Trade Promotion Dollar ROI

If there is one problem common to vendors selling products through a retail channel, it is getting a handle on the ROI of trade promotion dollars.  Unless you are responsible for spending and managing these funds, it's hard to appreciate the complexity of this problem.  But the reality is, as much as 30% of sales are spent on trade promotion.  That is a lot of money to pour into a program without the ability to track effectiveness.

So what's a vendor to do?  Unfortunalty, there is not a simple solution, but one tool that seems to work is carefully monitoring POS data available from your retail customers.  By looking at weekly unit sales for promoted items, it is possible to calculate the lift associated with your expenditures.  As we have chronicled on this blog, that brings many challenges also.

As you develop the capability to work with POS data, remember these best practices:

1) Working the data should be the smallest portion of your effort.  If you find yourself spending 80% of your time building reports, you've got a problem.  Seek a better solution.

2)  Define your business objectives first, then build exception based reports to isolate top performers and laggards.  If you expect a program to create a 15% increase in sales, then use software to compare week over week unit sales and automatically color in red those SKU's that are below expectations.

3)  Measure and manage.  Much of the decision making on how trade promotion dollars are spent is done based on gut feel and buyer feedback.  Instead, learn to track the unit sales and then trust your numbers and make impartial decisions.