Software Tools for Trade Promotion Settlement
October 26, 2022
According to McKinsey, Revenue Growth Management (RGM) is “the discipline of driving sustainable, profitable growth from your consumer base through a range of strategies around assortment, promotions, trade management, and pricing.” Although this idea is familiar, many companies are rethinking their approach to have a more dynamic strategy.
Consumer packaged goods (CPG) companies use RGM to coordinate the efforts of finance, product, marketing, logistics, and sales teams to maximize product sales. CPG companies use RGM strategies to sell products through online stores as well as brick and mortar locations. These programs are supported by media advertising, in-store spending, sampling, end-caps, slotting and displays. CPG companies also drive demand for their products using coupons, co-op advertising, and special pricing.
The CPG industry currently shells out billions of dollars each year for trade promotions…an estimated 20% of its annual revenues. It is essential to determine the ROI all of these promotion strategies. However, doing so is very complex. Fortunately, there are technology tools and expert consultants available to help.
Trade Promotion Management (TPM) is the post-strategy, nitty-gritty processing that CPG companies use to track and compensate retailers for promoting their products. Therefore, CPG companies should view Trade Promotion Settlement as a critical part of their RGM planning as well as a dynamic investment opportunity.
“Trade deals” is the second largest item on the P&L statement after the cost of goods sold. It is no wonder that many companies are working to optimize their ROI from these promotions.
“Settlement” is the term for how CPG companies pay retailers the agreed upon promotional funds after they have met the performance conditions of the trade promotion deal. CPG companies make these payments to retailers using:
As discussed above, it’s important to use RGM to evaluate the ROI of your trade promotions. However, it’s equally important to validate whether your retailers performed correctly according to each deal.
Doing this requires integrated TPM, Deduction, and Accounts Receivable software. These tools will validate and reconcile the retailer/distributor billbacks.
Executed effectively, trade promotion settlement offers revenue growth opportunities and significant ROI. Rather than view trade promotions as an ongoing “cost of doing business,” consider it a dynamic investment opportunity and a critical part of your Revenue Growth Management planning. The systems, management processes, and deal planning require a fresh look. You need modern software solutions that simplify processes and provide optimal results. In particular, implementing advanced trade promotion software and systems to audit and reconcile trade deductions will show a high ROI by eliminating errors and overpayments.