How AI is disrupting the CPG world and revolutionizing trade promotion optimization

The consumer-packaged goods (CPG) industry generates billions of data points every day, making it one of the most data-rich industries in the world. But while CPG companies have a wealth of information at their disposal, until recently, this data has been largely underutilized.  That is all changing thanks to the rise of artificial intelligence (AI). AI is rapidly transforming the CPG industry, and trade promotion optimization is no exception.

By harnessing the power of AI, CPG companies can gain unprecedented insights into their customers, markets, and competitors. They can then use these insights to develop more effective trade promotion campaigns that drive sales and improve profitability.  

The role of AI in trade promotion optimization  

So where exactly does AI fit into trade promotion management and optimization (TPx)? In fact, CPG manufacturers can incorporate AI into every key stage of the trade promotion process, from planning and execution to measurement and optimization. 

Planning:  

AI can analyze historical data to identify trends and patterns which can then be used for demand forecasting. This information can help determine the right time to launch a promotion, the right target audience, and the right promotional offer. It not only drives effectiveness, but also efficiency: no longer do teams spend time on manual data gathering, analysis and planning. 

Execution:  

Tasks such as creating and distributing marketing materials, tracking sales performance, and managing budgets all lend themselves to automation using AI. This frees up human resources and provides more time to focus on more strategic tasks.    

Measurement:  

AI can be used to measure the effectiveness of trade promotions by tracking sales data, customer sentiment, and competitor activity. With this information, CPG companies can improve future promotions and get the most out of their marketing budgets.    

Optimization:  

Optimizing trade promotion campaigns is another area where AI can add value. Indeed, continuously adjusting the promotional offer, target audience, and other parameters, based on real-time data, is far easier with AI. This ensures that campaigns are always as effective as possible.  

Benefits of using AI for trade promotion optimization 

AI offers a range of benefits for CPG companies when it comes to trade promotion forecasting and optimization. There are plenty, and we highlight those we believe CPG organizations should give some thought. 

Enhanced decision-making:  

CPG firms have access to vast amounts of data, including historical sales data, consumer behavior, market trends, and competitor information. Using AI algorithms to analyze all this data enables CPG companies to make more accurate and informed decisions about their trade promotion strategies. AI can identify patterns, correlations, and insights that humans may overlook, leading to improved promotional planning and execution.    

Optimal pricing and promotional strategies: 

AI algorithms can optimize pricing and promotional strategies. They consider a range of factors such as demand forecasting, competitor pricing, product lifecycle, and historical sales data. CPG companies can leverage AI to identify the most effective pricing and promotional tactics. This will enable them to maximize revenue, profit margins, and market share.

Improved ROI and reduced costs:

This all means AI can help CPG companies to reduce costs by improving the efficiency of trade promotion planning and execution, as well as by identifying opportunities to optimize promotion spending. Additionally, AI enables efficient trade spend allocation by analyzing historical data, market dynamics, and consumer preferences. This optimization process helps identify the most promising trade promotion opportunities. In addition, it ensures that resources are allocated efficiently and generate the highest return on investment for CPG companies.   

Demand forecasting and inventory management:  

Applying AI algorithms to historical sales data, market trends, and external factors allows CPG firms to accurately forecast demand for their products. This helps in optimizing inventory levels, minimizing stockouts, and reducing excess inventory. By automating alignment of trade promotions with demand forecasts, CPG companies can improve working capital, ensure sufficient product availability during promotional periods and prevent lost sales or overstocking issues.    

All in all, the application of AI to commercial processes can drive a competitive advantage. CPG firms can gain a competitive edge by incorporating AI into their trade promotion strategies. Companies that effectively leverage AI algorithms to optimize trade promotions, personalize offers, and make data-driven decisions can gain a significant advantage over competitors. AI helps in identifying untapped opportunities, improving customer engagement, and driving sales growth. 

  

Other possibilities of AI for trade promotions

Besides the list above, which, we believe, delivers immediate results in CPG, AI has several other applications that may hold some relevance for CPG. Implementation of these applications depends on the commercial and logistical practices within the organisation. 

Personalized promotions: 

Tailoring trade promotions to individual consumers based on their preferences, purchase history, and demographics, can improve the effectiveness of promotions and enhance the overall customer experience. AI algorithms can analyze consumer data and generate these personalized offers and recommendations, increasing the likelihood of conversion and customer loyalty. It requires direct communication with consumers, either through marketing channels or the business-to-consumer route to market. 

Real-time monitoring and adjustment:  

AI-powered systems can monitor trade promotion campaigns in real time and provide continuous feedback. By analyzing data and performance metrics, AI algorithms can assess the effectiveness of promotions. However, it’s important to use this application of AI with caution. It is most effective when immediate action to optimize results is possible. In practice, response options can be limited. For example, if an in-store promotion is underperforming, adjusting the mechanism may not be feasible. This is because promotional communication is often prepared well in advance and cannot be altered during the promotion. In such cases, real-time monitoring may provide valuable insights but may not lead to actionable changes.

  

Empowering effective promotion plans that resonate with consumers

AI enables CPG companies to better define and target their core audience. This allows them to develop and execute more effective promotion plans that align with consumer behaviour. This is because AI can help companies to:  

Identify key market segments:  

AI can help companies to identify key market segments by analyzing customer data and identifying trends and patterns. CPG teams can then use information to target promotions to the right customers.    

Understand customer preferences:  

Companies can gain a better understanding of customer preferences by using AI to analyze customer data and identify trends and patterns. This information also helps to create promotions that appeal to customers.    

Develop pricing strategies:  

Companies can use AI to refine and develop their pricing strategies by analyzing market data, competitor prices, and customer demand. This enables them to set prices that are not only competitive but also profitable.  

AI and trade promotion optimization: takeaways 

AI is transforming the CPG industry, and trade promotion is no exception. By harnessing the power of AI, CPG companies can gain unprecedented insights into their customers, markets, and competitors. They can then use this information to develop more effective trade promotion campaigns that drive sales and improve profitability.  

 You can gain a deeper understanding of how AI can enhance your commercial processes, including trade promotion results, by checking out our AI webinar series. We provide valuable insights into how AI drives strategic revenue growth in the CPG industry across four in-depth episodes. These episodes cover topics from laying the AI Foundations to unlocking the power of Trade Promotion Forecasting, Promotion Optimization, and exploring The Future of AI. If you want to discover new possibilities and uncover the profound impact of AI on trade promotion, book a demo with us.