This post is sponsored by AFS Technologies.
Scenario planning has long been used in managing resources and making marketing and sales decisions at the enterprise level. But thanks to greater connectivity and mobility, the technology is now becoming a critical tool for the marketing and sales departments, especially in managing consumer goods brands and promotions. We recently spoke with Alex Ring, vice president for trade promotion management at AFS Technologies, who called scenario planning a “Swiss army knife,” as it enables trade marketers and sales to deal with every possible contingency.
What is one of the biggest challenges you see with beverage companies and how can scenario planning help?
The greatest challenge marketers and sales face is the number of beverages and various “flavors” of a brand, and finding the right balance in promotions. If you go back 10 or 20 years, the typical approach was to encourage the salesperson to do the math and make sure they were considering events promotions, different price points and coming up with the balance that would work. Nowadays, however, planning, executing, settling and analyzing your promotions and retail programs are more complex. Beverage brands can come in five different flavors, at five different price points and in three or four merchandising vehicles. There are so many different combinations possible.
The key challenge for marketers and sales is to find that optimal scenario that allows you to stay within [a] trade budget and achieve the company’s sales and profit goals — and yet still lets you stay within the retailer’s margin requirements. You need to be able to quickly go through all the possible combinations and figure out which ones work for you and for the retailer.
How would you leverage scenario planning to give a competitive edge for key promotional holidays?
The first thing I would do would be to get a head start with negotiations. Even before the retailer tells me what’s available or what I should be doing, I would want to proactively come up with a series of combinations. You’d don’t start with just one or two examples, rather you start with the equivalent of a Swiss army knife, where you have a number of scenarios already prebuilt into the planning and you know what an aggressive trade plan would be and all the combinations in between. When I’m sitting in negotiations armed with this information, I’m dealing from a position of knowledge as opposed to just saying, “let me get back to you.”
Take Fourth of July: We know it’s critical to get a lot of product into the store, even if it’s not at the exact price point you ideally want because if you don’t have enough product, you’re going to be out of stock and you’re not going to meet your volume goals. One of the ways I would use scenario planning is to find the right mix of product. I would construct a scenario where I could offer a deep discount on my key 2-liter size, coming in at a price point where I might not make any money, but then say to the retailer, “I can meet that price but in return you must meet my price on cans.” I can use cans, where there is less price elasticity, to cover the 2-liter bottles, where there’s greater price elasticity. The application of scenario planning extends beyond holidays to every day of the year.
What advantages can scenario planning offer during holiday times?
The greatest advantage is speed — it enables me to give a retailer a quick yes or no commitment. With the aid of scenario planning, I have the ability to go internally to my organization and practically get pre-approval. And I don’t have to crunch the numbers and go back and make my case.
There’s another, secondary aspect to what I’m describing, which is given the enormous costs of promotional events, the finance department often focuses on the expenses and loses sight of shipments and revenues. With scenario planning, I can present the total picture and say, “This million dollars in promotion will generate this volume of sales and this amount of profit not simply across the particular package promotion but across the entire product line.” The entire product line shares our margins; that’s the power that scenario planning gives me.
How can this type of planning help you be more responsive to competition?
It can help in several ways. One is speed. Two, I can prepare a lot more scenarios rather than using just pen and pencil and Excel spreadsheets. And finally, by doing scenario planning, I am not just keeping my own objectives, but I’m also balancing it with the retailer’s objectives. So that when I come in, not only can I say: Here’s what I want you to sell, but here is how the different scenarios work for you. As a result, you get closer to what is a win-win situation for everyone.
What are the advantages of using this technology over the current method?
Along with the speed and flexibility gained by moving away from manual spreadsheets, the technology enables you to access the appropriate syndicated consumer data and to tie together that information with manufacturing costs. It allows you to gain insight through the analytics that are built into the technology, letting you generate reports and evaluate the effectiveness of the promotion. By having such a system that pulls together all the information together, you can focus on the scenarios themselves and figuring out how to optimize your sales and profits.
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