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Retail, CPG and Logistics

The most overlooked errors in trade spend management

For most consumer product goods companies, trade spend forms the second biggest P&L account. Often, it goes up to 30% of the total revenue. This makes trade spend a key factor in driving the top line of a CPG business.

It is imperative that your business’s trade spend management strategy be data-driven to foster growth and secure a significant market space. This requires a balance of data analytics, foresight, and industry insights like market trends, consumer behaviour, and predictive analytics. The common mistakes, if overlooked, can cause financial setbacks, missed opportunities, and a decline in market share.

This article covers common mistakes in trade spend management and ways to avoid or correct them.


Common mistakes in trade spend management

A few common mistakes in trade spend management directly impact the business’s bottom line. Of course, it is no surprise that the first step in mitigating these errors is identifying them. Infosys BPM can help you with cultivating an end-to-end view of trade promotions and follow it up with business process consulting, advisory services, managed trade promotions services, technology consulting and implementation, and trade spend analytics.


Trade investments do not align with the brand strategy

Shifting customer behaviour and economic trends can create a gap between trade spend management and brand strategy. Some reasons for this are attempts to replicate the trade spend year on year without realigning the incentives, overinvestment in non-strategic channels, and continuing with the existing strategy without renegotiations with retailers.


Overleveraging trade spend

Using trade spend to cover for brand or product deficiencies and overleveraging Everyday Low Pricing (EDLP) can directly impact the bottom line. EDLP is often difficult to unwind and measure for ROI as compared to the traditional promotional spend.

It blocks the funds and prohibits you from shifting them into activities with a higher ROI. Companies leveraging EDLP have trouble calculating the ROI on up to 50% of their total trade investment.


A lack of integration between trade spend and retail media investments

In CPG businesses, different teams manage trade and retail media. These teams and the systems they use are disconnected, causing a lack of coordination and stacked spending. For example, businesses have siloed budgets for marketing, trade promotions, and retail media and do not distinguish between online and offline trade spend.


Not tracking the trade activity

When trade spend activity is not tracked, CPG businesses make decisions based on intuition rather than insights. It can lead to ineffective trade promotion strategies that do not align with long-term goals, budgets, and the need for reserve funds.


Ways to avoid or correct common trade spend management errors

Transform Your Trade Spend Strategy to Avoid  Costly Mistakes

Transform Your Trade Spend Strategy to Avoid Costly Mistakes

To invest the trade spend in activities with maximum ROI and to have a considerable market share, CPG businesses can consider the following strategies:


Make training an essential part of the process

Make sure that the employees at every level understand the company’s trade spend management systems and processes. You may also need to train them on ERP and accounting systems. Set clear expectations with each employee and their roles and train them for cross-functional tasks. Employees must have clear documentation and charts to apply trade spend management policies and workflows consistently.


Have a data-driven trade spend strategy

Data analytics is the key to optimising trade spend strategies. Companies can make informed decisions and derive better results. Key aspects include:

  1. Utilising historical data for trade spend forecasting and planning
  2. Using AI-enabled predictive modelling for faster and better decision-making
  3. Incorporating real-time data for an agile and responsive trade spend management

Map the trade spend alongside the deductions

Trade spend analysis must include a study of incoming deductions from all avenues. Align the organisation’s goals with trade promotion rates, forecast the spend on incremental lift and base sales, and track deductions against actual spend.
Sources of trade deductions include cash discounts for early payments, shortages in inventory receipts, and physical damage.


Integrate sales, accounting, and finance

Without an integration between the three verticals, your trade promotion management efforts can become counterproductive. Encourage integration of systems and processes and cross-functional collaboration when calculating accruals and deductions. Each vertical must refer to a common framework of trade deals, forecasting models, and promotional calendars.


Manage data validation

Validate that all the deductions align with trade deals and terms agreed with customers. Define the documentation the sales need to provide to accounts to manage promotional events.

These may include signed trade agreements and trade calendars. Validate and maintain a detailed record of all communication, including signed Bill of Lading (BoL) from the transporter and Proof of Delivery (POD) from the customer.


Measure the success metrics to evaluate performance

Define the metrics to measure the success of trade spend management, for example, incremental sales shift, market share gain, and promotional ROI. Evaluate the impact of trade promotions on sales.

With some expert consultations and cutting-edge frameworks for trade promotion management, your business could achieve augmented analytics, automation, and increased agility.

Read more about trade spend management services.


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