Why traditional solutions for trade promotion ROI are ill-suited for revenue management

CPGs are starting to realize that they need to do something different to improve their trade promotion ROI and that AI will be their driver.

With a quickly evolving and competitive consumer packaged goods (CPG) landscape, the list of business priorities is lengthy. ­There are a number of processes to improve, systems to update, and teams to reorganize in order to maximize efficiency and grow margins. But deciding where to make strategic changes often feels reactionary, so in the name of progress, organizations often try to apply an existing technology to a task it isn’t suited to handle.

Leading CPGs are increasingly adopting an approach called revenue growth management (RGM). RGM integrates decision making around pricing, assortment and CPG trade promotion spending, across all channels at the consumer and enterprise level, to drive profitable revenue growth and trade promotion return on investment (ROI). RGM has proven successful in the airline and hospitality industries over the last two decades. More recently, CPGs have begun to see the benefits of implementing RGM throughout their organizations.

The opportunity is huge, as effectively utilizing RGM can increase margins by up to 5%. But like trying to fit a square peg in a round hole, too many CPG companies are trying to implement RGM best practices while still relying on their traditional trade promotion solutions. As the idiom suggests, those solutions simply do not fit and trying repeatedly to make them will only lead to frustrating outcomes.

An outdated CPG trade promotion spending mindset

Traditional trade promotion optimization (TPO) solutions are scenario-based and trade promotion management (TPM) tools take into account transactional activity, but the two improve promotion effectiveness within a single retailer alone. As such, CPG account teams only look to maximize the business relationships they’re assigned to, not looking at the enterprise as a whole.

Legacy systems don’t push CPG companies to adopt the mindset necessary for a comprehensive, unified RGM approach. They do not inherently provide the capabilities needed for successful RGM for the brand as a whole. This is because legacy promotion planning capabilities don’t provide the holistic view of category, brand and consumer impact that drives a balanced approach across the entire retail landscape. When you consider the scale at which CPGs must make decisions, the lack of comprehensive fit becomes obvious.

Unfortunate gaps because of incompatibility

Aside from being hindered by the single customer-plan mindset of each account team, limitations of legacy solutions contribute to the following:

  • Siloed teams and processes, which lead to duplicative efforts;
  • Several versions of the “truth” because of disconnected data sources;
  • Relying heavily on post-event analytics alone to inform future decisions;
  • Misunderstanding customers’ true perception of value, failing to meet their expectations.

RGM is not well understood in the CPG industry. Fortunately, companies are starting to realize that they need to do something different to improve trade promotion ROI. They know that legacy solutions are based on outdated paradigms and assumptions, but most companies haven’t committed to letting go of what once worked to capitalize instead on the promise of new technology.

In our white paper, “Harnessing AI to Change the Game,” we look at the ways artificial intelligence technology drives true RGM practices across the organization. Solutions with a traditional approach to CPG trade promotion spending are not enough to win the customer, and only through AI and continuous machine learning will CPGs accelerate growth and trade promotion ROI. To learn more about how Symphony RetailAI can help, reach out to schedule a demo today.

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