used to see if the retailercomplied with the parameters of the promotion (consumer price for the product, number ofparticipating stores, % of stores displaying the product) The manufacturer may also receivesome proof of participation from the retailer (such as a copy of an in-store ad ornewspaper insert featuring the manufacturers product)

During this step, we will be looking at actual compliance and consumption data and comparingthat to our planned consumption for the product.

OUTPUTS

Completed Event/Proof of Performance: At the end of this step, the event will becompleted and proof of retailer performance (did they really run the ad, display, etc). will beobtained. If the proof of performance is not available, payment should not be made.

Customer Payment: Where proof of performance is met, payment will be made to thecustomer based upon the spending agreed to in the promotion plan.

Closed Deduction: Deductions occur when the customer pays less than their full invoiceamount. They often do this because prices and discounts on the invoice do not match what wasagreed to with the manufacturer or because the manufacturer owes them money for promotionperformance and has not yet paid. During this step, deductions will be reconciled against thepromotion plan and proof of performances are cleared where appropriate.

ACTIVITIES

Activity 1: Assist in Store Merchandising and Advertising

A. Finalize ad, price, etc. as agreed to in the promotion plan

B. Execute any agreed to store level merchandising

Some manufacturers utilize their own employees to set up displays or perform other merchandisingactivities. Other companies hire third parties to perform their merchandising. Some manufacturers


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pay the retailers to perform their merchandising activities. Merchandising activities can typically beperformed by part-time and lower cost employees.

Activity 2: Monitor Retail Activities

A. Monitor Retail Activities/Conduct Store Checks on Major Sales Drives

B. Verify and document performance This would include verifying an ad you agreed to run for your product in the retailers weekly

circular was actually run, an end aisle display was set up correctly, etc. Some companies willhave their own account managers do these store checks; other companies will hire a third partycompany to do them. PIA is a common company used to perform these lower levelmerchandising/monitoring activities.

Plans for a chain may include an expected level of participation in the promotion by stores in thechain. For example, 80% of stores in the chain are expected to have an end-of-aisle display.

Activity 3: Authorize Payments

A.

Review event performance vs. commitmentsB. Authorize payment to customer if customer is eligible

C. Send payment authorizations to Accounts Payable

D. Check to see if open deduction for performance before making payment

If applicable, apply payment amount to deduction

Activity 4: Resolve Deductions

A. Establish agreed to process for dispute resolution

B. Receive open deductions for customer from Accounts Receivable

C. Match open deductions to promotion commitments

D. Send matched deductions to Customer Service/Accounts Receivable to clear


System Links with Order Entry

When executing promotions, often times off-invoice payments are made. In these instances,the order entry and invoicing systems need to know the terms of promotion plan agreements.This process should happen via an automatic link, but may often be a manual interface until thepromotion planning system becomes enterprise wide.

Capturing promotions in order entry can also enhance deduction processing. Ideally, promotionnumbers are captured on orders and processes are built in for the system to automatically clearmost deductions.

Payment options


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Manufacturers have many payment options available to them when promotion performance hasoccurred. Any of these payment methods are acceptable. However, it is important to explicitlycommunicate preferred payment options and to establish processes for executing those options.Many problems exist when retailers and manufacturers are expecting payments in differentforms. Typically payment options include:

Gelco Draft: Gelco is a commonly used third party company for processing promotionpayment checks.

Separate Check: The manufacturer may directly issue a check to retailers for promotionperformance.

Credit Memo: The manufacturer may issue a credit memo to the retailer to apply to futureinvoices.

Off-invoice: The manufacturer may take money directly off the invoice. This is typicallydone on a per case basis. The invoice will show the regular price and a sale price.

Pre authorized deductions: In some cases, manufacturers welcome deductions fromretailers. However, it is important that the manufacturer be expecting these deductionsand have the appropriate clearing processes/systems in place to handle the deduction.

Prepayment: In this case, a manufacturer will pay the retailer prior to the promotion eventbeing performed. This ensures that retailers are paid on a timely basis and eliminates theneed for a deduction. However, many manufacturers do not favor this option because theyare concerned with non performance on the retailers part.

STEP 5: Monitor/Revise Promotion Plan


CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

INTRODUCTION

The promotion plan acts as a guide for understanding the promotion spending and expected salesvolume at each account. An effective account manager will follow this plan to ensure that he is meetingguidelines. During the planning period, any changes to the plan should be recorded along with actualperformance so that there is always a clear picture of expected performance and so that changes can bemade early on if expectations are not being met.


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FLOW

TrackActuals vs.

Plan

MonitorInventory/Shipments

MonitorTrade

Budgets

Updated Promotion Planby Account/ Product(Current Forecast)


Shipments

Retailer Performance

RevisePlan asNeeded

INPUTS

Promotion Plan by Account/Product: The promotion plan developed and committed insteps 2 and 3 is required as the baseline to compare actuals to and to make revisions against.


Shipments: During this step, we will be monitoring the volume of actual product shipmentssent to each account as they occur. These shipments are compared to our planned shipments.


Consumption Data:

Some companies will pay funds to their customers based on actual consumption data (sellthrough) rather than on shipments to prevent forward buying and diverting. In thisinstance, actual consumption data will be needed during the execute step as it becomesavailable.


Compliance Data:

Syndicated data sources will provide information that can be used to see if the retailercomplied with the parameters of the promotion (consumer price for the product, number ofparticipating stores, % of stores displaying the product) The manufacturer may also receivesome proof of participation from the retailer (such as a copy of an in-store ad or

newspaper insert featuring the manufacturers product)

During this step, we will be looking at actual compliance and consumption data andcomparing that to our planned consumption for the product.

OUTPUTS

Updated Promotion Plan by Account/Product (Current Forecast): As promotion eventsare occurring and we are able to compare are actuals to our initial plan, we will modify the planto account for variances. The outcome of this step will be a current version of the plan basedon current knowledge and actuals. If updated diligently, this updated plan should alwaysrepresent the current forecast of total sales and spending during the planning period.

ACTIVITIES

Activity 1: Track Actuals vs. Plan

A. Apply actual figures to planned as available

Actual cases


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Actual revenue generated

Actual promotional spending

Actual profitability

Participation

Compliance with promotion parameters (price, stores w/displays, copies of ad features.)

Activity 2: Monitor Inventory/Shipments

A. Compare next weeks planned shipments to inventory

This is a best practice to prevent out of stocks during critical promotion periods. It is notcurrently seen at many clients.

Timing of this activity (days, weeks) can vary based on cycle times.

Activity 3: Monitor Trade Budgets

A. Review and monitor trade budgets

Capture promotion commitments/liabilities

Activity 4: Revise Plan as Needed

A. Identify variances to plan

Progressive companies are using intelligent agents to scan for exception situations duringexecution. In other companies, more manual methods are used and events are often only spotchecked.

B. Revise the plan as needed to meet new customer and business demands

Significant differences to plan may require mid-course corrections. For example, expeditingadditional shipments to support strong early promotion results or seeking additional fundingwhen promotion shipment volume is weak.

C. Obtain internal approval as needed

If the customer revisions have an impact on projected revenues or budget, they need to berouted through internal approval once again.

Required secondary approval steps and guidelines will vary by manufacturer.


Using the plan as a current forecast

If the plan is monitored frequently and updated to show current actual shipments plus currentexpected shipments, it provides a detailed forecast of total expected shipments at the end of theperiod. The benefit of this forecast vs. the time commitment needed to keep the plan updated

should be addressed.

Capturing qualitative information about the event

To make historical information more useful, it is important to capture other causal informationthat may have impacted the success of the promotion for this account. This may include


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competitive activity, weather conditions, unusual publicity about the product or category (suchas a story in Newsweek saying that oat bran lowers cholesterol), etc.)

Approval of the plan

Whether or not the plan requires another round of approval after changes are made duringexecution will vary by manufacturer. At this stage in the process there is little that can be doneabout volume changes and thus approval is typically not required. Additional spending will oftenrequire approval.

Companies may utilize the same approval process that was used during the creation of thepromotion plan, or they may have a simplified approval approach for changes to the plan.

STEP 6: Evaluate Promotion Effectiveness


CreatePromotion

Plan

Sell-inPromotion

Plan

ExecutePromotion

Plan

Monitor /RevisePlan

EvaluatePromotion

Effectiveness

INTRODUCTION

As earlier discussed, past history is an important input into the planning process. In addition, studiesshow that anywhere from 50% to even 90% of promotions are not profitable. The easiest way toincrease the profitability of trade promotions spending is to shift funds from what doesnt work to whatdoes work. Thus, post analysis is a critical component of trade promotion planning process to ensurethat the most effective promotions are utilized.As important as post analysis is, many manufacturers have resource constraints and do not performadequate analysis. Those that perform this analysis most effectively have promotion or customermarketing specialists in the sales organization working closely with the sales representatives tounderstand and document promotion performance.


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FLOW

INPUTS

Promotion Plan by Account/Product:A copy of the baseline and current plans (if they areboth available) is necessary for comparing actual performance to plan during the post analysisstep.


Shipments:Reports of actual product shipments to each account are required to compare tothe plan.

Consumption Data:Actual consumption data, if available, is needed to understand the endresult of each promotion. How much was actually purchased by the end consumer?


OUTPUTS

Promotion Results: During this step, we will analyze and document the results of thepromotion plan. These results are a key input to future planning sessions. This should includequalitative data about the other causals that may have impacted the plan.

Promotion Effectiveness Scorecard: Leading edge manufacturers will develop a formalscorecard to consistently and effectively perform post analysis.

ACTIVITIES

Activity 1: Gather Promotion Results

A. Gather Actual Shipments

B. Gather Actual Consumption

C. Gather Actual Spending

Activity 2: Evaluate Individual Promotions

A. Calculate Performance Metrics

Several metrics are used to analyze the effectiveness of a given promotion

% Lift:To determine which event type provided the largest sales increase.

Weighted Weeks of Support:

GatherPromotion

Results

EvaluateIndividual

Promotions

DocumentPromotion

Learnings


Promotion

EffectivenessScorecard


Shipments

Consumption Data


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To understand the quality of support and type of ad support for the event activity.

Pass-through Analysis:To determine what amount of merchandising funds have been passed through in terms ofreduced price to the consumer.

Trade Margin Analysis:

To identify whether an account is inclined to invest in brands and categories.

Spending Efficiency:To determine the relative return on merchandising fund investment at the account level.

Cost Per Incremental Case:To determine the cost of each incremental case sold during an event.

Profit Per Incremental Case:To evaluate the profit generated by each incremental case sold during an event.

Metrics can be documented on a promotion effectiveness scorecard for consistentdocumentation and easy viewing.

B. Review performance metrics and determine root cause of problems

Activity 3: Document Promotion Learnings

A. Document customer and event learnings

Document external factors such as retail competitor actions, significant out-of-stocks orseasonality that may help interpret promotion results.

Document additional learnings about what did and did not work well with the promotion.

B. Share findings within and between companies

Communicate findings to other departments (marketing, manufacturing, customer accounting,etc.) and mutually develop recommendations for the next planning cycle.

Communicate findings to business partners and customers to help them understand what doesand does not work.


Tie consumption data back to promotionsWhen estimating the effectiveness of a promotion, it is important to understand not only how muchproduct was shipped to the retailer, but how much of your product was actually purchased by theend consumer. This data helps manufacturers control things such as diverting products and forwardbuying by the retailer. It also helps the manufacturer understand which promotions were trulyeffective and which were not.

Dont underestimate the complexity.

Consumption data is purchased from third parties such as IRI and ACNielsen or from retailers.Because of this, the manufacturer does not have any control on how they get this data or howthe 3rd parties track this data. If the manufacturer tracks and plans for their promotions at adifferent level than the 3rd parties track actual consumption, it is difficult to tie this data back tothe promotions. Decide early what data you need to tie together and ensure that systems andprocesses are in place to appropriately track the data.


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At what level should analysis be performed Product or Account?Post analysis should actually be performed at both the product/brand and the account levels.

Typically overall product or brand analysis will be conducted by a marketing brand manager. Heis interested in determining which brands and products should get future promotional dollars

and how should future funds be allocated.

Customer level analysis will be done by the field sales representatives and trade marketingspecialists within the sales department. They are interested in which events look mostpromising for the account, in light of past performance, and how to maximize future eventperformance.

4. RolesThere are several people involved in the trade promotion process, all with unique skills andresponsibilities. In leading edge companies, these roles are assembled into a cross-functional accountteam to serve each customer as effectively as possible.

Marketing Brand Managers:

Responsible for providing marketing plan and high level spending budgets to sales for aparticular brand or brand group

Establishes national level promotions and promotion guidelines

Performs post promotion analysis at a brand level

Sales Management:

Overall ownership for meeting sales volume and profitability goals within pre determinedspending budgets

Allocates quotas and budgets to a sales representative or account level

Provides guidance during the creation of the promotion plan

Acts as a primary approver of the plan

Field Sales Representative/Account Manager:

Primary responsibility for creating the promotion plan

Sells in promotion plan to customers

Executes and tracks plan

Performs post analysis at an account level

Customer Marketing:

Promotion Specialists within the sales or marketing organization

Assists in plan creation and post analysis

Acts as a reviewer of the plan

Customer Accounting:

Monitors spending budgets


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Oversees payment of promotion dollars

5. Key Process Measurements Trade Promotion Spending as a Percent of Sales: A common goal of initiating effective

trade promotion practices and analysis is to be able to more efficiently spend trade promotiondollars getting more revenue gains for fewer dollars. Measuring trade fund spending as apercent of sales will help to determine if we are meeting that goal.

Return on Investment for Promotion Dollars: Currently many manufacturers look atrevenue and case volumes rather than ROI. Implementation of effective trade promotionprocesses will enable us to capture ROI and to see it increasing.

Accuracy of promotion plan revenue and spending projections: Compare actuals toplan and document where differences occur. Over time we should see greater accuracy of theplans eventually leading to better production scheduling and reductions in the number of out-of-stocks.

Number of outstanding deductions: The overall deduction balance should decrease overtime

Time to resolve deductions: The amount of time needed to resolve and clear a deductionshould decrease.

Additional distribution for a product

Adding more facings for an established brand: Gaining facings for a new product

Consistency of product demand: While promotions are being run, we will often see hugeincreases in shipments of the promoted products followed by little or no demand for theproduct. This indicates that retailers are forward buying the product at the lower promotionprice and storing it for future sales. The overall promotion strategy and plan should look to

reduce the amount of forward buying and diverting by retailers and even out the demand.

6. Overall Design Considerations

National versus account specific promotion planning

One of the issues manufacturers deal with today is what sort of guidelines to give their salesrepresentatives when planning trade promotions. There are two different methods they mayuse or they may choose a combination of the two.

Account Specific Promotion Spending: One method companies use is to give the salesrepresentatives a budget for their trade promotions and allow them to tailor the promotionsindividually to the customer with no guidelines from corporate.

Advantages:

Allows the sales representative, who knows the customers needs best, to tailorthe plan specifically to meet their customers needs.

Disadvantages:


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Sales representatives are not promotion experts and hence, may not know whichpromotions are most effective.

National Promotion Spending: Another method companies use is to have the marketingdepartment define a list of national promotions. The sales representatives are given the listof these national promotions and choose which promotions they will run for their accounts.

Advantages:

Gives sales representatives specific promotion guidelines and provides them alittle lead way on customizing the promotions for their accounts.

It is easier to set up the various promotions in the system since it can be done ata national level rather than by specific accounts.

Disadvantages:

Less flexibility to tailor promotions to individual customer needs.

Common Problems / Issues

Over-promoting the brand may erode baseline volume.

Too much promotion creates an expectation for the consumer that they should only buy thebrand when it is on sale leading to an erosion of baseline volume. In effect, you are payingthe consumer to buy a product that they would have otherwise purchased at full price.

Under-promoting the brand may lead to loss of market share and distribution. If the brand isnot promoted, consumers may buy other brands that are on sale instead of paying full price.

Plan not tied to clearly defined goals and customer strategy.There are several typical disconnects when creating a promotion plan. Before embarking onthe trade promotion planning process, these disconnects should be addressed.

Targets are often not established up-front for trade promotions.

Brand/sku level spending efficiency and promotion profitability is not known.

Strategy decisions are made without factual basis.

The role of trade promotion by brand is not clearly articulated or communicated to the field.

7. Trade Promotion Best Practices Deal Simplification

Deal simplification looks to reduce the administrative costs of running promotions. Thecomplexity of managing many fund options across many events consumes an estimated30% to 50% of an account managers time. The challenge lies in striking the right balance

between automating and standardizing processes to manage this complexity andmaintaining the incentive to perform.

Manufacturers have sought to simplify trade promotions by:

Reducing the number of options

Standardizing promotion frequency


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Offering advance payments

Simplifying off-invoice allowances

Joint Planning

Although manufacturers can impose new promotion structures and plans on their own, it isa best practice to work in concert with retailers in planning promotions.

By planning promotions together, manufacturers and retailers can develop more informedproduction and operating plans.

Joint planning of events (their frequency, timing, conditions and configuration) greatlyreduces the uncertainty in promotion events and performance thus helping to betterunderstand the supply chain.

Processes and technology should be flexible enough to catalog, track, and share customerspecific information and include customer preferences and needs as part of the standardprocess.

Use of Post Analysis

As mentioned earlier, up to 90% of promotions ran are not profitable. Post analysis is an

essential best practice to understand what does and does not work to better plan futurepromotions.

Revisit the strategic role of the promotion

While trade promotions will not disappear from the industry landscape, manufacturersshould reconsider its use.

The key question is, Would less traditional, more targeted alternatives for reachingconsumers, like retailers card based programs and co-marketing solutions be a better useof marketing dollars?

Whatever the promotion strategy, it should be clearly communicated and incorporated intoeach individual promotion plan.

Continuous planning moving away from planning twice a year to continuous learning and planadjustments throughout the year.

Align incentives to specific performance

Currently, most sales representatives are incented on meeting specific volume projections.

To obtain maximum ROI, sales representatives should be incented on meeting profitabilitymeasures and account goals.

8. Other Facts to Consider Amount of trade promotion spending is dependent on brand recognition

The number of trade promotions you run is very dependent on where you stand in the overallmarketplace. As an example, for Dial, with the exception of their soap, most their products are not#1 in the marketplace. Hence, customers do not demand certain Dial products causing Dial to haveto put money into trade promotions to move their products. On the other hand, Proctor and Gamblehave a number of products that are #1 in the marketplace which do not require such a heavyinvestment in trade promotions to move their products. Specifically, Dial makes Purex soap. If a


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retailer does not carry Purex, most consumers would simple grab another brand of detergent andcontinue shopping at that retailer. On the other hand, Proctor and Gamble make Tide. If a retailerdoes not carry Tide, some consumers would actually go to another retailer who did carry that brand.

Facts for ACNielsens Seventh Annual Survey of Manufacturer Trade Promotion Practices, 1997

Trends in Trade Promotion Spending

Trade promotion spending as a percentage of sales is 13% and has been constant from 1991- 1996. Food manufacturers are the only industry showing an increase in trade promotionspending, while both Health and Beauty Care and General Merchandise/Non Foodmanufacturers indicate lesser levels of spending.

Manufacturers report a slight drop off in the share of advertising and promotion dollarsallocated to trade promotions in 1996. Trade promotion spending accounts for 54% of theadvertising and promotion budget, compared to 58% in 1995.

The slight reduction in trade promotion spending as a percent of advertising is due toincreases in the dollars spent on media advertising (i.e. commercials).

The allocation of trade promotion funds is becoming more fragmented as manufacturers usea variety of tools to influence sales. Off-invoice allowances still represent the largest part of

trade promotion spending; however, this tool is declining in importance while street money,pay for performance plans, and frequent shopper programs are expected to increase.

There is little certainty about the percentage of trade promotion dollars actually being passedalong to consumers. Managers estimates range from as little as less than 30% to as muchas 90% being passed along.

Problems with Trade Promotions

Trade deductions from invoices continue to be the problem which most companies feel theyneed to manage better.

Slotting allowances, non-performance and non-pass through of deals are also areas thatrepresent problems for manufacturers.

Roles and Responsibilities

Senior sales management has emerged in the past two years as the main controllinginfluence in managing the trade promotion budget. Brand management shows an increase inmanagement responsibilities from 1995 levels, although the responsibility level is half of whatit was in 1993.

Slightly more than half of the manufacturer companies surveyed claim the presence of aTrade Marketing Department. This represents a substantial decrease from previous years.


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Glossary

Account Specific Promotion: Promotions that are developed for and offered to a single account. SeeOverall Design Considerations.

Accrual Programs: Programs for determining promotional spending budgets where accounts accruemoney to spend on promotions based on the number of cases purchased as opposed to having a setdollar amount regardless of volume. See Step 1 Design Considerations.

ACNielsen: A 3rd party supplier of consumption data and promotion modeling tools for consumerproducts companies.

ACV (All Commodity Volume): A measure of a particular retailers share of market volume for aproduct/brand. This measure is often provided by syndicated data sources such as IRI or ACNielsen.

Base Sales: The sales volume that is expected to be sold to an account when no promotions are beingrun. Also known as everyday sales.

Bill back: A bill submitted by a retailer to a manufacturer to be reimbursed for a promotion activity thatthey have completed.

Bracket allowance: Providing discounted prices when shipment volumes reach certain revenue levelsor brackets. For example, if 1 to 25 items are purchased the cost is $4.50 each. If 26 to 50 items arepurchased the cost is $4.25 each and so on.

Cannibalization: Increasing market share for one product at the expense of another.

Consumption data: Statistics showing the volume of product that was actually purchased, and

presumably consumed, by the end consumer as opposed to the volume of product that was simplyshipped to a retailer. See Step 2 Inputs.

Co-op advertising: A manufacturer incentive to retailers where they will share the cost of a retaileradvertisement that features their product.

Coupon Ad Handling Fees: Money the manufacturer pays the retailer for processing manufacturercoupons.

Customer Marketing: A group of individuals in the manufacturers sales or marketing department thatspecializes developing, monitoring and evaluating effective trade promotions.

Deduction:The result of a retailer paying less than the full manufacturers invoice due to invoice erroror the manufacturer owing the retailer money, often for completion of a promotional activity. See Step 4Outputs.

Discretionary Promotions: SeeAccount Specific Promotion.

Display: Special shelving and placement to draw additional attention to a manufacturers product in astore.


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Diverting: The retailer/reseller process of purchasing product in one area of the country or for anaccount that can get a cheaper price and sending (diverting) it to another area with a more expensiveprice.

End Aisle Display: A product display that is placed at the foot of a store aisle for maximum exposure.

Facings: Area on a store shelf in which to place the product. The goals is to get as much facings orshelf space as possible.

Feature: Placement of a manufacturers product in a retailers consumer advertising.

Forward Buy: See Loading.

Free-Standing Inserts (FSIs): Groups of coupons that are placed in Sunday newspapers or inmailings.

Frequent Shopper Programs: Programs such as Lucky Rewards where the consumer receives

discounts on certain products if they join the retailers club. These programs are quickly becomingretailers performed marketing tools to build customer loyalty and track customer purchases.

Incremental Sales: The amount of product sold over and above the base (everyday) sales as a directresult of a promotion being run.

Incremental TNDPC (total net dollars per case): A measure of promotional event profitability.

IRI (Information Resources Inc.):A 3rd party supplier of consumption data and promotion modelingtools for consumer products companies.

Loading: The retailer action of purchasing additional product during lower cost promotion periods andstoring it for future sale when prices have increased (stocking up).

Lift: The amount of incremental sales, frequently seen as a percentage of base sales.

Lift Factors: Calculations of average incremental received for given promotions. These factors can bepurchased from third parties. They are often used to calculate the expected volume of plannedpromotions.

Lump sum: A method of allocating promotion spending where a given amount of dollars are budgetedregardless of actual volume as opposed to accrual programs.

Market Development Funds: Lump sum money that is allocated to push a particular product in agiven market/geographical area.

Market Share: The percentage of a manufacturers sales of a product of the total sales of that product.For example, manufacturer Y has 27% of the printer, or liquid soap market.


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National Promotion: A promotion that is developed for and offered to all or many of a manufacturersaccounts, as opposed to account specific promotions. See Overall Design Considerations.

Off-invoice Allowances: Manufacturer practice of giving retailers a certain dollar amount off each unitof product they purchase and deducting the amount directly from the invoice.

Out-of-stocks: When product is not available to be sold.

Pantry Loading: See Loading.

Payment Terms: The timing and methods in which a retailer must pay a manufacturer for productspurchased.

Planograms: Detailed store shelf maps showing placement of manufacturers product.

Return on Investment (ROI): A calculation of the dollars made given the total dollars spent. ROI isan important post promotion calculation that is often overlooked.

Sales target/quota: The dollar and unit amount that each sales rep is expected to sell at his accounts.See Step 1 Inputs.

Sell-through: See Consumption Data.

Sell-through guarantee: A guarantee made by manufacturers to retailers that the retailers will sell agiven amount of product to end consumers during a specified promotion or the manufacturer will providethe retailer with additional promotion dollars or incentives.

Separate Check: A method for manufacturers to pay retailers for promotion performance by sending

them a check for the dollars promised.

Slotting Allowances: Additional funds provided by the manufacturer to the retailer to carry on newproduct on their shelves.

tpm overview for case

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