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Evaluating the ROI of Your Trade Relationships

Channel development is being increasingly scrutinized to evaluate its marketing ROI. As in other marketing departments, automation is being put into place and more emphasis is being placed on research and analytics.  According to Newsfactor, “Trade spending [in Consumer Packaged Goods] ranks second only to the cost of goods on the balance sheet.”

So what is channel development?  Channel development is about creating partnerships upline and downline that bring greater influence, strength and sales to those participating.  Channel marketing is creating propositions to potential partners, marketing to them, and then motivating/incentivizing them.  Channel Marketing Partners are typically vendors, manufacturers, distributors, resellers and retailers, working in cooperation.  They start with a deep understanding of their specific target market. They identify the customer’s business issues and develop an approach to addressing those issues, cooperatively building programs from the ground up. They then assemble the necessary pieces and package them into a solution. The goal is to get customers to buy into the total vision of the Channel Partners.

Designing a system that can manage the complex relationships in channels is no small feat.   In 2004,  CRM Today said that most PRM (partner relationship management) tools out there were like “putting wings on a bus.”  They tried to re-purpose the CRM and it simply did not work.   They share why:

“CRM is fundamentally designed to manage direct sales engagements between a sales representative and a buyer. This mode revolves around collecting and sharing data throughout the customer lifecycle.  PRM, on the other hand, is designed to manage a complex ecosystem comprising legally independent partner organizations. This one-to-many model revolves around aligning business processes across the entire value chain, from vendor, to partner, to customer.”

Today, there are a number of PRM options that are much more sophisticated and designed from the ground up to work for channel managers.  And somewhere along the way, PRM became TPM (trade promotion management) and the term “trade funds” became used for co-op marketing.

A 2008 study by the Consumer Goods Technology group finds that “While only 52 percent of companies in 2008 evaluated trade spending, more and more companies are attempting to implement trade promotion management (TPM) applications to improve TPM analysis in 2009.”  The reason that more companies haven’t taken on a TPM application is due to their complexity and cost.

Oh, and did I mention cost?  NewsFactor suggests that “Because trade promotion spending can reach 20% or more of sales, a very minimal percentage of improvement [from a TPM] can justify an entire project without reaching too far.”

They then go on to detail ways to lower the cost:  Roll it out slowly and to those who can benefit most, first. Get sales buy-in and usage early in the process. Use an SaaS.  Build real metrics. Eliminate your desire to build unique processes into the system.  Talk with other companies (i.e. software vendor user groups and references) who have implemented a TPM and learn from them. Don’t wait until it’s too late and you make mistakes.

“Many growing CP manufacturers can quickly get inundated with unexpected deductions or make poor decisions about promotions due to a lack of centralized visibility. Many growing manufacturers start facing challenges associated with managing trade promotions when they reach a dozen or more SKUs, or when they start negotiating with their first national retailer, or when they surpass the $10M mark in sales.”

Here are several offerings by TPM vendors to get you started:

The Channel Champion recently attended a TPMA conference (trade promotion marketing association) and found that the key metrics to evaluating channel effectiveness are:

  • Budget to spend
  • Net incremental sales
  • ROI – consumption or shipment based
  • ROI – variable and fixed margin
  • Incremental spend

Add to that list those NewsFactor recommended:

  • Promotion effectiveness
  • Lift improvements
  • Reductions in stock-outs.

As an aside, the company that I work with, C.A. Walker, can support marketing’s efforts in channel development in the following ways:

  • Profile partners to identify new contract opportunities
  • Measure partner “brand fit,” awareness, satisfaction, usage
  • Test partner communications, incentives and promotions

I look forward to learning more about channel marketing developments and sharing them with you here.

trade promotion management (TPM)

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  1. September 20th, 2010 at 07:49 | #1

    Channel marketing is a key factor in business these days. you’re up a creek without it.

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