Business Situation
The mandate was clear: identify gaps in trade promotion processes, correct them and implement a new system to manage the spend. And do it in three months.
Even in the fast-paced environment at Pierre Foods – a $650 million manufacturer, marketer and distributor of precooked and ready-to-cook protein products based in Cincinnati – this assignment posed a real challenge.
Rallying The Resources To Get The Job Done
In the food industry, trade promotion has evolved from a financial investment that grows a business to simply a bottomless hole that consumes an average of 15% to 20% of sales revenues. Customers know the money exists and often tell their suppliers how they want it paid rather than what they will do to earn it.
“Most of our employees have been here for a long time and truly care about the company, but we couldn’t have reined in trade promotion on our own in a three month timeframe. Senior management clearly endorsed the effort and provided the resources and tools we needed to be successful, and I trusted ArchPoint to assist us with the process,” explains Danne Hollis, senior director of trade promotion and sales planning.
To help Pierre Foods quickly raise its capabilities and skill sets to support its growth strategy, the company turned to ArchPoint Consulting, a division of ArchPoint headquartered in Texas.
“Through a rigorous assessment, it became clear that Pierre Foods not only needed a system to track promotional spend, but also processes and discipline built around their trade promotion practices,” says Jesse Edelman, COO of ArchPoint.
Not Business As Usual
Over the next 60 days, ArchPoint and Pierre Foods tackled trade promotion from numerous angles:
- ArchPoint and Pierre captured trade spend at all levels to assess against master pricing. “Net pricing, or special pricing, often hides reality,” says Renee Camplese, partner with ArchPoint Consulting. “Having an accurate grasp of promotional discounts not only improves your credibility with the trade, but is crucial in leveraging your position while negotiating with customers.”
- ArchPoint met with representatives from Finance, Trade, Sales and Accounting and other key players to define related processes (i.e. planning, forecasting, contracts, deductions and claims, etc.). From information gathered, formal trade promotion policies and procedures were created using industry best practices. “In the consumer packaged goods world, many companies think they have good processes in place to manage trade promotion but often they really don’t. In the food service industry, the processes are typically even less defined. And because trade spend can be a huge number, it can get out of control very quickly, as well as create bottlenecks and frustration in the field if decisions can’t be made in a timely fashion,” adds Camplese.
- Research, select, install and train employees on a new Trade Promotion Management (TPM) software system that tracks what sells, how well it sells and the right mechanism to make it happen. In the food service business, manufacturers don’t have direct control over how the food flows through the distribution channel to the consumer, so it can be particularly difficult to track the return on promotional investment.With the newly installed TPM system, a Pierre Foods broker or sales manager is able to enter promotions for specific items and customers. They can check to see if promotions have already been set up so they don’t inadvertently offer additional discounts on the same product. The approval process is greatly expedited since all management levels have immediate visibility and can approve directly in the system. Contracts, notes, proof of performance, and other documentation are also stored in one place and accessible to everyone at all times.“ArchPoint also created customized training, including manuals, webinars and in-house sessions for the company, which went a long way in getting everyone up to speed quickly,” notes Hollis.
- Customer planning was integrated into the sales process. In addition to identifying the most significant and impactful customers from an income and profitability standpoint, sales began to look at business from the customer’s perspective to establish meaningful promotions. “If the customer wants to be a leader in the breakfast on-the-go category, then promotions needs to be offered on the products that match their growth strategy,” adds Camplese.
Fruits Of Change
Almost immediately, Pierre Foods was able to get their arms around their promotional spend and leverage it into something meaningful for their customers. In time, the company will be able to measure the power of promotions by SKU once historical data is accumulated about how and where money was spent – and what results were produced.
“This was a big change for Pierre Foods, and change isn’t always comfortable. But because clear expectations about timelines and deliverables were made at the onset, the seemingly impossible was done. In a perfect world, we probably would have approached this assignment in a sequential manner by putting processes in place first and then implementing a system to support the processes rather than doing everything in parallel paths – but we didn’t have that luxury in this case,” concludes Edelman.
Key Insights Gained
- Common standards are essential to creating discipline within an organization – without clear operational guidelines, employees operate as independents and create confusion that thwarts growth.
- Net pricing often hides realty – standard pricing, and a transparent system for tracking promotions, allows sales to leverage their position and have more meaningful conversations with customers.
- Effective trade promotion management is a multifaceted effort – that covers sales forecasting, setting of goals, defining of trade budgets, customer/promotion planning, contracts and clear policies for claims and deductions management.
- Sales team must fully understand and align with customer objectives, strategies and marketing plans – if the customer is successful, you will be too.
- Effective trade promotion is a collaborative effort – decisions must be shared from the executive level to sales and marketing to finance and accounting to IT and beyond to effectively grow your business.