What is Trade Spend Management and why does it matter?
Even the most mutually beneficial partnership can become complicated and fraught if it’s not managed correctly. That’s certainly true when it comes to trade spend, the funding that consumer packaged goods vendors invest with retailers to boost the placement and sales of their products.
That investment can go towards everything from discounts to promotions, marketing support, to securing premium positions on shelves and within stores. All of this can boost sales and visibility of a given product with consumers and deepen engagement with retailers.
This activity can encompass multiple product lines, moving through multiple channels, and multiple outlets in multiple geographies. That’s a lot of deals to be negotiated, all of which must be forecast, modelled, tracked, and optimized.
This means managing trade spend effectively is a challenge but can deliver a substantial benefit for those organisations that get it right.
Why is Trade Spend Management so important for CPG companies?
Trade spend can be used to cement a manufacturers’ relationship with retailers and by extension with consumers. But if manufacturers are not careful, they can end up frittering it away unproductively. At worst they can end up cannibalizing sales, undermining brands, and fracturing their relationships with retailers.
So what does effective trade spend management look like?
As a starting point, manufacturers need to be able to produce strategies that really do incentivise retailers. This means they need to produce accurate forecasts, and track and analyse their investment and activities, from volume pricing, slotting fees, advertising support and shelf space negotiations.
This will allow them to understand the effectiveness of their campaigns and establish the return on their trade spend investment. Ideally, they should be able to adjust their strategies mid-flight, boosting budgets to build on success, or paring back spending when it is clear it is not paying dividends.
But effectively managing trade spend should deliver other benefits. Investing in trade spend should be a collaborative process, and effective trade spend management should deepen relationships with retail partners over time. And together with effective feedback on programmes, this should position account managers to develop more innovative, effective trade spend strategies for the future.
That’s the ideal. However, there are significant challenges that prevent CPG manufacturers achieving this goal.
Some of these are related to the nature of trade spend activities themselves. While specific promotions can deliver clear benefits in terms of a boost in revenue or increased market share, it can be difficult to attribute a clear ROI to some broader trade spend activities. Some manufacturer-retailer relationships might include trade spend that is explicitly classed as “non-performing”.
The retail environment in general, and pricing structures in particular, can be extremely complex. A manufacturer’s relationship with a retailer may span multiple promotions and activities across multiple product lines, and multiple geographies.
Different retailers can have very different approaches to managing this complexity – and how they deal with suppliers.
Whatever the nature of the agreements, amassing the data needed to analyse how they are working in practice is a challenge. Manufacturer’s own systems may be siloed, with data locked in legacy systems, or otherwise hard to access. Suppliers too might suffer some or all of these problems.
And while life might be complicated by slow-moving legacy systems, things might be very different on the human side of the equation. Rapid turnover of staff can make it hard to obtain information, collaborate on strategies, and build long-term relationships.
Common Trade Mistakes to Avoid
Given the complexity of the manufacturer retailer relationship, and the challenges to achieving complete visibility across even small numbers of campaigns, it can be easy for manufacturers to fall prey to some common mistakes.
It can be easy to become over-reliant on promotions. They may be effective in driving sales, but this might be just a short-term boost. In fact, a manufacturer may even find that dedicated customers use promotions to stock up, hurting sales in the long run.
Inconsistent pricing can lead to customer and retailer confusion, to the point of undermining trust in a brand.
Alternatively, account managers might find it tempting to simply copy previous promotions, effectively cutting and pasting them into this year’s plan without really analysing how the market has changed.
All these problems can result in a “one size fits all” approach, ignoring the complexity of the environment, and failing to optimize programs accordingly.
Conversely, staff at CPG manufacturers may operate on an “every man for himself” basis, striking deals that might work for specific products or retailers, but not the team, or the company, as a whole.
All these traps will also prevent them using their trade spend, and the insights it generates, to develop fresh, innovative programmes, and deepen their relationships with their retail partners.
Benefits of Using a Trade Spend Platform for CPG Companies
Many of these potential traps are down to a lack of visibility and the meaningful data that can help account managers develop plans based on solid analysis and forecasts and optimize them in real time.
This can be because CPG manufacturers will be relying on legacy platforms, such as ERP systems, to power these operations. These systems might well be resilient, but they’re rarely flexible.
When it comes to informing their day-to-day operations, account personnel will often be modelling in spreadsheets, meaning they’re wasting time cutting and pasting data. This can result in official workflows being circumvented, and the risk of compliance protocols being breached.
This is where a dedicated platform can really help. A modern trade spend platform should allow teams to easily pull together and manage the full range of data sources they need.
That includes historical data and live information from their companies’ systems. But it also means syndicated and third-party data where appropriate. And it should be connected to the manufacturer’s accounting and financial reporting systems.
This will provide them with a clear overview of how their activities are playing out in the real world, allowing them to make informed decisions, as they track ROI over time, spot trends, and optimize campaigns as necessary.
This improved visibility will leave them in a better place when it comes to planning future Trade spend strategies and allocating budgets, because they can pinpoint what went right, or wrong, in the past. If they choose the right platform, they can also exploit machine learning and artificial intelligence, gaining deeper insight into their activities, and generating well-founded, accurate forecasts for future actions.
On a more prosaic level, they will also be able to eliminate manual activities, such as pasting data into spreadsheets, or wasting time setting up data integrations with disparate systems. Instead, they can configure streamlined, automated workflows, which also make it easier to meet audit and compliance requirements.
All these time savings mean they can focus on those areas where their skills will pay the highest dividends. And they will have the time – and the data – to work more closely with retailers, so that every campaign results in a win-win outcome.
Visualfabriq Trade Spend Master
Creating and executing effective trade spend activities requires a holistic approach and a conscious effort to create win-win strategies with your retail partners.
Visualfabriq Trade Spend Master has been built to enable this, by pulling together all the data you need to develop your forecasts and strategies, underpinned by cutting-edge artificial intelligence.
With easy connectivity into ex-factory, EPOS and syndicated data, you’ll also have full visibility into your strategies from the outset, allowing you to track profitability and ROI.
This means you can optimize your strategy in real-time. If you want to adjust prices and discounts, all it takes is a single click.
You can also configure a workflow that works for you, eliminating manual work, and building in all the appropriate approvals.
It gives all parties one version of the truth, including your colleagues in finance or executive management.
This means you can concentrate your efforts where they are going to pay the biggest reward – including the most important challenge of all, delivering strategies that clearly benefit you, your retail partners, and your consumers.
Short-term or one-size fits all approaches to trade spend are just not sustainable in the long term.
What manufacturers and retailers need is a holistic approach, that uses data-driven insights to develop and optimize trade spend programmes for the long term. This will deliver the best possible outcomes for all parties – including customers.
This builds a deeper level of trust between the manufacturer and retailer. But it also requires a platform that delivers trade spend optimization, by allowing you to bring together historic and up to the minute data and giving you the tools to model it using the latest analytical techniques.
That platform must also allow you to automate workflows, collaborate with internal and external partners, and ensure that all activities are approved and auditable.