The future direction of trade promotion — why previous ... · Page 10 The future direction of trade promotion... But. more is. needed Focus on margin/ROI (while minimizing impact

The future direction of trade promotion — why previous approaches may no longer be enough. What’s next?Jean-Albert Nyssens, Partner EMEIA

Page 2 The future direction of trade promotion

► Better understand the trade promotion “conundrum” facingCPG companies

► Hear what we see as emerging trends and innovation in TPM/TPO

► Get reactions from a few companies on if, and how, they will behave differently in the future

By the end of this session, you will …


Historical growth and operating margin performance

3.8%7.1% 6.6% 6.1%

2.3%

-3.0% -6.4% -6.1%

3.6% 3.8%

18.8% 19.2% 18.9% 18.6% 19.0% 19.2% 19.7%21.7% 22.2% 22.8%

-10%

0%

10%

20%

30%

2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F

Revenue growth Operating margin

75%say that it hasbecome harder to sustain or grow operating margins

Source: S&P Capital IQ. Chart shows weighted revenue growth and EBITDA margin performance of the top 50 CPG (food, beverage, HPC and tobacco) companies as ranked by revenues in 2014

Source: EY Margin Unlocked: integrated margin management to deliver breakthrough performance in consumer products

74%say they need to make a significant change to maintain margins


Impact of “cost-cutting” initiatives* on growth and margin (select CPG companies)

Growth and margin trends with ZBB

Source: Company 10Ks*Includes ZBB (zero-based budgeting)**Quarterly figures

Underlying revenue growth (%)

A, FY06–15

Ope

ratin

g m

argi

n (%

)

30

32

34

36

38

40

2 3 4 5 6 7 8 90

25

50

75

-4 -3 -2 -1 0 1 2 3 4 5 6

Company B, FY08–15

Company C, FY11–14

10

15

20

25

30

-3 -2 -1 0 1 2 3 4Ope

ratin

g m

argi

n (%

)

10

12

14

16

0 1 2 3 4 5 6

Company D, FY13–15**

Underlying revenue growth (%)


Trade promotion(% of gross revenue)

% Change

???

-or-?

???

2015 andbeyond

17%

2000s

>$200b<$100b

1990s

13%

Current trends

The trade promotion “conundrum”

Price

Volume

Tradepromo

Source: EY


Trade promotion — the next “cost-cutting” frontier

“Cost-cutting” actions*

Using black/white and two-sided printing, copies, business cards, etc.

Reducing use of corporate jets and first class

Eliminating individual offices

Shutting down factories

Reducing client entertainment

Eliminating management layers anddownsizing office space

Profit waterfall

Tradespend

Grossrevenue

COGS

SG&A/A&C

Oper.margin

*Source: The Wall Street Journal


Many analysis point to a large part of the money spent being ineffective


… and pressure is mounting from Wall Street


Processes► Simplification and standardization► “Closed-loop” planning/execution/

analysis Areallygoodstart …

Traditional approaches — a good start butnot enough

Tools► TPM and TFM solutions► TPE and TPO “pilots”

Resources► Trade marketing organizations and

“centers of excellence”► “Controllable” KPIs/measures


... Butmore isneeded

► Focus on margin/ROI (while minimizing impact on volume) — find “optimal” point

► Embrace TPO/analytics (beyond “pilots”)

► Be disciplined and make tough decisions to cut unprofitable trade spend (but do jointly with partners)

► Go beyond trade promotions — i.e., look at all customer spend (terms, rates, etc.)

► Balance short-term profitability withlong-term capabilities to sustain results

Getting the balance right for the future


Revenue management is the organizational capability that optimizes commercial levers to drive sustainable, profitable revenue growth

Key trends are to go deeper, faster and broader

Trends Examples

1 Establish above-market capability Data and analytics Center of Excellence

2 Provide greater coverage and visibility of profitability Visibility of accurate P&L at customer/product level

3 Establish consistent net revenue management capability Standard capability by market archetype

4 Align commercial, finance and supply chain numbers (“one number mentality”) Integrated business planning

5 Acknowledge magnitude of change required to relentlessly focus on in-market execution Assessing current gap to leading class capabilities

6 Technology enabled Synchronized data-led decision-making instead ofgut-feel

Faster, better decisions aligned cross-functionally with improved governance and visibility


Technology helps to manage trade investments and promotions better

1 One-to-one promotions enabled by big data and mobile technology

2 A/B testing of different promo mechanisms

3 Crowd-sourced checking of in-store execution

4 Centralized and/or outsourced data-analytics centers


One-to-one promotions through big data are not new …1

Promotions on self-scanDelhaize

Catalina promos on receiptMultiple retailers

Totem at store entryCaprabo


… but take a new dimension with mobile technology1

The Coupons App YOU Technology acquired by Kroger Safeway’s Just4U


A/B testing of promotions before deploying in brick and mortar2

Developmultiple offers

Test onload-to-ID assets

Deploywinners at scale

(in-store and online)


Offer innovation uncovers offers that outperform the traditional ones2

$0.90

$0.80

$0.00

$1.00

Volume sold

Net

con

sum

er p

rice

Real example — SKU X, Channel Y (U.S.)

“Off-the-curve” results

0 100 150

10% off 1

50

20% off 1

$2.00 off 8$1.00 off 4

Buy 4, get 1 free

Buy 3, get 1 free

30% off 1

eversight

Buy 1 get 1 40% off


In-store execution of promotions and displays is often lackluster

Source: POPAI and Quri research, 01/2015


Crowd-sourced in-store execution with image recognition3

► Crowdsourced► Scaled, diverse and flexible crowd-sourced

community workforce

► Covering several markets and geographies

► Possibility to have your own workforce

► Rapid time to market, engagement and resultsin hours

► Ability to define custom tasks► Out-of-stock

► Own/competitor price analysis and reporting

► Sample size analysis

► Display checks (primary and secondary displays)

► Planogram, Shelfshare, facing, listing

► Technology driven► Instant messaging with field force

► GPS, time and date verified results

► Quantitative and qualitative data capture

► Barcode/RFID scanning, Image recognition.

Streetspotr

Gigwalk

Quri

PLANORAMA

ShelfSnap


Complex tasks without need for customer proximity are being centralized

HighNeed for local proximity to customer

Com

plex

ity o

f pro

cess

es

High

Center of Excellence

Description► Performs activities

needing specialized skills and expertise

► Achieves economies of scale of insight and intellect

Examples► Advanced analytics► Gross to net guidelines► Price and promotion

optimization► Assortment optimization► Demand forecasting

Shared services

Description► Performs high volume

transactional activities► Achieves economies

of scale

Examples► Trade promo processing

and settlement► Data management► Budget reconciliations► Dashboards and reporting

Regional

Description► Manages business

partnerships► Performs activities

specific to region

Examples► List and bracket pricing► Channel strategy► Trade terms consistency and

optimization

Local

Description► Performs market/

on-site activities specific to local business

Examples► Holistic customer

investment/JBP► Promo event/calendar

optimization

4

Source: The New Case for Shared Services, EY 2014


Example: EY enabling a comprehensive end-to-end Center of Excellence

Solutions Functional and process prebuilt solution offerings

SpiritsEnterprise collaborationTrend detection

CybersecurityCounter fraudRisk and controlsExecutive command center

Descriptive — enterprise reporting and dataPredictive — forecastingPrescriptive — optimization and simulationCognitive — AI, ask, discover, decide

SAP knowledge advisorConsumer omni channel advisorProcurement advisor

Process, organizational, technologyExternal ecosystem Business capabilities and resultsExternal integration

Structured data channels Top-line drivers► Revenue/margin, SG&A, COGS, WC

Process and functional KPI’s

► Driving efficiency and effectiveness

Engagement and action

► Measurement, reporting, analysis

Speed and agility

► Rapid ideation, piloting through agile methodologies, and advanced development tools and cloud capabilities

Sales

Marketing

Supply chain

Finance, HR, legal, IT

Functional solutions and results documentation

Collaboration ERP

Budget to report

Concept to market

Sales to cash

Demand to build

Data to report

ConsumersRetailersDistributorsGovernmentalRegulatory/otherEnvironmental, societal

Internet of Things

WATSONNews Explorer

Software and infrastructure

Cloud-based Hybrid cloud On-premise

Watson API’s

Unstructured data channels

EY Center of

Excellence

External data acquisition, staging and integration

Supply chain COE; demand and supply planning; S&OPCross-functional integrated business planning(IBP)New product ideation

Managed servicesOn-demand servicesContingency basedMonthly service charges

Capabilities and Services

Industry, functional and analytics SMEs

Centralized data-analytics centers help build capability4

CognitiveScaleMUTUALMIND IBMWATSON SPSS tableau

nielsen

Southern Wine & Spirits

IRi

facebook Twitter YouTube reddit

LinkedIn Instagram RSS yelp

Weather check

yammer

Lync

Outlook

SAP


Panel introduction

Peer SchmidtFormer Global Account Director for Baccardi

Martin NederhoedFormer Chief Commercial Office, McBride


Contacts

Jean-Albert NyssensPartner, EY EMEIA Advisory [email protected]

linkedin.com/in/jeanalbertnyssens

mailto:[email protected]

mailto:[email protected]

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The future direction of trade promotion — why previous ... · Page 10 The future direction of trade promotion... But. more is. needed Focus on margin/ROI (while minimizing impact