What is trade promotion optimization?

Trade promotion optimization, or TPO, is the ability for a CPG manufacturer to strategically optimize the trade spending across their total product portfolio. Utilizing highly configurable constraints focused on timing, frequency, product dependencies, forward buy impact, seasonality, pricing and pre-post promotion timing gaps, the optimization model actually creates an optimal corporate/customer promotional calendar that will generate the desired sales volume and/or profit without overspending the trade budget. True trade  promotion optimization models can also solve for ratio blends of revenue, volume and/or profitability, as well as profit contribution for both the manufacturer and retailer.

What is predictive analytics for trade promotion management?

Predictive analytics is the ability to utilize historical data to identify the things that influence sales, and apply that learning to forecast future sales. The most common form of predictive analytics used by CPG manufacturers in trade promotion is a promotional lift model. Utilizing historical weekly data, lift models can identify and quantify the impact that discounted retail prices, different forms of merchandizing, seasonality, and other retail conditions have on weekly sales to the end consumer. Mathematically extracting this information in the form of coefficients allows the information to be used to predict future results of events. Lift models are typically a type of simulation. The user enters a specific retail price point, type of merchandizing, and other information. The model returns a volume forecast or ‘promotional lift’ for that set of retail conditions.

How is true TPO different from predictive analytics and simulation?

Simulation simply provides the most likely outcome for a given situation. Simulation is helpful for tactical questions, such as “what will a $2.99 feature price generate with Ad & Display in the Kroger Cincinnati KMA?” Predictive analytics requires accurate historical data to extract the mathematical relationships that influence sales.

Trade Promotion Optimization is an approach that uses business rules, constraints, and goals to mathematically create a trade calendar that can meet all of these requirements. Optimization is helpful for strategic questions, such as “what combination of promotional events ( feature price, frequency, timing, depth of deal allowances, etc.) will meet or beat my revenue and/or profit goals for the Kroger Cincinnati KMA and still stay within my trade promotion budget?”