Relational Solutions Blog

Measuring Trade Spend Matters when it comes to nailing JBPS

Posted by Janet Dorenkott

Thu, Jan 29, 2015 @ 11:55 AM

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Depending on the initiative selected first, your requirements will vary.  However, there are certain measures we recommend that create very fast and measurable ROI for both the retailer and CPG manufacturers. Measures like Trade Spend are key to building successful JBP Joint Business Planning Sessions with retailers.

Raw material costs have been increasing and most companies have been cutting costs in that area for years. Additionally, most companies have cut employee costs. The next logical place for companies to look for cost cutting is in trade spend. Trade spend is typically the 2nd highest cost for CPG companies. 

Most companies cannot clearly identify which promotions are working and which aren’t. They also can’t clearly identify at which retailers or stores they are working.  Coverage is very low today, typically in the single percentage. The bandwidth simply doesn’t exist for analysts to manually pull together all the needed information to learn about how all the stores are doing for every promotion. 

CPG companies often have the impression they are doing a good job with trade. We see comments related to that on blog sites like retailwire.com. We recently went in to one company that feels spending 25% of revenue on trade spend is good. Why do they think it’s good? Because it’s what they’ve done for years? Somehow they also have the impression that their coverage is over 80%. Why do they have this impression? Because their definition of coverage is not accurate. They feel if they understand 20% of their top 2 retailers, they can apply this across retailers and basically have full coverage. This is inaccurate and I can guarantee, there are hundreds of millions being wasted on inefficient trade promotions.

For this reason, investment in integrating the right data will streamline this process.  But certain data sources are required in order to determine what is working for both the retailer and CPG manufacturers. Companies need to leverage POS, shipments, trade, forecasts and COGS in order to get an ROI that will reflect accurately for both the CPG manufacturer as well as for the retailer. 

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Topics: trade spend, JBP Joint Business Planning

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