Business Drivers for SAP Trade Promotion Management
- by Michael Debevec, President, Debevec Consulting, Inc.
- May 15, 2007
Learn about SAP CRM Trade Promotion Management (TPM). Find out what the TPM solution landscape looks like, the components of TPM, how it affects order execution, and how can you tie actual shipments back to your original promotional plans.
SAP Trade Promotion Management enables a company to capture expected promotional events, their costs, and the expected uplift so that it can determine which types of promotions with which customers provide the best return on its marketing dollars. Other planning tools, such as Sales Account Planning, Brand Marketing, and Marketing Planning can address non-event trade incentives, channel sales incentives, and associated marketing expenses to give a total picture of product profitability.
Trade promotion inefficiencies are a significant concern of manufacturers. These companies spend billions of dollars each year — sometimes with little to show in increased sales. Disconnected sales systems — with trade promotion planning in one system and sales order execution (with associated pricing) in a different system — often lead to incorrect pricing and subsequent deductions by customers. Finally, the legal requirement to justify disparate pricing (at least in the United States) because of the provisions contained in the Robinson-Patman and Sarbanes- Oxley acts force manufacturers to develop much more complex and complete systems for trade promotion funds management.
Trade dollars are usually allocated to key accounts based on the previous year’s volume. Different companies use different processes to allocate trade dollars, but all companies go through a planning process in which they attempt to determine how much they will spend with each account and what the expected sales volume and revenue will be as a result of the spending process. The account plan consists of long-term incentives as well as short-term (typically one to two weeks) promotional events for a specific set of products. In the past, the primary concern of the manufacturer was to correctly accrue the trade funds to report financial results accurately and provide a mechanism to pay customers when they submit billbacks — an accounting method for cost recovery — for the promotional event.
As a consumer, you may be aware of such an event by looking at the weekly advertising circular inserted into your daily paper, known as a free standing insert (FSI). The circular may contain a special price, a buy-one, get-one-free promotion, or a coupon that you can redeem at the time of sale. In discussing SAP Trade Promotion Management (TPM), I will look at how you can use it to capture the initial promotion proposal of a two-week sale of a product at a 20% discount from the normal retail price. To encourage sell-through, the key account manager (KAM) proposes to set up end- aisle displays in the customer stores, for which the manufacturer will reimburse the customer at a predetermined rate. The KAM expects that this event will result in a 25% volume uplift.
I’ll explain the typical system landscape for TPM, and then I’ll go over the key system components that make up TPM, including the Basic Data, Products, and Volumes/Trade Spends tabs. Then I’ll cover some of the design restrictions with TPM. Finally, I’ll show you what happens in TPM when you release a promotion. Most of the features discussed are available with SAP CRM 4.0, but I will point out when a feature is new to SAP CRM 2005. It is somewhat difficult to identify technical prerequisites. In many cases, the prerequisites arise because of the desire to use specific functionality. For example, the dynamic link to Advanced Planning and Optimization (APO) requires that you are on at least APO 4.0. Functionality associated with rebates to indirect customers requires that the ERP release be at least R/3 4.7. This article is a combination of business process and technical functionality. For additional information about TPM, see my November 2006 CRM Expert article, “Trade Promotion Management: Ensure a Promotion Uses the Right Buying Pattern.”
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