What is the Role of Trade Investment in a Zero-based Budget Driven CPG Sector?

by T-Pro Solutions

In April this year, a Food Business News article – ‘3G, Kraft Heinz driving change’ – by staff writer Josh Sosland, Nicholas S. Fereday, senior analyst, Rabobank, New York, shared: “the unwelcome attention has forced these Rubenesque companies to slim down and boost margins by scouring through their own business operations for savings and adopting their own versions of z.b.b. (zero-based budgeting) to become less attractive targets.”

There is no question that the consumer goods industry is currently undergoing great scrutiny of their spending and sustainable profitability.  This tension puts the microscope on many of the practices that Consumer Packaged Goods (CPG) companies have relied on in the past to boost the bottom line including product innovation, marketing, and acquisition.  Some companies are taking the minimalistic approach of drastic cost-cutting associated with zero-based budgeting tactics, while others want to push their businesses in different directions.

According to a summary of Nestlé’s shareholder meeting in April, the group’s Chairman Peter Brabeck-Letmathe said: “At a time when we are seeing more and more consolidation and drastic cost cuts in our industry, it is important to reaffirm Nestlé’s drive to create value through growth.  Growth that is sustainable and profitable.  In order to be able to invest for growth, particularly through innovation and renovation, we will have to increase our operational efficiency to free up the resources we need.”

The Trade Investment Paradox

Regardless of the philosophical approach to spur greater returns for investors, the significant investment in trade promotions with historically poor or immeasurable results make it a prime target.  However, manufacturers are in a bind when it comes to trigger reactions to cut trade investment as doing so compromises important relationships with retail partners.

To overcome this paradox, we need to change the question.  Stop asking how to make cuts to our trade spending and challenge sales, finance and trade marketing to evaluate and innovate in ways that encourage more intelligent, data-driven investments that generate sustainable revenue.  A failure to change the current view of trade promotion as a necessary loss risks making uninformed cuts to spending without correcting foundational flaw in the system – companies are not accurately measuring the ROI of their promotions and therefore cannot use this information to make better decisions.

This band-aid approach to lessening trade marketing spending only adds temporary relief to the bottom line. Instead, companies need to invest in the ability to better understand their trade investment at the event, product, customer and organization level and equip their teams with the ability to improve future plans at the mutual benefit of manufacturer and retailer.

Invest in the Investment

At first read, it may seem illogical to suggest investing in a solution when the goal is cost cutting.  Remember though, the goal is sustainable revenue management with.  With a tool, such as a Trade Promotion Optimization solution, that combines quantifiable analytical insight into your trade investment and predictive planning capabilities to turn around unprofitable promotions, CPG companies can position themselves to not only see exponential return on the cost of the solution, but also develop a sustainable revenue generating investment on an annual basis.

What is the End You Have in Mind?

Today, retailers are battling it out for precious margins from highly distracted and analytically ill-equipped buyers.  Manufacturers, by no coincidence, are in an equally contentious and competitive position of driving revenue growth while protecting themselves from unwanted acquisition.

When it comes to trade investment, manufacturers cannot control what plans retailers will accept.  They cannot control what plans the competition is bringing to the table.  What they can control is the ability to use the data at their disposal to identify and fix gaps in trade promotion execution and develop the best promotional plans with quantified manufacturer and retailer KPIs to put both parties in the optimum position for ongoing success.

In other words, companies that adopt better practices, have greater visibility, and promote informed decision making will see greater results.

T-Pro Solutions combines experience-driven best practices with a CGT Editor’s Choice Trade Promotion Optimization post-event analytics and predictive planning solution to empower CPG manufacturers to transform their trade investment from a tactical practice to a profitable analytical strategy.