(Photo courtesy Land O’Lakes)

Today’s consumer goods marketplace is becoming more complex and difficult to judge. As the pace of decision-making escalates, the pressure on companies to become more cost-efficient intensifies.

Land O’Lakes, one of America’s top dairy producers, found that it was no exception and jumped at the chance to work with CSC on a new business solution dubbed Trade Promotion Optimization (TPO). CSC, in a joint venture with business analytics specialist SAS, customized TPO to help Land O’Lakes predict the effectiveness of its promotional campaigns.

"What companies want to understand, from a predictive basis, is what a promotion could do to enhance a particular product’s performance and which specific promotion approach will deliver the best result," says Steven Dunphy, chief operating officer for Land O’Lakes Dairy Foods Value-Added Business. "Until now, companies could look backward and, subject to the available data, they could make some educated guess as to what the impact of a promotion was. But predicting and optimizing—no such thing."

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Making the unpredictable predictable

As part of CSC’s Consumer Product Goods (CPG) Advisory Board, Land O’Lakes became the first client with which both CSC and SAS developed a proof of concept for TPO. Because TPO is an advanced predictive analytic engine that addresses one of the most entrenched business problems for consumer firms, it has applications across the CPG marketplace.

According to Retha Keyser, director of Customer Intelligence Business Development at SAS Americas, TPO collects and merges data from departments across the company and syndicated data suppliers such as AC Nielsen. The user inputs promotional scenarios that contain elements such as the season, the products being advertised, the promotions that are being run and pricing. A forecast can then be generated to predict the impact of the user’s promotional scenario on each part of the business. Additional programs compute and report the interactions among the different factors, then predict the effect of each factor.

It’s good to have as much data as possible, says Keyser, including market statement, econometric, geographic, promotional and sales data. Over time, the organization’s historical data builds up, making the system progressively more accurate. The system actually grows smarter over time.

In an example scenario, a product that has been advertised on television and promoted in the grocery store is on sale at 50 cents off. It shares shelf space with the store brand, which is a dollar off. Will the customer buy brand A because of the impact of the advertising and in-store promotion, or will the customer buy brand B, which costs less and probably tastes about the same? How much should brand A’s sale price be lowered to grab the customer?

Such questions about the effectiveness of advertising and in-store promotions on the buying habits of consumers are exactly what TPO answers. By analyzing huge amounts of data, TPO can predict what the consumer is likely to do, according to William Lunz, TPO architect at CSC. Not only can it predict under various conditions how a consumer might behave, but it can also recommend the best option to the sales and marketing manager responsible for the management of the brand.

Eye-opening insights

When CSC introduced the idea of TPO to Land O’Lakes, the butter company was in the middle of planning and budgeting for promotional activities.

			"We were telling them things about their business that in some cases they suspected but really did not have proof of. In other cases, we were saying things about the business that no one expected." —William Lunz, TPO architect

"Consumer product goods companies have gone for so long without a predictive means by which to analyze promotions that, honestly, some of our team members’ reactions were marked by healthy skepticism," says Dunphy. That attitude soon changed.

The proof of concept focused on butter and butter blends in the Northeast, and Land O’Lakes marketing professionals helped the CSC-SAS team attain a working knowledge of that segment of the business. By design, the data was limited to one product category and geographical subset in order to use a statistical sampling that would demonstrate on a smaller scale what the companywide benefits of TPO would be. The team created an analytical model, entered the data and tested the proof of concept.

Lunz presented the project results to the Land O’Lakes team. "We were telling them things about their business that in some cases they suspected but really did not have proof of," he says. "In other cases, we were saying things about the business that no one expected."

"There was a shift in thinking in the room that day," says Dunphy. "We recognized that if the insights CSC and SAS got by looking at the results of the proof of concept were that good, moving forward to fully populating the matrix across multiple product categories, geographies and types of data would only result in that much more benefit."

From a cost of business to a strategic asset

Moving forward with a project like this requires three remaining phases: business requirements, technical customization and deployment. The method of deployment will be closely aligned with the anticipated business effects of the solution.

"We want to change [promotions] from what we currently regard it as—a cost of doing business—to a strategic business tool," says Dunphy. "Accountability for driving such change must occur consistently throughout the organization. The sum total of this over time is a change in culture." As part of its methodology, CSC works closely with clients to enhance organizational change, conducting discussions and training sessions both before and after deployment.

The primary impact is that the sales negotiation process between manufacturers and retailers will become much more fact-driven, allowing them to develop a more coordinated approach to market, consumer and retailer relationships. With TPO, a client would be able to run speculative analyses on various scenarios in advance of retailer sales meetings.

"This solution allows you to walk into negotiations with the facts, knowing the preferred option," says Dunphy. "How far from that point you need to compromise gives you perspective on how beneficial the deal still is for you. The more fact-based you are as a consumer goods manufacturer, the stronger your credibility is in the eyes of the retailer."

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