By Stephen McGrath.
As we discussed in Part 1 by Justin Stafford, any company conducting true Integrated Business Planning (IBP) will have a single consensus forecast across all functions: sales forecasting and budgeting, commercial planning, revenue management, and trade promotion management. This is often referred to as a ‘one number forecast’. The goal of this ‘one number forecast’ is to have a single set of numbers driving the business, and to have complete buy-in from all business functions.
The Blueshift team has put together a series of best practice tips to help CPG professionals, and companies, work towards this goal. I’ve used LinkedIn Pulse to publish part two of this series, and sharing it here too. Today we’re going to discuss how a small change in behaviour can drive big results.
You probably aren’t aware how common it is, but ask yourself, should you expect a different result when you are constantly repeating the same actions?
The simple answer is NO!
If your business is at the request for proposal (RFP) stage for a Trade Promotion Management (TPM) or Trade Promotion Optimization (TPO) solution, you will undoubtedly be asking yourself what do your stakeholders truly want? Planning the right solution would certainly be easier if we had a crystal ball, and had the ability to know what our stakeholders wanted, especially management and consumers.
In an ideal world, you would be able to simply repeat the entire promotional programme that proved successful the previous year. Or even just re-run exactly the same the promotion again. With quick and easy access to last year’s promotional data, it makes sense to ‘copy and paste’ a previous year’s strategy, click save, update the volumes, and submit. Simple.
As the saying goes, if it ain’t broke, don’t fix it, right?
Unfortunately sometimes the most obvious solution isn’t the best one.
Let me explain why:
Management may expect an average of 10% improvement year on year. Recreating last year’s strategy will only likely achieve the same results as the previous year, not better, subsequently leaving your business performance stagnant and failing to meet management’s expectations of 10% growth.
Sadly, if your management is applying pressure to achieve a 10% increase on last years promotional performance, and you copy the programme you did last year, the likelihood of you achieving that increase is almost zero.
Promotional Repetition is a dangerous game and can leave your business in a very precarious position. Albert Einstein said it best, “Insanity is doing the same thing over and over again, but expecting different results.”
Rather than returning a 10% increase, your repetition of a promotion is highly likely to return the following disappointing results:
- The same uplift if your promotion hasn’t changed, neither will the results.
- Decreased engagement with your consumer. Competitors will have improved, times will have changed, and consumers are more commercially aware than ever before with the plethora of apps and ads available to them.
It is important to not underestimate just how savvy today’s consumers are. Following our extensive research into consumer behaviour, it has been revealed that consumers can spot repetitive promotional strategies very quickly, and they like them. If you just repeat the same promotions every four weeks, consumers will quickly adopt the behaviour of buying your product only when it is on promotion, impacting negatively on your sales figures and long term promotional performance.
This is why Integrated Business Planning is key in making sure your performance is BETTER than last year, as it allows you to continually observe and react to your business’s performance in real time, thus enabling you to take the necessary steps to ensure you deliver that all important uplift.
How to identify if your company is guilty of repeating the same exercise, and expecting a different result.
One major warning sign is that your business will be hosting discussions and meetings on how to ‘close the gap’. Closing the gap only puts a plug in an ongoing problem, whereas delving deeper and asking yourself why there is a gap in the first place allows you to fix and get to the root of the problem – providing a real long-term solution.
What steps can you take to avoid the ‘close the gap’ meetings?
It’s simple. You can experiment.
Instead of repeating what happened last year, take the time to analyse the data to see what actually worked in the past, and what didn’t work. Then it is time to experiment with promotions in order to build better promotions that deliver the increase that management is after.
Experimentation will involve an element of trial and error. Change always gives you a different outcome, maybe not a better one in the first instance, but after a few experiments you will become closer to finding the answer. Stay motivated and keep building models and assessing their outcomes.
Ultimately, the end goal is to break the cycle of repetition in the consumer’s mind. By provoking a degree of unpredictability, customers will feel compelled to take action at the price levels you set, rather than holding out for a promotion that may or may not happen. By taking back control and determining how consumers react to your promotion, you can ensure that they become more successful over time – delivering greater uplift, and even better returns for your business.
Steps you can take to produce promotional programmes that drive YOY improvement and uplift.
- Experiment – Look at your promotions, and don’t be afraid to experiment (not just with price, but with all the tools you have available). It might not turn out right first time, but you’ll be a step closer to achieving your optimal plan.
- Stop Repeating Yourself – Trying something different really is the only way to get a different result, when it comes to attracting and bringing in new consumers. If you have analysed your previous promotions, identified the better performing strategy and improved your promotional programme since the previous run, you could very well surprise yourself by with the results!
- Remember your baseline – If you increase your baseline as a percentage of overall sales, your profitability will also increase. This is because it costs you less to sell more of your products when they are not on promotion.
Want to find out more about forecast accuracy and successful IBP implementation?
Request a consultation with one of our Integrated Business Planning experts.
Our team at BlueShift has years of experience helping consumer goods companies build and manage their Consensus Business Plans. Although IBP is our speciality, we also consult to companies looking for TPM, TPO and DP solutions. Blueshift provides expert consulting in IBP transformation, IBP roles and systems integration. We engage to understand your business at a high level and establish a simple estimated ROI.