Software Tools for Trade Promotion Management

Consumer packaged goods automation software

Consider Trade promotion management (TPM) an investment opportunity, and use advanced trade promotion management software to audit and reconcile trade deductions to eliminate overpayments.

According to McKinsey, Revenue Growth Management (RGM) is “the discipline of driving sustainable, profitable growth from your consumer base through a range of strategies around assortment, promotions, trade management, and pricing.” 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 brick and mortar locations. These programs are supported by media advertising, in-store spending, sampling, end-caps, slotting and displays. CPG companies also drive demand for their products using coupons, co-op advertising, and special pricing.

The CPG industry currently shells out billions of dollars each year for trade promotions…an estimated 20% of its annual revenues. It is essential to determine the ROI all of these promotion strategies. However, doing so is very complex. Fortunately, there are technology tools and expert consultants available to help.

What is Trade Promotion Management?

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

“Trade deals” is the second largest item on the P&L statement after the cost of goods sold. It is no wonder that many companies are working to optimize their ROI from these promotions.

“Settlement” is the term for how CPG companies pay retailers the agreed upon promotional funds after they have met the performance conditions of the trade promotion deal. CPG companies make these payments to retailers using:

  • Off-Invoice Allowances. Trade allowances reflected in the product invoice pricing (off-invoice allowance) are straightforward. The net invoice price paid by the retailer already reflects the deal, so no further proof of performance is needed.
  • Physical Check. While less common than in the past, it is still a common practice for CPG companies to pay promotions using checks. These payments are sometimes even carried by the salesperson. This form of payment requires tight integration with the TPM system, or you risk double payments or double deductions.
  • Bill-back Deductions. Complexity arises when when settlement is a retailer post-event bill-back deduction for the agreed trade deal. These deductions are the most complex, requiring careful review after being deducted.
  • Trade Deal Accruals. TPM accounting is essential because each trade deal has a forecasted spend amount associated with it. This accrued liability is adjusted as bill-backs are deducted by the customer and validated with proof of performance or sales data.

Trade Promotion Management Software

As discussed above, it’s important to use RGM to evaluate the ROI of your trade promotions. However, it’s equally important to validate whether your retailers performed correctly according to each deal.

Doing this requires integrated TPM, Deduction, and Accounts Receivable software. These tools will validate and reconcile the retailer/distributor bill-backs.

trade promotion
How Automation Software Streamlines Trade Promotion

11 Features of Best-in-Class TPM Systems

  1. Maintain Trade Deals, custom or template, within the system, as well as the deal accrual balances
  2. Validate trade deductions using customer product sales data.
  3. Apply the bill-backs to the appropriate accrual funds after the system (or a human) verifies the billback.
  4. Update account accrual balances as transactions occur, so finance and marketing always have the current state of the liabilities and expenses.
  5. Identify and route the bill-backs for validation as they occur in the accounts receivable cash application system.
  6. Validate trade deductions using customer product sales data.
  7. Identify bill-backs exceeding accrual balances or double deductions.
  8. Re-bill the deductions that are missing proof of performance or those that exceed the deal accrual fund levels.
  9. Integrate a deduction collection workflow with autonomous dunning to recapture erroneous bill-backs.
  10. Maintain an auditable history of every transaction for your accountants and support audit and regulatory compliance.
  11. Implement an on-demand archive system for investigating and disputing payables “post-audit claims” issued by commissionable A/P auditors, which are endemic in the industry and cost billions of dollars. We estimate that 50%-75% of post-audit deductions have errors or are double deducted but rarely discovered and recaptured due to inadequate systems.

Executed effectively, trade promotion management offers revenue growth opportunities and significant ROI. Rather than view TPM as an ongoing “cost of doing business,” consider it a dynamic investment opportunity and a critical part of your Revenue Growth Management planning. The systems, management processes, and deal planning require a fresh look. You need modern software solutions that simplify processes and provide optimal results. In particular, implementing advanced trade promotion management software and systems to audit and reconcile trade deductions will show a high ROI by eliminating errors and overpayments.

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Source: Schubert b2b
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