Doing More With Less: A Scientific Approach to Holistic Trade Management

For foodservice manufacturers trade spend is typically the largest expense line item, apart from cost of goods sold, on their income statements. Despite its oversized economic importance, however, trade spend is hard to pin down as an organizational function. Traditional sales and marketing activities like pricing, advertising and sales force management tend to have clear organizational mandates, departmental structures and dedicated resources. Not so trade spend, which is less a singular discipline than it is a hodgepodge of activities scattered across different departments. The lack of a holistic approach to the many divergent strands of trade spend activity can make for suboptimal results, duplication of efforts, and inability to measure and evaluate the performance of trade spend decisions.

To be more effective, managers need to break down the organizational barriers, bring their diverse trade activities, information and processes onto a common platform, and mobilize the vast amount of data available from their purchase history records to the task of analyzing opportunities for more precisely targeted trade campaigns with a higher likelihood of success. This can provide the foundation for a holistic approach that helps foodservice enterprises achieve that objective much talked about but not often achieved – turning trade spend into trade investment.

Trade spend needs to target the right products and the right customers

This holistic approach starts at the beginning, with a broad-based trade budget which managers plan across different product platforms, trade vehicles and customer types. How is the budget initially divided up? As a practical matter there is a fundamental problem here: manufacturers often end up sending most of their trade dollars to their largest customers – who are often the ones who need these dollars least – rather than the ones who could potentially grow their business and expand their product sales more aggressively. A better way to spend trade dollars is through disciplined quantitative analysis and economic scenario testing that ultimately reaches a very granular level of detail: what combinations of products and customers are likely to be the most receptive to trade initiatives? The goal is then to build a trade program that can effectively reach these target audiences, to execute campaigns with precisely defined messages and incentives, and to measure the results so as to have a plausible quantitative measure for return on trade investment (ROTI).

The building blocks for this approach are the data that can provide important insights leading to more economically effective allocation of each trade spend dollar. To get to those deep insights requires intelligent and careful preparation work around the systems and processes that store, extract and analyze data. Everyone involved in making trade-related decisions needs a common view of that data, clean and in a standardized format. One of the unfortunate outcomes of the organizational fragmentation of trade spend is that multiple formats and processes exist for a variety of different spend types. Related claims originate from different parties along the supply chain and are often not handled in a streamlined, rational, systematized manner within the organization’s claims processing functions. It is therefore little wonder that the problem of duplicate claims arises frequently across accounts, requiring time-consuming adjudication to resolve. While duplicates will always be an issue, the resolution process can be made considerably less cumbersome with a rules-based approach to adjudicating overlapping claims across accounts, and more broadly governing the rules by which negotiated agreements will interface with each other in a logical hierarchy.

Another very important process to bring into a holistic trade management approach is void/compliance identification. Resolving void/compliance means comparing contractually mandated spend items with actual transaction activity in order to red-flag items not in compliance with approved terms. Decision makers must be able to analyze and resolve this information in proof of performance data formats at the unit contract level (i.e. that of each contract/GPO group member) before moving ahead with targeted campaign activities.

Whether executed on a collaborative basis with trade partners or as a stand-alone exercise, our experience with foodservice clients has shown that trade campaigns based on empirical, data-driven analytical insights can result in success rates of triple or more in comparison to traditional methods. With the insights available from this approach, managers can determine what trade messages, incentives, pricing strategies, bundled offers and sales force effort to apply to specific customers for specific products at specific times. These insights can even help provide visibility into what products your existing customers are not buying from you currently but likely are buying from your competitors. This can give you the wherewithal to design specific trade programs around these products to induce customers to switch their purchases from your competitors’ products to yours.

Foodservice marketing managers are under increasingly intense pressure to do more with less. In the competitive climate of the industry today the old paradigm of trade spend as “pay to play” – an unavoidable cost of doing business – is no longer viable. Managers need the ability to make trade spend decisions based on empirical evidence that indicates where each dollar spent will have the highest likely impact on sales and profitability.  To do this requires a substantial recalibration of existing disparate practices and processes in favor of a holistic, data-driven approach operating off a common platform transparent across organizational silos. The ability to measure return on trade investment (ROTI) will give foodservice manufacturers a new capability to get the most out of their trade programs.

Subscribe   |