How to Integrate Pricing and Trade Promotions Strategies into Your Demand Planning

By Octavio Hinojosa, Co-Founder and Vice President at Wise Athena | December 10, 2024

Plus, why they're so important to manage in tandem, especially for consumer packaged goods (CPG).

It's no secret that demand planning is a critical component in managing a consumer packaged goods (CPG) company. To achieve success in this competitive market, you must anticipate and meet customers' needs efficiently.

But I think it's important we talk more about how to manage the two fundamental factors that influence demand planning: pricing and trade promotions.

Pricing: It's More than a Number

Pricing must be a dynamic process that adapts to changing market conditions, competitors, and customer needs. Effectively integrating pricing strategy into demand planning is essential for successful supply and demand management, especially in the CPG industry.

Pricing is not simply about assigning a number to a product because selecting appropriate prices does more than impact profit and margins. It also impacts product demand.

So, how do you get pricing right?

Do these five things every time:

1. Pricing strategy:

Define a pricing strategy that is aligned with your company's objectives. This could include low pricing to capture market share, premium pricing to position a high-end product, or dynamic strategies based on demand and competition.

2. Price Elasticity Analysis:

Evaluate how the demand for a product changes in response to changes in price. Understanding price elasticity is critical to adjusting prices in a way that maximizes revenue and profitability.

3. Price Segmentation:

Consider having different pricing tiers for different customer segments. This may involve differentiated pricing for premium products and discounts for price-sensitive segments, etc.

4. Competition and Positioning:

Constantly monitor competitor prices. Pricing should be competitive and reflect the perceived value of the product compared to others in the market. Adjust prices to support brand positioning. Prices must be in line with the image that the company wants to project.

5. Seasonality and Market Trends:

Consider seasonality in demand and adjust prices accordingly. For example, you could offer discounts during periods of lower demand.

The combination of a solid pricing strategy and effective inventory management will contribute to the overall success of your business, so it is important to review and adjust these strategies regularly to adapt to changes in the market and business conditions.

Optimal inventory management should reflect a balance between the interests and expectations of your customers and costs. That is, having enough items in stock to meet demand while keeping the cost of inventory to a minimum.

Trade Promotions: Retooling Your Demand Drivers

Trade promotions are valuable tools for driving demand for CPG products. These promotions include discounts, special offers, and seasonal promotions.

Effective planning of trade promotions involves considering several factors and will require close coordination between your sales, marketing, and supply chain teams. However, by effectively integrating trade promotions into demand planning, you can maximize the effectiveness of these initiatives and improve overall supply and demand management.

Why are they essential in demand planning?

1. Seasonality: Trade promotions can help smooth out seasonal demand. For example, offering discounts on seasonal products can encourage purchasing throughout the year.
2. Inventory liquidation: Promotions are useful for eliminating products with excess inventory. This frees up space and capital for new products.
3. Customer loyalty: Special offers can increase customer loyalty. Consumers can search for your products when they expect deals.

The main objective of correct promotion management is based on the use of strategies and resources to promote a product that will generate additional demand. To achieve this, identify your potential customers, decide the promotion budget, and select the products to promote.

During trade promotion planning, especially for large events on special days and holidays, inventory levels must be adjusted to meet demand peaks.

Trade promotion optimization and analytics at a granular level are used to adjust inventory targets and drive additional replenishment and purchasing decisions. When demand forecasting, inventory planning, replenishment, and procurement are done in an integrated manner, the availability of individual product sizes improves, maximizing sales.

This is where trade promotion optimization software plays its role. The solution to incorporating promotions while managing inventory lies in data analysis. Machine learning (ML) and artificial intelligence (AI) are two of the most innovative tools that the new millennium brought to the marketplace.

A Few More Things to Keep in Mind When Integrating Pricing and Trade Promotions

As I mentioned, the integration of pricing and trade promotions is crucial for the efficient management of a company's pricing and promotions strategy. Both areas are closely related and must work together to maximize revenue and profitability. They require a strategic approach and adequate management to ensure that both areas work in synchrony.

So, it's important that you prioritize…

1. Consistency: Make sure product prices reflect trade promotions. Consumers should know when they can get discounts and when they must pay the regular price.
2. Data analytics: Use historical data and predictive analytics to determine when and how to implement promotions. This optimizes the impact on demand and margins.
3. Market feedback: Regularly evaluate the performance of pricing and promotion strategies. Adjust based on results.
4. Automation: Use automated tools and systems to manage pricing and trade promotion processes efficiently. Incorporate technologies such as machine learning algorithms to improve accuracy in pricing and promotion planning.

I know demand planning is a constant challenge for CPG companies. That's why correct management of the pricing strategy and trade promotions is essential to satisfy consumer demands and remain competitive in the market. Aligning these two areas can result in greater success and growth for your CPG company.

About the Author:

Octavio Hinojosa and the team at Wise Athena are on a mission to help CPG companies to optimize their pricing and promotion strategies through AI, thereby increasing their sales and margin.