Software tools for trade promotion management

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According to McKinsey, Revenue Growth Management (RGM) is “the discipline of generating sustainable, profitable growth in your consumer base through a range of strategies around assortment, promotions, business management and prices”. Although this idea is familiar, many companies are rethinking their approach to have a more dynamic strategy.

Consumer packaged goods (CPG) companies use RGM to coordinate the efforts of finance, product, marketing, logistics, and sales teams to maximize product sales. CPG companies use RGM strategies to sell products through online stores as well as physical locations. These programs are supported by media advertising, in-store spend, sampling, end caps, niche and displays. CPG companies also stimulate demand for their products by using coupons, cooperative advertising and special prices.

The CPG industry currently spends billions of dollars each year on trade promotions…about 20% of its annual revenue. It is essential to determine the ROI of all these promotion strategies. However, this is very complex. Fortunately, there are technology tools and expert consultants available to help you.

What is trade promotions management?

Trade Promotion Management (TPM) is the post-strategic, painstaking processing that CPG companies use to track and compensate retailers for promoting their products. CPG companies should view TPM as an essential part of their RGM planning as well as a dynamic investment opportunity.

“Trade agreements” are the second largest item in the income statement after the cost of goods sold. It’s no wonder that many companies strive to maximize their return on investment through these promotions.

“Settlement” is the term used by CPG companies to pay retailers the agreed promotional funds after meeting the performance conditions of the trade promotion agreement. CPG companies make these payments to retailers using:

  • Non-invoice allowances. The commercial allowances reflected in the product’s invoice price (off-invoice allowance) are straightforward. The net invoice price paid by the retailer already reflects the transaction, so no further proof of performance is needed.
  • Physical control. Although less common than in the past, it is still common for CPG companies to pay for promotions by check. These payments are sometimes even carried by the seller. This payment method requires tight integration with the TPM system, otherwise you risk double payments or double deductions.
  • Chargeback Deductions. The complexity arises when the settlement is a post-event chargeback deduction from the retailer for the agreed business agreement. These inferences are the most complex, requiring careful consideration after being inferred.
  • Combinations of commercial agreements. TPM accounting is essential because each business agreement is associated with an expected spend amount. This accrual is adjusted as chargebacks are deducted by the customer and validated with proof of performance or sales data.

Trade promotions management software

As stated above, it is important to use RGM to assess the ROI of your trade promotions. However, it is equally important to validate if your retailers performed well based on each transaction.

This requires integrated TPM, Deduction and Accounts Receivable software. These tools will validate and reconcile retailer/distributor chargebacks.

trade promotion
How Automation Software Streamlines Trade Promotion

11 Features of Best-in-Class TPM Systems

  1. Maintain trade agreements, custom or templates, in the system, as well as agreement accrual balances
  2. Validate business inferences using customer product sales data.
  3. Apply chargebacks to the appropriate accrual funds once the system (or a human) has verified the chargeback.
  4. Update account accrual balances as transactions occur, so finance and marketing always have the current status of liabilities and expenses.
  5. Identify and route chargebacks for validation as they occur in the accounts receivable cash application system.
  6. Validate business inferences using customer product sales data.
  7. Identify chargebacks that exceed accumulated balances or double deductions.
  8. Charge back deductions for which proof of performance is lacking or those that exceed transaction equalization fund levels.
  9. Integrate a deduction recovery workflow with stand-alone dunning to recover erroneous chargebacks.
  10. Keep an auditable history of every transaction for your accountants and support auditing and regulatory compliance.
  11. Set up an on-demand archiving system to investigate and dispute “post-audit claims” of debt issued by commissionable A/P auditors, which are rampant in the industry and cost billions of dollars. We estimate that 50% to 75% of post-audit deductions have errors or are duplicated, but rarely discovered and recovered due to inadequate systems.

Executed effectively, trade promotion management offers opportunities for revenue growth and significant return on investment. Rather than viewing TPM as an “ongoing cost of doing business,” think of it as a dynamic investment opportunity and an essential part of your revenue growth management planning. Systems, business processes and transaction planning require a fresh look. You need modern software solutions that simplify processes and deliver optimal results. In particular, implementing advanced trade promotions management software and systems to verify and reconcile trade deductions will show a high return on investment by eliminating errors and overpayments.

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