Trade Promotions Management:

An Essential Lever for the Retail Distribution Channel

Introduction:

Targeting consumers with the most appropriate promotions to induce them to buy a product is a major challenge for manufacturers that sell products through retail channels. Trade promotions average 20 percent of gross sales, comprise as much as 70 percent of marketing budgets and rank as the second highest cost behind cost of goods sold; yet most companies find it difficult to see the value they are getting from the money they spent or whether one promotion was more effective than another. It is estimated that every year more than $8 billion is wasted on deduction management and that the average cost to investigate a deduction event is $260. It is no small wonder that manufactures view the management of trade promotions as essential to achieving success.

Key Business Challenges in the Trade Promotions Management (TPM) Process:

Although promotions are a significant part of marketing expenditure, less than 30 percent of all promotions are profitable. The primary reasons for this are:

1. Lack of Accurate and Timely InformationPoor data integration across multiple sources, both internal and external, slows the decision-making process and forces decisions based on sub-optimal information. While sales and marketing managers are inundated with information related to promotions, critical questions relating to forecasting accuracy, post-promotion performance and deduction resolution may remain unanswered.

2. Lack of a Closed Loop Process Enabled Through Integrated TechnologyA best practice is to view TPM as a collaborative process where your company is constantly revising and refining your trade policies and promotions based on the results of your previous efforts and on the market and customer information you are constantly gathering. See Figure #1

Sales & Marketing,

Supply Chain,Finance

Supply Chain

Finance

Sales & Marketing,Supply Chain,Finance

Optimize

Localize

Execute

Monitor Collaborate

Figure #1 – Closed Loop TPM Process

Evaluation of past efforts and future customer desires feeds into planning for new promotions and trade policies. Plans can cover customer, product and money topics such as:

• How much money to spend on trade promotions?• Which products to spend money on?• Which customers to direct promotions toward?• Which deals to utilize? • How to divide trade spend money across parts of the company?

Executing the Trade Spend Plan involves documenting, approving and establishing budgets, promotions and other discounts, such as agreements. Administering the Trade Spend Plan includes activities like:

• Processing sales orders and claims• Monitoring promotions and rebates • Tracking spending and accruals

Finally, through analysis and reports that gather, organize and present information, the success of the Trade Spend Plan is evaluated. This evaluation is fed back into the next Trade Spend Plan development cycle and the whole process starts over.

3. Lack of an Appropriate Reporting and Key Performance Management FrameworkRunning efficient promotional events is a win-win proposition for both manufacturers and retailers. The challenge that manufacturers face, however, is to measure bottom line impact to enable the fine tuning of future campaigns. This requires both real-time and post-campaign analysis. Trade Promotion performance needs to be evaluated against pre-determined Key Performance Indicators (KPIs). KPIs are critical to enabling effective promotion planning, selection of promotion types and deployment of trade funds.

QAD’s “All New” Trade Promotion Management (TPM) Solution:

QAD Trade Promotion Management addresses all of these challenges.

Enhanced Group Analysis: This functionality allows users to group together individual products and customers into static or dynamic groups with common system or user-defined attributes. This provides for easy definition of promotions with an infinite combination of customers and products.

Flexible Deal Structure Capabilities: Today’s supplier to the retail sector must be prepared to offer a wide range of individual or combined promotional programs to meet market needs. TPM Promotions can be defined with single or multiple deals. Deal types can be: Immediate/Off-Invoice deals, Deferred Deals such as Rebates or Charge-backs, Free and/or Bonus Goods, and Allocated/Lump-Sum Payments. Configurable system settings control approval levels required before a promotion is “live”.

Real-Time Reporting: Sales data is tracked in real time and earned discounts are accumulated against open promotions. The TPM Sub-Ledger provides detailed and summary promotional discount information by Product, Customer, Promotion, Invoice and GL Account. TPM has a seamless integration to QAD Enterprise Edition (EE) Financials. Promotional Expense and Accrual postings take full advantage of Supplementary Analysis Fields. Finance typically bears the load of administration for promotions, handling deductions, claims, commissions, accruals and accounting functions. Administration can be a

costly and time-consuming process. QAD’s TPM solution provides instant visibility to all discounts earned making it unnecessary to research each claim and deduction to determine if it is valid.

Flexible Claim Management Options: Reimbursement to customers for Promotional Deals can be made by Supplier Invoice (Check), Credit Memo, or Payment Deduction. Manufacturers can wait for their customers and distributors to file claims or they can generate claims based on the discounts earned to-date. TPM users can post accrued promotion expense data monthly or quarterly.

Percent To Budget Reporting: No matter how simple or complex a manufacturer’s trade spend budget may be, TPM provides immediate visibility to Budget verse Actual totals when used in combination with QAD’s EE Financial Budgeting solution.

Role-Based Reports & Browses: The product boasts an easy-to-use .Net User Interface. Powerful role-based Browse collections are provided to allow any user, whether they are the Brand Manager or an Accounts Receivable entry clerk, easy access to the data and functions required to do their job. Standard reports, browses and operational metrics are provided to track KPIs. These can all be easily customized to meet different user’s needs.

ConclusionTrade Promotions Management is a key component of a manufacturer’s category and brand management capabilities. An effective Trade Promotions Management process should enable companies to consistently achieve critical operational and financial outcomes. QAD provides a robust TPM solution that enables in-depth promotion analysis, integrated process management and accelerated decision making. Please contact Hank Canitz, Sr. Director of Industry Marketing, at HCC@QAD.com or Jean Miller, TPM Software Engineer/Architect at JPM@QAD.com for further information.