Every year, companies spend months creating their price and promotion plans in hopes of driving better results. However, intensifying pressures from today’s increasingly competitive marketplace are causing systemic shifts in the effectiveness of the current planning process.
For many, they are finding that the best laid plans are often outdated by the time they hit the trade desk. With this, an important question emerges: Has the traditional planning process become obsolete? Many signs within the industry point to “yes.”
A recent Nielsen survey of price and promotion decision-makers found that:
To succeed in this new reality, companies need to go one step beyond traditional strategic planning, on an annual cycle, to a new form of adaptive planning that is responsive to continuous market change. This requires a mind shift from being solely focused on planning to being focused on planning and enablement. On the ground, account teams need to be empowered to make smarter, on-the-fly adjustments and maneuver in a more nimble fashion to better address the challenges they face locally, in the trenches, every day.
In fact, if companies don’t make this change, they are putting themselves at risk of continuing to generate sub-optimal results. In fact, today, only one out of three pricing decisions yields the best price, and 72% of promotions fail to break even.
So, how can companies begin to make this shift? Here are three ways to start:
There’s an old saying that “All politics is local.” The same is true for retail. Every retail location faces its own price dynamics. And applying the same national strategies uniformly across all retailers is risky.
Without access to store-level data, it’s hard for account teams to really know if national strategies are right for their specific goals and plans. It also makes their job of influencing retailers that much harder. Companies may not be able to include local-level insights into every strategic plan, but they at least have to enable account team to access these insights on their own to make plans more relevant and valuable to their needs.
Companies that use store-level insights outperform competitors by 2.2x, according to a Nielsen and McKinsey study. An example involving a large manufacturer client helps bring this point to life. The company’s national headquarter teams wanted to initiate a universal price increase across one of its top-selling products. Nationally based models suggested that this would have been an acceptable change for most shoppers with minimal impact to volume. However, when scenarios were run at the local level, the data showed that the price increases would have reduced volume by 5%-10%—an unacceptable trade-off.
Even if you give account teams access to the best analytics, there’s no guarantee they will use them. A recent study showed that adoption of self-service analytics tools is down by 20% from two years ago, largely because users find them too complex and difficult.
I’ve seen this play out time and again. To improve visibility, manufacturers roll out trade promotion management or other tools to their account teams. However, account teams find these tools to be overly complicated and time consuming. The best way to get them on board is to make pricing and promotions decisions easy and fast.
That’s especially true given how complex it has become to develop account plans. There are number of scenarios to consider and a lot of data to interpret. At Nielsen, tools are designed with guides and prompts to help account teams through the process—explaining the meaning and interpretation of data as they move through scenarios and simulations. This helps account managers choose better tactics and saves them time so they can focus on getting in front of clients.
Many manufacturers have invested in trade promotion management (TPM) systems to mitigate losses and improve strategic plans, but they do so at the risk of optimization. As a result, sales teams default to what “worked” in the past or follow through with retailer requests, not realizing those very promotions might do more harm than good.
By combining TPM systems with predictive optimization tools, account teams can respond proactively by simulating “what-if” scenarios and comparing various options to deliver the best results. This makes them more valuable partners to retailers and more capable of driving the agenda that’s best for their brands and the category.
Recently, a large client was being challenged by their retail partner to lower everyday prices across their top brands in an effort to drive volume in the category. The retailer had data to back up its case. Normally, the client might comply with this type of retailer request, but by using predictive simulations, the client was able to show how offering incentives by pack size would get consumers to trade up to bigger unit sizes, delivering volume goals without jeopardizing brand perception. In the end, the retailer saw a 37% lift in volume over the same period last year.
On average, clients that conduct scenario-based planning report a 1%-5% savings in trade spend. These outcomes become even more powerful when you link pricing with assortment and space planning. One client has seen a $1 million incremental lift in volume through this approach.
Connecting the dots between your annual plan and the daily decisions your account teams are facing may seem impossible, but with the right analytics and easier-to-deploy tools and integrations, it’s no longer a pipedream. As you prepare for next year, start a dialogue with your account and other cross-functional teams; work closely with them to create a business plan that is flexible enough for them to respond quickly and at the local level.
A version of this post originally appeared on www.consumergoods.com.