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CIO eyes trade promotion management tech for predictive analysis

Trade promotion management is a big deal for consumer products companies, accounting for 14% of revenue, but getting the right TPM system and processes is a tough nut to crack.

Like many midmarket CIOs, Chan Kang, who oversees IT at Philadelphia-based Tasty Baking Co., faced staff reductions and budget cuts in 2010. He expects 2011 to be another tight year for IT. He will continue to outsource IT functions that are not core to the business and look for other efficiencies.

One project that he does plan to implement, however, is a new trade promotion management (TPM) system to help Tasty Baking gauge the value of the discounts it offers on its famous Krimpet sponge cakes and other sweet snacks.

"We have the data; we have all these systems," Kang said. "We need to leverage them to make intelligent business decisions."

Trade promotions are the deals and discounts that consumer packaged goods (CPG) companies offer to their retail and wholesale customers. The promotions are used to boost products' sales, control inventory or maybe hype new products. Promotional spending is big business, accounting for roughly 14% of revenue at the average CPG company, according to studies by Boston-based AMR Research..

But getting trade promotion management right is a tough nut to crack. Reasons range from the tremendous increase in the volume of in-store promotions, to the rise of online shopping and the industry's slow uptake of new technology. For companies with revenue of $5 million or more, only 13% of trade promotion projects meet expectations and 45% fail, according to AMR Research.

Buyer beware

CIOs in the market for trade promotion management systems should begin by understanding that TPM is a highly complex business process with many subprocesses and integrations points across the enterprise, said analyst Dale Hagemeyer, who leads the consumer goods team at the Stamford, Conn.-based Gartner Inc. Indeed, in a report outlining some top considerations before buying a TPM solution, he warned that the cost of getting a TPM solution live can be two to four times the cost of the software.

  • Integration is the big culprit. The process is "never as easy" as vendors say it is or may even know it is, Hagemeyer said.

    In fact, CIOs should not ask whether a vendor can integrate a specific date set or solution, but instead should ask for examples of "where a given version of a TPM solution has been connected to a specific data source," (for example, a specific version of an ERP system or syndicated data source), Hagemeyer warned.

    "Simply asking whether TPM can integrate with SAP or Nielsen is not enough. You have to ask about the version and module of SAP, or the specific data asset from Nielsen," Hagemeyer said.

  • Customization is a given with TPM solutions, in Hagemeyer's experience, particularly at large companies. But even for small consumer goods companies determined "to stay as out-of-the-box" as possible, he has never known of an organization that required no customization.

    CIOs should evaluate the vendor's base model with several different types of users to gauge which changes they will need, Hagemeyer said. Then they should ask the vendor which of those configurations can be done by the user, and which customizations are allowed and disallowed.

    In addition, hosted solutions, which are attractive for midmarket companies because of their low price and ease of entry and exit, offer less customization and are "not as conducive to integration" as on-premises solutions, Hagemeyer said.

Replacing a homegrown system and adding Trade Promotion Optimization

Tasty Baking's Kang has not decided on a vendor yet, and was loath to give out names, citing confidentiality agreements. However, he is leaning toward a cloud-based solution that will replace a homegrown TPM system and come with trade promotion optimization (TPO). This predictive analytics technology will allow the sales force to model the likely outcomes of promotions, based on historical data analyzed by the TPM system.

Tasty Baking, which does about $300 million in sales, is what's called a "direct store delivery", or DSD, manufacturer, Kang explained. It bypasses a retailer's warehouse to deliver goods directly to its customers' stores, using a network of some 500 sales distributors. As a result, the company captures the volume and mix of products, including the items that are promoted, that go into each store. Although it does not have the store register data of what got sold on which day, "We have data that is better than most," he said.

"What we don't do enough is measure the effectiveness of those promotions: how much lift, what is the baseline, the incremental profit -- in other words, whether it was a good idea," Kang said.

"We will feed the BI[business intelligence] data into this TPM tool, and then based off of those numbers, it will run its predictive model and determine how effective this promotion will likely be," Kang said. "From that, we can make a decision about moving forward, or if it is something we should reconsider."

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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