Post on 08-Dec-2018
1 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Driving Profitability with World-Class Revenue Management Capabilities
2 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Revenue Management Overview
Revenue Management Component Deep Dives
Brand, Channel, Price, Pack Architecture
Pricing & Trade Promo@on Management
Joint Business Planning
Wrap Up
3 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Many macro factors are crea@ng pressure on the CPG industry
Low Growth in Mature Markets
• Domestic demand predicted to grow at population growth
• Consumption levels haven’t bounced back post recession
• Commodity cost escalation and volatility putting margin pressures
• Above trends only marginally offset by growth in emerging markets
Intensifying Competition
• Small brands taking share
• Scale losing value except in select areas (DSD, Distribution, etc.)
• Large players winning based on brands, cost advantage and out-investing in capabilities
• Mid-sized players getting squeezed
Changing Retail Landscape
• Additional 290M retail sq. feet coming online by 2025 – with flat consumption
• Fast growing new retail formats (Club / Dollar /Drug)…
• …with fundamentally different go to market and trade requirements
• Online grocery retail becoming a commendable force – expected to be 10% of the market by 2025
Evolving Consumer Preferences & Profiles
• Two distinct consumer segments emerging: Selectionist & Survivalist
• Growing ethnic population but homogenizing tastes
• Increasing focus on organic and healthy choices
• Digitally savvy consumers seeking mobile / social media forums to interact with brands
4 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Revenue Management is one of the key capabili@es CPG companies are leveraging to address these challenges head on
Revenue Management enables CPG companies
to access new profit pools, move the demand
curve and sell more products at higher
prices through segmentation and
differentiation
Before
After
Pric
e Volume
5 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
While Revenue Management seeks to drive profitable growth (oJen in categories with flat growth), it does not involve crime
6 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Nor does it involve simply redefining what is meant by success
7 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Instead, best-‐in-‐class Revenue Management incorporates five cri@cal components to accelerate and fuel profitable growth
Portfolio Opportunity
Mapping
Brand, Channel
Price, Pack Architecture
Active Mix Management
Pricing & Trade
Promotion Management
Joint Business Planning
Discussed in detail on following pages
Enablers
Feedback Loop
Tools and IT enablement
Skilled, empowered organization
Information, data, and analytics
Enabling processes
8 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Revenue Management Overview
Revenue Management Component Deep Dives
Brand, Channel, Price, Pack Architecture
Pricing & Trade Promo@on Management
Joint Business Planning
Wrap Up
9 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Despite progress, new product introduc@on failure rates remain high
Source: “Creating what Consumers Want”, Strategy+Business, Spring 2015; Affinova
… of newly introduced CPG products fail
… of new product concepts never launch
… of new product sales cannibalize existing brand purchases
66% 65% 50%
“CPG companies don’t have a clear grasp of which combinations of features, packaging, price, and even labeling will persuade consumers to make a purchase”
10 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Brand, Channel, Price, Pack Architecture (BCPPA) is a cri@cal, but oJen overlooked step in the tradi@onal product development process
Traditional CPG Innovation Approach
Business Growth
Strategies Ideation
Concept Testing & Product
Validation
Commercial-ization, Retail Execution &
Launch Plans GAP
Many CPG companies today are struggling to get BCPPA right § Market structure models (IRI Symphony, HRCP) identify opportunity areas but are limited to
historical data § New product forecasting models (e.g., BASES) size very specific ideas, but cannot cover a wide
enough range of alternatives in a timely and cost-efficient way § Attitude & Usage (A&U) studies and ethnographies do not provide specific enough input (e.g.,
brand, price, channel, pack, functionality) § None of the standard approaches factor in company capabilities, economics, or competitive
reactions
11 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
BCPPA integrates market and company data to simulate behaviors in an unconstrained environment
Consumer Segmentation
Shopper Segmentation
& Mission
Channel & Retailer Strategy
Category Perspective
Consumer Buying Behavior
Competitive Strategy & Response
Price-Value Proposition
(Features & Attributes)
Margin Potential
(Informed by Cost Structure)
BCPPA
Consumer Preference & Willingness
to Pay
Behavioral Market
Structure
Company Financials
Retail Consumption
Data
12 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
It leverages conjoint analysis to understand consumer preferences – anyone in the market for their own jet?
13 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Revenue Management Overview
Revenue Management Component Deep Dives
Brand, Channel, Price, Pack Architecture
Pricing & Trade Promo@on Management
Joint Business Planning
Wrap Up
14 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Pricing and Trade Promo@on Management is not intended to start a price war and drive profit margin to zero
15 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Advanced analy@cs – in the form of PEA and TPO – can drive improved trade promo@on efficiency and effec@veness
Trade Promotion Management
TPM
Post-Event Analysis
PEA
Trade Promotion Optimization
TPO
Driving Improved Trade Effectiveness via Advanced Analytics
Trade spend is typically the 2nd biggest line item
behind COGS, yet CPGs often have a negative
ROI on this investment
Leveraging advanced analytics, including PEA and TPO, can help
CPGs drive an improvement in trade ROI of 10 to 20 percentage points
Discussed in detail on following pages
16 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
PEA has long been a top priority for Senior Management, but companies con@nue to struggle to get it right
§ Although the concept of PEA is not new, it's still very challenging to get right
§ PEA has become increasingly complex over time due in large part to the expansion and disconnected nature of the data sources used to measure and understand performance
§ Even in today’s advanced digital age a large number of companies attempt to address PEA by building multiple (sometimes thousands of) spreadsheets across the organization…
§ …but in this kind of environment, the bulk of the analysis is sporadic, ad hoc, and often decidedly wrong
§ Even with high demand for a reliable tool, and despite technology vendors making it sound easy, there is no perfect answer in the market today
§ So up to now, companies have had to accept imperfect and unreliable results or severely limit or forego altogether this important capability
PEA
17 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
GeXng PEA right requires following a set of guiding principles
Getting PEA Right
Address gaps in foundational TPM capabilities or customer planning processes
Embed the PEA Capability Within the Organization
Use the Right Tools
Understand Limitations of Source Data
Identify One-Time Events That Can Introduce False Causalities
Automate What You Can
Manually Intervene When Necessary
Realize Event-Level ROI Is the Beginning of the
Process, Not the End Goal ROI ROI
18 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Best-‐in-‐class PEA capabili@es minimize @me spent on “data factory” work, allowing more @me for value-‐add analysis to drive insight and ac@on
Raw Data
Insight Action
Business Leaders
Reliable Data
Data Factory
Analysis Factory
TPM • Promotions • Payments
EDW • Product • Customer
Market Data
Retail Link
IRI
Nielsen
POS
Post-Event Analysis (PEA)
Minimize time spent here Maximize time spent here
19 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Trade promo@on op@miza@on (TPO) leverages predic@ve capabili@es to enhance decision making
Minimal Optimization
What-If Optimization
Facilitated Optimization
Automated Optimization
§ Involves optimization based on heuristics and subjective analysis of previous promotions
§ Depends on minimal analysis of basic metrics such as incremental shipments
§ Uses advanced analytics to predict consumption and shipment volume
§ Allows the development of “what-if” event and plan scenarios
§ Uses profit-based metrics to prioritize and select events
§ Provides planners with simple tools that help reduce time consuming “what-if” trial and error attempts in a TPO tool
§ Supports optimization analyses with tools such as seasonality and trend plots, merchandising effectiveness profile, price sensitivity profile, sensitivity analysis (e.g., ROI vs. volume), and automated event scenario creation
§ Takes facilitated optimization to the next level by automatically identifying optimal scenarios within a given set of constraints
Increasing Level of Optimization
Trade Promotion Optimization (TPO)
20 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
TPO allow users to conduct “what-‐if” analysis, leveraging sophis@cated models to predict event-‐level volume
Predicted Volume
ACV, Trend, Seasonality, Distribution
FSI, Package Promotion
Feature, Display
Regular Price, Price Discount
Size / Brand / Time Switching
Inputs
β In (1+ % ACV Feature & Display r,t) + β r Incremental Volume* r,t-1
exp α r + βr Week Number t + β (Seasonality Indext) + Volume r,t =
β r ln Regular Unit Price r,t + β In (% ACV Distribution) +
β r In (1 + % ACV Featurer,t) + β r In (1 + % ACV Displayr,t) + βr In (1 + % Discount r,t) +
ACVr / 10
βp Incremental Volume* r,t,pACVr / 100***
∑n
p = 1
Average Competitive Price / Poundr,t
100
β f (FSI Value f) + β f (FSI Value** f=1) +∑4
f = 1
+β In (1+ % ACV Feature & Display r,t) + β r Incremental Volume* r,t-1
exp α r + βr Week Number t + β (Seasonality Indext) + Volume r,t =
β r ln Regular Unit Price r,t + β In (% ACV Distribution) +
β r In (1 + % ACV Featurer,t) + β r In (1 + % ACV Displayr,t) + βr In (1 + % Discount r,t) +
ACVr / 10
βp Incremental Volume* r,t,pACVr / 100***
∑n
p = 1
Average Competitive Price / Poundr,t
100
β f (FSI Value f) + β f (FSI Value** f=1) +∑4
f = 1
+
Volume = ƒ (Base Volume, Price, Merchandising, Cannibalization, Consumer Promotion)
Predictive Models
ILLUSTRATIVE
21 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
However, several CPG companies face challenges in realizing TPO’s full poten@al
Challenges Faced by CPG Companies in Realizing TPO Benefits
Model Accuracy
§ No rigorous statistical validation methodology in place
§ Can’t handle some business scenarios accurately (drop-off over time, BOGO vs. TPR, etc.)
§ Models require ongoing refinement to ensure they continue to predict with acceptable degree of accuracy
Accuracy of Inputs
§ Sales teams lack analytical capability to effectively use model
§ Teams have to get used to entering more details of the promotions, e.g., execution details such as %ACV, etc.
§ Teams required to force-fit promotions to TPM format
Tool Challenges
§ Functionality – Questionable ROI metrics – Various functionality bugs
§ Usability – Poor Interface design
§ Performance – Tool is slow and often
unresponsive
Results in organization’s lack of trust and frustration with the tool leading to lack of adoption
22 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
A combina@on of accurate inputs, strong models, func@onality, and suppor@ng processes can help achieve TPO’s full poten@al
+ +
Description: Tool is intuitive and with robust and reliable functionality
Successful TPO Implementation & Reliable Models
Functional Tool
Right Processes / Change Management
Description: With proper inputs, the model predicts accurate results within +/- 5%
Strong Models
• Model refresh mgmt.
• Statistical model validation
• Transparent fit assessment
Description: Model inputs reflect projected execution, not just the promotion plan
Accurate Inputs
• Timely and accurate setup
• Training and support
• Functional review and business configuration
• Testing and issue resolution
Requirements for Successful TPO Implementation
23 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Revenue Management Overview
Revenue Management Component Deep Dives
Brand, Channel, Price, Pack Architecture
Pricing & Trade Promo@on Management
Joint Business Planning
Wrap Up
24 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Joint Business Planning is more than making it through a mee@ng without telling our customers they are stupid
25 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Joint Business Planning is about “we” – not “us vs. them”
26 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
“Collabora@on” – American Heritage Dic@onary
“To work together, especially in a joint intellectual effort.”
“To cooperate treasonably, as with an enemy occupation force
in one’s country.”
27 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
A recent Strategy& survey of manufacturers and retailers indicates that both believe in the importance of collabora@on…
Importance of Collaboration to Future Success
25% 15% 35% 10% 75% 95% 30% 5% 90% 80% 0% 60% 50% 55% 65% 100% 70% 85% 40% 45% 20%
92%
5%
Importance
Som
ewha
t Im
porta
nt
Very
Im
porta
nt
56%
0%
39% Impo
rtant
8%
Response Percentage
Retailers Manufacturers
Source: Manufacturer and retailer collaboration survey conducted by PwC Strategy&
28 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
…and have achieved many benefits from it
Achieved Benefits of Collaboration
60%
10%
40%
50%
20%
0%
80%
70%
30%
90%
100%
53% 50%
Increased customer loyality
75%
60%
30%
65%
55%
More effective and efficient
planning
80%
Perc
enta
ge A
chie
ved
Reduced out-of-stock
20%
40%
50%
More effective promotions
30%
More effective new product introductions
Share growth
60%
50%
Revenue growth
Retailer Manufacturer
Source: Manufacturer and retailer collaboration survey conducted by PwC Strategy&
29 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Retailers cite TPM collabora@on as the best quality, but opportuni@es exist to incorporate market/consumer insight
Source: Manufacturer and retailer collaboration survey conducted by PwC Strategy&
Retailer’s Perspective on Quality of Interaction By Functional Area
Low Medium High
Benefits of Market Research/Consumer Insight
Not Beneficial Somewhat Beneficial
Beneficial
Mar
ket R
esea
rch
/ C
onsu
mer
Insi
ght
TPM
In-S
tore
R
esea
rch
Eva
luat
ion
of
com
petit
ors
perfo
rman
ce
Sho
pper
In
sigh
ts
Hou
seho
ld
leve
l dy
nam
ics
Retailer Manufacturer
30 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Collabora@ve manufacturers have broken down data barriers – now the key challenges are more strategic in nature
More strategic barriers
Data-related barriers
Barriers to More Successful Trade Promotion 5%
0%
100%
95%
90%
85%
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
52%
17%
40%
67%
56%
92%
Less Collaboartive Manufacturers More Collaborative Manufacturers
Insufficient Data
Poor Data Quality
Inability to Align with Partner Goals
Source: Manufacturer and retailer collaboration survey conducted by PwC Strategy&
31 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Joint business planning between manufactures and retailers helps establish common goals to create win-‐win scenarios
Components of Joint Business Planning
Line of Sight
Appropriate Metrics
Joint-Event Planning
• Finalize promotional details jointly (e.g. Exact funding, mechanics, timing / calendar, execution)
• Communicate internally to realign with internal plans (S&OP, promo guideline compliance)
§ Gain
• Set common product, event and time based performance metrics for manufacturer and retailer to develop common goals
• Enforce uniform measurement and tracking practices to ensure invoicing is tied back to the individual promotional tactic
• Establish a clear line of sight and fluid communication mechanisms with customers on product strategies, volume planning, product hierarchies, category definitions, mix, BI etc.
• Support ongoing communication with clearly defined operating model including people, processes and tools
32 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Revenue Management Overview
Revenue Management Component Deep Dives
Brand, Channel, Price, Pack Architecture
Pricing & Trade Promo@on Management
Joint Business Planning
Wrap Up
33 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
In closing …
34 PROMOTION OPTIMIZATION INSTITUTE | FALL SUMMIT 2015 | DALLAS TX
Thank you for your @me today – please feel free to reach out to discuss any of these topics in more detail
Dallas Mobile: +1 817-‐789-‐5657 david.ganiear@pwc.com
David Ganiear Partner, PwC Strategy&
Retail & Consumer PracHce