Trade promotions are the second largest cost item in the P&L on an FMCG company. The highest being costs of good sold. Hence, this post automatically becomes important to you if you are interested in this sector.
What are trade promotions?
Promotions are typically different ways of enticing customers with discounts to purchase your product/service. These can be of various kinds, such as Buy one get one, Buy X get Y free.
For an FMCG, a retailer is the customer whereas we, the end users of the products, are the consumers. As an FMCG player, my objective is to sell more to my retailers and one of the tools is promotions.
The promotions provided to retailers (customers of FMCG players) are considered as Trade promotions.
Note: Customer and consumer are different. Consumer
Why should we optimize trade promotions?
CPG Companies spend about 22% of gross sales on trade promotions and 40% of trade promotions do not drive the desired results.Most trade promotions are ‘gut’ and experience based. However, effective trade spends can lead to 15% increase in ROI and 3-4% increase in operating profit. Many firms are moving to use Trade Promotion Optimizers along with Trade Promotion management for optimization of trade spends and deriving better ROI.
How to use technology to optimize trade promotions?
Trade promotion optimization technology has the ability to optimize and enhance the output of trade promotions. TPO is an advanced predictive and prescriptive analytical system that helps business teams to optimize their trade spends. TPO is an additional component that complements promotion management capabilities
The objective of a TPO is to automatically generate optimized promo plans and calendars to meet business objectives enabled by interactive scenario evaluation.
Innovations in Trade promotion optimization space
Chaitali Bansal
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