Sales Performance Management Challenges & Technology: Considerations for the Consumer-Packaged Goods Industry

ALES PERFORMANCE MANAGEMENT CHALLENGES & TECHNOLOGY CONSIDERATIONS FOR THE CONSUMER-PACKAGED GOODS (CPG) INDUSTRY

In recent years, no industry has seen more change than the Consumer-Packaged Goods (CPG) business. Frequent shifts in consumer preferences, buying habits, and demographic lifestyles have necessitated that consumer goods companies in this industry become agile and responsive. Compounding these issues, retailers and distributors who are in the middle between the manufacturer and the consumer are striving to remain relevant and add value to an omnichannel sales environment. They are continuing to develop and sell their own private label alternatives to the manufacturer, which causes tension to collaborative go-to-market efforts. All participants, including consumers, are also far more informed about products and alternatives than in the past.

Given the dynamics within this space and the subsequent impact on incentive compensation (both design and administration), this paper focuses on providing readers with an understanding of how Sales Performance Management (SPM) solutions can solve unique challenges for the Consumer Packaged Goods industry. By identifying how SPM software can close performance gaps and improve operational efficiency in specific areas, this paper provides a glimpse of the top considerations for reviewing various SPM solutions to ensure a good fit. Insights are highlighted in the SPM Technology Alignment & Considerations boxes in each section.

Here are five of the key SPM challenges facing the CPG industry:

1 | Adaptation to Market Trends
2 | Compensation Plan Performance Analysis
3 | Market Analysis & Insights
4 | Trade Marketing & Promotional Fees
5 | Information as Currency – Tracking & Crediting
6 | Incenting the Sales Channel – From Transactional to Strategic Sales

CHALLENGE 1 | ADAPTATION TO MARKET TRENDS

One challenge of the CPG industry is staying ahead of the changing preferences and purchasing behaviors of the consumer. Marketing campaigns promoting the latest product trends influence spending by the end user, which in turn requires manufacturers to swiftly respond to remain competitive. Often, a new or innovative product offering by a competitor will necessitate changes to sales strategy through pricing, packaging, or promotion in various channels in response. These changes take place not only rapidly, but also regularly. They challenge the sales department to stay on top of customer buying patterns, product volumes, and inventory to identify consumer trends and changes in market direction. Setting individual sales targets and aligning reward systems to reinforce and incent salespeople to support achievement of the company business goals is difficult.

What is needed is the ability to maintain an agile incentive compensation program that can continue to align to the constantly shifting CPG landscape. The incentive compensation trend in recent years reflects shorter performance periods including incentives for individuals or focused achievement of product mix objectives. The flexibility necessary to tackle these shifts in sales focus means on-going modifications not only on overall volume or margin quota, but also more concentrated incentives tied to specific product requirements. This significantly increases the burden on the administration team who must struggle to keep up with the frequent changes to targets and payouts.

CHALLENGE 2 | COMPENSATION PLAN PERFORMANCE ANALYSIS

The challenges posed by manual or spreadsheet incentive plan administration affect the accuracy and efficiency of the program, and they limit the utility of the sales and product data imbedded in the transactions used for incentive calculation. CPG companies find it difficult to assess the effectiveness of their plan designs and promotional programs to drive the right consumer behavior or achieve the desired business results. To analyze the impact on sales from the efforts of the salesperson as well as the incentive program on year-over-year plan performance, there must be access to recent and historical sales and payout data. This establishes baseline performance benchmarks for comparisons.

It is virtually impossible to manually appraise overall program efficiency without some form of performance data automation and archiving of plans and payouts for each role, as well as the capability to provide audit programming.

CHALLENGE 3 | MARKET ANALYSIS & INSIGHTS

Beyond the impact on sales incentive design and performance payouts, SPM systems provide a wealth of sales information that facilitates analyses essential for CPG companies to remain ahead of the changing trends in the consumer goods industry. Data analytics has become a required tool for today’s competitive sales process and marketing environment. It is not enough to have a good presentation and a strong product.

What has become a game changer for many sales organizations is the ability to utilize the transactional data and provide their customers with insights into the evolution of the market. This includes being able to analyze trends from the sales data and take a deep dive into a product category or evaluate the performance of a promotional campaign.

This capability however hinges on having the required data to accomplish the analysis. In CPG product categories, where competition is typically at extremely high levels and margins are under pressure, this capability can significantly differentiate your organization.

In a recent LinkedIn survey of 500 buyers and 500 salespeople, 51% of the responding organizations say their companies are using data to assess the performance of salespeople. For instance, 48% of respondents say they are evaluating patterns from closed-lost business—to apply these learnings to future deals.¹

SPM systems archive on-going and historical sales performance and incentive payout data that is integral to analyzing individual, group, company, and product sales performance. Through the implementation of an SPM application, CPG companies can conduct the analytics necessary to identify whether their sales results are in alignment with sales and customer strategy.

Performance analysis requires an agile application, responsive to change and that can incorporate the sales metrics, focus, and return-on-investment capability essential to success in the CPG marketplace.

In order to leverage this, it will be necessary to document future state needs for this process and request that solution providers showcase how data integration / processes would be managed in a production environment. Take note that not all SPM technologies provide an equal amount of coverage in the area of reporting and analytics.

CHALLENGE 4 | TRADE MARKETING & PROMOTIONAL FEES

While SPM is generally regarded as a compensation system for the calculation and payout of incentives, it addresses much more for the CPG marketplace in response to business needs and sales execution. The sales data within the SPM application provides the basis for several areas of sales performance and business focus that are challenging for CPG organizations:

• Evaluating the effectiveness of specific promotional campaigns
• The impact of trade marketing spend on sales performance
• Marketing expense, sales forecasting, and promotional budgeting

In larger organizations, analysts from several sales and finance areas contribute data that then must be consolidated into reports that management uses to set plans and targets for the following year. Most of the data that is used to create these forecasts and budgets typically resides in an SPM system, including the historical information for conducting trend analyses, as well as modeling sales performance and payouts from investments in promotional campaigns and marketing spend.

To make wise marketing investments, it is necessary to be able to have the systems in place to analyze sales, customer, product, and category performance before, during, and after a campaign. Manual and spreadsheet calculations of campaign performance do not have the flexibility to conduct effective analysis of the return-on-investment for a campaign. In the same vein, when planning the annual trade spend for a product or with a customer, the historical performance of products or categories requires the ability to conduct marketing stress tests to assess vulnerabilities in the investment strategy under different scenarios.

Funding marketing initiatives comes with inherent risks relative to the return-on-investment. These can be mitigated through ensuring that the necessary information to evaluate programs and expenses is incorporated into the SPM requirements.

Using historical customer and market spend information and the resulting sales performance by customer, category, or product can provide valuable insights for annual planning of the trade marketing spend to ensure that the investment delivers the expected ROI with reduced risk.

The system requirements during application assessment for tracking must include identifiers for sales tied to programs or marketing expense relative to period sales performance.

CHALLENGE 5 | INFORMATION IS CURRENCY – TRACKING & CREDITING

A consistent challenge for CPG companies over the years has been the ability to track sales through to the end user. Most manufacturers in this space utilize a combination of direct sales and distributors to sell their products. This optimizes sales coverage and expense through the distribution network, while still allowing the company to sell direct to large or strategic customers.

However, when distributors have a strong relationship with their customers, they can influence or leverage sales direction dramatically. The challenge comes when the distributor has a private label version of the product and must choose between selling the CPG customer’s branded product or their own. Often, when the customer is not brandoriented, the promotional dollars or commissions paid by the manufacturer to the distributor for branded sales influences that choice.

In larger retail sales and foodservice scenarios, once the buy has been placed through the distributor, the manufacturer has no idea where the product is shipped, who receives it, and at what locations it was purchased by consumers. This makes it tough for the manufacturer to know where to place their marketing dollars.

A CPG manufacturer had 80% of their sales volume tied to the distribution channel. To grow, they needed to have greater knowledge and control over where their product was being sold to consumers. They had moderate success in getting some of their distributors to share data, but others were resistant. They could see from their SPM tool which of their products distributors were buying and in what volumes. They were able to target retail customers that had significant buying potential but did not do high volumes through those distributors. Using this data, they developed a strategy to go directly with those who were resistant to sharing. Their objective was to reduce dependence on distribution for sales and achieve a distributor sales target level of 60% over a three-year period. All incentive-eligible participants in the sales force had increased direct sales as one of their objectives and measures in their incentive compensation plan.

Organizations using spreadsheets to manage their incentive compensation programs struggle with providing salespeople with timely information showing how their incentive payouts were calculated and which sales were credited to the payout calculation.

The real-time aspect of the SPM system enables tracking and accurate crediting so that when salespeople log into their personal dashboard, they can look at sales year-to-date against their targets, identify their sales by product, category, or customer, and review their credited transactions to target opportunities and see what they need to sell in order to achieve their expected level of income.

CHALLENGE 6 | INCENTING THE SALES CHANNEL – FROM TRANSPARENCY TO STRATEGIC SALES

Another challenge to CPG incentive compensation is the evolving nature of the selling roles and the movement away from transactional toward strategic sales activities. While sales volume and revenue growth rate continue to be the mantra for packaged goods sales, there are strategic sales activities that are once again transforming the CPG sales environment, which include:

• E-Commerce
• Vertical integration
• Supply chain and procurement initiatives
• Restructuring of sales roles

Retail, institutional, and foodservice buyers have limited time for sales visits, preferring instead to hold less frequent resource meetings where those who can demonstrate sales and company value through their data analysis, insights, and research get the audience and those who do not are driven immediately to price. Recently, it has become more critical to reward salespeople for the achievement of strategic initiatives:

Strategic Initiatives (SI): These components of incentive compensation measurement and payout reflect the delivery of both the quantitative target (e.g. contracted revenue, strategic product revenue) of a deal, as well as the qualitative, strategic and tactical execution (e.g. customer contacts/levels involved in securing the deal, presentations made and to whom). They are detailed when the compensation plan is developed and tracked quarterly for execution. The intent of the strategic initiative measure is for the delivery of consistent and sustainable revenues into the future, not just a transactional sale.²

With the proliferation of sales and communications channels, specialized sales roles have developed that sell differently, or to different audiences, and through a variety of methodologies. These include key or national accounts, territory sales, and inside sales. Greater complexity requires collection and aggregation of different types of sales data for measurement and payout of sales rewards.

A CPG manufacturer’s sales to a national retailer may involve a team effort at the corporate office with several inputs – such as sales, marketing, and finance – to secure a contract for a number of SKUs in defined categories at a run rate price with marketing spend and promotional support. At the same time, execution of the contract and incremental sales at the retail location level is accomplished by a territory sales rep. Their activities, the customers they deal with, and the nature of the results will need to be measured and rewarded differently.

There are also administrative situations that result in even more complexity depending on the frequency of payout, the requirements for commission splits, long sales cycles beyond the fiscal year, and the tracking and crediting of referrals. Given the varying architectures of the SPM solutions in the market, a firm’s specific requirements for managing will be different in each system.

SUMMARY

This paper is intended to provide insight into the incentive compensation issues and challenges facing the CPG industry. It will show the capabilities inherent in SPM systems that enables their sales organizations to design, manage, administer, report, and oversee the incentive compensation program so that they deliver superior sales results, demonstrate uncompromising integrity, and support development of an effective sales culture.

Further, SPM solutions incorporate data that is essential for CPG companies to evaluate their sales strategies and wisely allocate marketing funds. In an ever-changing marketplace, those that invest prudently in technologies that provide efficient and accurate sales payouts and contribute to better sales growth and marketing decision-making will be the ones that thrive.

1 Source: LinkedIn State of Sales Report 2020
2 Source: WorldatWork Journal Vol. 12, Iss. 2