Scenario planning is a critical component of the annual planning process. With consumer goods manufacturers continually focused on margins and profitability, having a solid annual planning process to leverage historical sales benchmark data that creates a trade promotion plan for the coming year is critical. The plan would be signed, sealed, and delivered if it were not for all the variables that affect their daily business lives which in turn throw curve balls at annual planning efforts.
Annual planning needs the engagement of, and is important to, multiple departments of a company; the sales team, finance, supply chain, marketing, all need to be engaged and must buy in to the process and support it throughout its lifecycle in the value chain. Sales objectives, volume objectives and contribution objectives are pushed down from senior management during the annual planning process, specific deals have to be run as is, at the defined time, while other promotions have the discretion to look to get the best combinations of sales, profitability, and to stay within budget.
An annual planning process has to take into account a massive amount of information from many different departments and external sources from previous years, sales figures, performance data, costs associated to promotions, and post-event analysis reports. Then they have to look at current and future events to estimate and predict future market conditions with consumers and their retail partners. For each product their needs to be an understanding regarding its appeal and demand level.
The value of scenario planning as a strategic tool
Scenario planning allows a business to look at many different ways to get its products front and center with consumers. It allows them to make better decisions when optimizing their promotions. With every promotion there are associated costs that fluctuate based on variables of volume, logistics, and the supply chain that impacts business. These are critical aspects that need to be considered.
Companies will use scenario planning to complement their annual planning roadmap. It works in collaboration with their partners to adjust promotions not quarterly, monthly or weekly, but on an ongoing basis to make sure promotion objectives are achieved with benefit to the manufacturer, its retail partners, and ultimately the consumer. Sometimes the best intentions of a promotion fall flat and they have to be re-evaluated and re-crafted to try and move product and achieve objectives. Here are three requirements to ensure your scenario planning supports a profitable promotion.
1. Data’s role in scenario planning.
Data is pulled from a variety of sources such as historical promotions that are relevant to an upcoming event, and from mirrored promotions from prior years. Current events and market conditions all provide data to help make better decisions. Your trade promotion management tool can quickly show you how effective and profitable prior years’ promotions with a specific retail partner have been and if there are events with different partners that can be mapped to use this time around. As you are preparing for a future event, understanding consumer trends and market conditions and reports all effect variables in a promotion and have to be taken into consideration.
2. Creating an effective planning process for your business.
The basic approach to scenario planning is to know your companies’ core competencies. What makes your company stand out? What brands drive your bottom line? Understand the people who need to engage in the process and get them engaged so you can agree on the right choice of campaign. Know your organization’s planning strategy and what advantage you have in the marketplace that drives your business. Look at market trends and evaluate the opportunity with the best information on hand. Then you will be able to run scenarios for promotions and be able to get to a decision efficiently and expeditiously that will work for all parties involved.
3. Technology increases the effectiveness of scenario planning.
Scenario planning for most consumer goods manufacturers still resides within excel documents, but with many trade promotion management software solutions incorporating scenario planning into their systems, there is a shift taking place to move to software that can provide deeper insights more quickly than with excel and with a lot less work.
Before scenario planning was integrated into a solution, or if a manufacturer is using excel spreadsheets, the scenario planning would be created in excel and once approved it would have to be replicated back into the trade promotion management tool. This adds extra steps to the process that comes with a cost of business that would ultimately negatively affect the ROI of the promotions.
Using software for scenario planning as part of the annual planning process–as opposed to using spreadsheets–allows the promotions department to evaluate trade promotions efficiently, so they don’t spend too much without achieving their goals. You can create draft views and scenarios and integrate them in the annual plan without them immediately going live, giving you the ability to see how they move the needle. It is a way for account reps to allocate their budget and spend it with their partners to get the most beneficial results and helps build a more efficient and optimized calendar.
A great business process that everyone should engage.
After levelling off in 2010, trade promotion management spending still stands at around 20 percent of a company’s revenue. So finding ways to trim even small amounts can lower that number and add to a company’s bottom line for reinvestment back into the business. Combine the spend, with the insight that 40% percent of all promotions do not achieve the desired results, and you cannot afford to ignore the latest functionality and options available for scenario planning inside trade promotion management tools.
Joel Cartwright, Director of Product Development for Trade Promotion Management Retail with AFS Technologies, has a storied history working in the CPG industry. His passion for success is exemplified in his years as a Senior Solution Engineer at AFS for Trade Promotion Management Retail. Joel’s hands on product knowledge, coupled with his ability to connect business needs with efficient solutions, makes him an asset to all those he works with. He is an expert in trade promotion management and scenario planning.