The Role of Trade Promotion Management (TPM) in Retail Execution

What is TPM, TPO, IBP, and RGM?

Today we would like to introduce you to one of our friends, UpClear. Like Repsly, they are a company that makes business software for the specific use cases and needs of the consumer goods industry. And like Repsly their solutions are used in the sales process, albeit at different times and for different purposes.

UpClear’s platform is called “BluePlanner” and is used for four major types of work:

Trade Promotion Management (TPM)
Trade Promotion Optimization (TPO)
Integrated Business Planning (IBP)
Revenue Growth Management (RGM)

You have heard plenty from us before about TPM, but today UpClear shares their perspective on the purpose and value of this solution as well as TPO, IBP, and RGM. Plus, we will together explain how these solutions fit with our area of expertise, Retail Execution.

Refresher: TPM

According to UpClear, Trade Promotion Management is all the activities undertaken by Consumer Goods sales teams and adjacent functions (e.g., accounting, finance) to manage sales plans and “trade spending” – the expenses typically related to distribution, pricing, and promotion. These activities typically include setting volume and spending target/budgets, planning and executing distribution changes, price changes & promotions, forecasting sales & spending, and settling spending commitments with customers. 

When does a TPM system come into the picture?

Each one of these activities has several process steps, like approval of activities, application of pricing conditions (i.e., off-invoice allowances), providing sales estimates to Demand Planning, researching deductions, and the month-end trade accrual forecast. As a brand’s sales, distribution, promotions, and deductions grow and more people take part in the process, some predictable challenges emerge: 1) it takes longer to execute transactional, business-critical tasks, 2) information is not organized and become outdated quickly, and 3) assessing performance and re-forecasting are difficult. Another predictable outcome is that the trade spending expense escalates quickly; frequently to a dollar value equal to 20% of gross revenue. This is when a TPM system can help. 

TPM adds structure, control, automation, and insight to sales planning and trade management. The system becomes the “Operating System” for the sales team.  It standardizes and centralizes information and adds workflow that ensures proper approvals are received and documented.  Data is managed so that reports on sales, trade spending, and promotions are available at the click of a button.  

From management to optimization 

UpClear tells us that Trade Promotion Optimization, or TPO, is the process of more thoroughly understanding the performance of your promotions, learning if the return on investment (ROI) is favorable or unfavorable, and creating strategies to improve performance and ROI by changing mix of tactics, price discounts, and/or frequency of promotions.

Like TPM, TPO can be executed without a system.  And like TPM, TPO has many dynamics and process steps that make it difficult to do manually.  Two specific examples are data sources and simulation.  The first TPO deliverable, understanding performance and ROI, is commonly referred to as Post Event Analysis or PEA.  A very typical input to PEA is point of sale (POS) data that tells you how many products were sold to shoppers on promotion.  POS data may come from different syndicated suppliers (e.g. NielsenIQ, IRI, Spins) or retailers.  Other important details needed for analysis are already present in the promotion planning portion of the TPM system.  If you do this without a system, you’ll have to manage the data and maintain the reports. A TPO system with post-event analysis automates the creation of these reports.

The second piece of TPO work, creating strategies to improve performance, can be enhanced using predicted baselines and simulation.  The simulation calculates the outcome of a promotion for a combination of tactics- usually price reduction, advertising, and display.  With this capability, you can “test” different options as you are building your customer plans. Unlike a manual process, the creation and maintenance of predictive baseline and promotion simulation models are part of the system with a TPO service.

Breaking down walls 

The literal and figurative “walls” that exist between Sales and Demand Planning teams in Consumer Goods companies are extensive.  Different organizations, objectives, inputs, outputs, processes, and metrics; and sometimes metrics with the same name but different definitions.  And they certainly don’t use the same systems.  To break down these walls, many consumer goods companies have adopted an Integrated Business Planning (IBP) process to facilitate information sharing and collaboration between the functions.  A popular form of IBP is Sales & Operations Planning or S&OP.  The goal of S&OP is for the different stakeholders in the business to align on a “consensus forecast.”  The sales team’s input to S&OP is a forecast that includes their assumptions for the future.    

IBP goals, too, can be achieved without a system.  The manual execution of the process, however, comes with overhead and familiar pain points usually related to Excel limitations.  An IBP service provides functionality that ensures the process can scale up and be repeated with confidence.  It also creates connections between functions by sharing forecasts- importing a demand forecast and exporting the sales forecast.  Finally, you will see analysis evolve from Excel reports that have to be manually created and updated to automated reporting that increase the speed at which you are able to draw insights from data.       

But what about pricing?     

The fourth type of work UpClear covers is called Revenue Growth Management or RGM.  Here is how they explain it: if the scope of TPM and TPO is promotion (revenue) management, the scope of RGM is total revenue management.  Given this scope, there is a greater focus on the non-promoted part of your business, the pricing that drives this, and the combination of pricing and promotion strategies to achieve your objectives.  A data science team is usually needed to do RGM right.  In addition to the promotion models used in TPO simulation, RGM uses price elasticity models to help you understand how much volume is likely to change when price changes.  These can be used in forward-looking predictions, and backward-looking analysis.  Other analyses common in RGM include: 1) decomposition of profit into categories like brand margin, customer margin, cost to serve, taxes, etc., and 2) price “ladders” that help you understand gaps between products (including competitors) and customers.

Why Repsly and UpClear are friends   

If we were people, we’d probably be more like cousins than friends.  The work we do is very related.  In the business process construct, the planning and HQ negotiation activities facilitated with TPM precede and inform the Retail Execution (RE) tasks executed by merchandisers and managed in Repsly.  And the data captured with RE can be part of the same post-event analysis supported by TPO.   While TPM and TPO generally focus on the total customer, RE data adds another layer of depth that helps you understand the store-level factors that influenced promotion results.

If you would like to learn more about UpClear and BluePlanner, visit them at upclear.com.