The term Trade Promotion Optimization is quickly becoming a part of the Marketing and Finance lexicon for Consumer Packaged Goods (CPG) companies; however, much debate remains about what is true optimization.
To paraphrase Gartner analyst Dale Hagemeyer (MarketScope for Sales Force Automation in the Consumer Goods Industry), “Trade Promotion Optimization must include constraint-based modeling techniques used to define constraints around timing, frequency, duration, tactics, and pricing – while optimizing outcomes to multiple objective functions.”
Trade Promotion Optimization solutions must be able to identify the best combination of promotion vehicles for a given time period while adhering to corporate policies and customer-specific limitations, such as the minimum and maximum frequency or duration of an event.
This need is further illustrated by comments such as, "We need to meet our revenue growth targets, but our executive team is very sensitive about eroding margins." In this case, a Trade Promotion Optimization solution must be able to optimize for overall profitability, while maintaining the existing revenue target as a system constraint. The result is using trade spending to sell more of the products that generate the most profit.
Without true optimization, planners are forced to simulate an endless number of potential promotion strategies, with little to no hope of actually identifying the plan with the greatest impact across all defined business objectives.