Why is your trade investment ROI not stacking up?
By Sane Mdlalose, associate consultant at Aperio, a business consulting company focused on accelerating growth of FMCG brands in South Africa and Sub-Saharan Africa.
For any consumer goods manufacturer the topic of trade terms and trade investment is a very uncomfortable one. Trade terms have shifted in the wrong direction, in favour of the trade. While over time trade terms have increased, the relative returns for you have not been felt, therefore resulting in terms that don’t drive your strategy. It’s no wonder you and your team feel short-changed at negotiation time!
You know that justifying keeping trade terms the same is almost impossible when it means the difference between profitability or decline. So how do you move from legacy-based trade terms to profit driving ones?
You need to be able to move trade terms from being an annual event that is dreaded, to a way of life every month and every day. This means tracking the effectiveness of your investment daily to make sure you are enabling your strategy.
The real issue is about moving towards a performance-based trade investment and here’s how:
•By reviewing your total basket of trade terms. What was relevant in the past and the component of terms has not evolved. A full review which takes account of the entire picture is needed and this includes examining multiple categories and multiple trade structures.
•By ensuring there is strategic alignment between trade terms and your business strategy. You need to find a way to fuel growth with an efficient trade investment strategy to restructure terms to reflect your business drivers.
•By making sure processes and systems are in place to track and manage the effectiveness of terms regularly. You don’t need ultra-sophisticated IT to do this, an excel document could be just as effective. The key is to link sales data into volume and revenue data and setup systems so your junior managers are able to do it.
•By making sure that when you launch a new product that trading terms are in the profitability analysis. This includes examining what the new product will do to the rest of the business and asking yourself whether that is a good thing from a trade term perspective.
If you get the above right then you are better able to manage an evolving trade structure so that trade terms remain relevant, effective and competitive for your business. When you do it right, it will normally be the right strategy for the retailer too and your credibility will increase. While the trade terms discussion is a difficult one, if it is backed up by insights and analysis it should drive growth for both you and the retailer.
•Take advantage of Aperio’s exclusive offer of a trade investment consultation by emailing This email address is being protected from spambots. You need JavaScript enabled to view it. or visiting here .
