It's the season year-end loading begins...
It's November and some CPG companies can't resist the temptation for classic year-end loading. Why?
If you don't track your incurred bill-back spending and match actual bill-backs to the promotional event, year-end will look great! Your organization will see above average sales without the spike in trade spending. What's not to like? ... until January when the deductions arrive.
For companies that track bill-back liabilities, another temptation is to only look at the promotional event window, and not consider the impact after the deal. For classic trade promotion this is called the forward-buy. If there's no true incremental volume or pull-through created by the event, then the volume bump is off-set by the post-deal trough. Even scan-down promotions are not purely incremental. There can be cross-item cannibalization and consumer pantry loading which reduce the true incremental volume from your trade promotion.
How do some CPG companies resist class year-end loading?
This is easy to say, but difficult to implement in some corporate cultures: Include profit or net-revenue as part of your sale force commission or bonus plan. You can 'sell' anything with enough trade spending and discounts. If your sales force can earn some part of their bonus for making better profit decisions, you'll get a more balanced outcome between volume and profit.
Put extra effort into analyzing year-end deals to confirm they will deliver true incremental benefits, not just a shifting of volume from January back into December. If you don't have a TPM solution to help with the analysis, you can use Excel. Excel will take longer and more effort, so just focus on a few events, items and customers that have significant spending and where data is available. Direct customers are much easier to analyze than indirects. If you keep the scope small, Excel can help confirm (or deny) rumors of year-end loading.
President CG Squared, Inc.