Trade Promotion Optimization Planning — Input Variables and Constraints

During a recent meeting, with a client seeking to improve the planning and execution of trade promotions across their organization, I was asked, “Which variables and constraints does TPO Planner™ (trade promotion optimization) consider when optimizing user-defined performance objectives (e.g., volume, revenue, profit)?”

My answer highlights how TPO Planner uniquely enables what-if analyses regarding the variance of variables and constraints impacting and governing the productivity of trade promotion investments.

Trade Promotion Optimization considers the following variables:

  • Non-promoted Retail Price (by product and customer with ability to specify seasonal variations)
  • Non-promoted Demand Volume (by product and customer with ability to specify seasonal variations)
  • Cost of Goods Sold (by product with ability to import from existing standard costing systems and/or River Logic’s Integrated Business Planning solution)
  • Promotion Cost (fixed and variable costs including lump sum payments and off-invoice, bill-back and scan-down amounts, as well as promoted retail price)
  • Promotion Performance (deal length, time frame for increased volume impact, time frame for forward-buy impact, volume lift index)

TPO Planner considers the following constraints:

  • Promotion Budget (by customer and brand with ability to request incremental funds)
  • Volume/Revenue Targets (by customer and brand with ability to specify minimum targets as ‘soft’ constraints while optimizing for profit)
  • Promotion Rules (minimum and maximum frequency for all deal types, pre- and post-gap restrictions, seasonal validity, always/never promote together)
  • Preferred/Blackout Time Periods (by customer, brand and product)

In the future, TPO Planner will also consider the following variables and constraints:

  • Cross-promotion Elasticity (impact on base volume and lift indexes across multiple events, products, and customers)
  • Capacity/Inventory Constraints (by product with ability to explore alternative sourcing options through River Logic’s Integrated Business Planner solution)

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