Trade Promotion Management System Integration with Deduction Management Systems
Trade promotion allowances are how manufacturers directly influence product performance at retail or through distributors. These trade promotion campaigns include in-store promotions and advertising and help boost sales in specific locations or periods, raise brand awareness, or bring a new product to market. In return for the trade allowances, the retailer promises to promote the item in the manner specified in the deal. TPM is is a “big deal” by any measure – CPG companies, for example, spend an average of 20% of their revenues on trade promotion.
Types of trade promotions include:
- Price Discounts
- Volume discounts
- Slotting, shelf-position
- Co-op advertising, catalogs
- In-store displays
- Product Sampling
- Staff incentives, gifting
The main trade promotion settlement types are Off-Invoice, Net Bill, Rebates, and Billbacks.
- Off-Invoice is the cleanest, as the incentive shows on the invoice, so there should not be double deduction surprises. However, if the retailer does not adjust its system product cost, the consumer may not get the discount, and the manufacturer will not get the expected sales increase.
- Net Bill is also a clean way as the customer sees only the net reduced price on the invoice, but it could be missed and later result in a deduction for the same allowance.
- Rebates are credits issued after the retailer has submitted proof of performance and which, like Billbacks, require a good TPMS to track effectively.
- Billbacks are trade promotions settled by a customer chargeback (debit memo) deducted from a payment usually not related to the original invoice. Billbacks cause most problems for the manufacturer because of retailer charging errors and the complexity of reconciling them to the deals.
Deal Document Format
Regardless of the type of trade deal, an essential best practice is to have a clear, detailed explanation in a standardized trade deal format since most problems result from misinterpretation by the customer, often resulting in extra costs to the manufacturer. Clarity is critical, and sometimes the manufacturer’s staff cannot interpret their own deals.
Trade Promotion System –Deduction Management System
An effective Trade Promotion Management System links the promotion and budget to the customer chargeback and prevents customer Billback errors that cost the manufacturer money.
Integrating TPMS with a Deduction Management System (that is usually a part of an automated accounts receivable system) is essential to complete the trade promotion – settlement cycle plus collect invalid Billbacks or a customer’s double deductions or post audit claims. The system should match and reconcile deductions to the trade deal and keeps the accrual balances to compare the budget vs. the actual cost.
The integrated systems should also provide a means to chargeback the customer when they have over-deducted or not complied with the terms of the deal, with workflow to manage the collection of the chargeback. Lastly, the TPMS-DMS system must provide detailed, auditable history when the (inevitable) “post-audit” chargebacks arrive a year or two later.
Trade Promotion Management-Deduction Management System Features
- Includes the official deal document format
- Approval and tracking workflows
- Matching and reconciliation of claims vs. the allowance
- Real-time accrual balances so you know your liability.
- Has metrics for actual vs. projected accrual spend, etc.
- Charging back the customer for excessive deductions
- Audit trail for post-audit investigation
- Works with any ERP system.
- Includes Deduction Management Workflow to complete the deduction resolution/recovery cycle in the same system.
The cost of Trade Promotions in the CPG space averages 20% of company revenues, reason enough to invest in TPMS/DMS technology. In addition, our experience is that customer chargebacks are rife with errors, so a substantial part of this huge marketing expense is wasted.
Integrated TPMS/DMS software can help prevent the losses, keep the accrual accounting straight, and, as a bonus, automate tedious, repetitive work.