Reallocating The Trade Marketing Budget

Trade Marketing Budget : Many CMOs agree that marketing is a science. However, on a day-to-day basis, they behave as if it were an art.

Until now, marketers have developed their profession by making decisions based on the depth and breadth of their experience. In fact, experience has been the most sought-after attribute by companies when hiring marketing executives.

The problem is that the use of conceptual marketing and decisions based exclusively on smell have not allowed marketers to convincingly explain the impact of their decisions on the financial statements of companies.

Conceptual marketing is not enough to face the challenges that companies are currently facing. The main responsibility of the marketing professional is to know the consumer and be able to shed light and intelligence on the analysis of their behavior, in order to make decisions and take actions that allow them to satisfy these consumers and improve the value of the companies for which they work. . Incidentally, they are the ones who put the budgets they manage in their hands.

Improve Marketing Decisions.

Someone might think that if the results arrive, it doesn’t matter if it is due to inspiration or as the result of a deep research process.

The problem with relying exclusively on experience is that it is unique to each person. Nobody can doubt the value of experience but it is very difficult to decide between two proposals based on the judgment of two different managers. The fact that their preferences and biases are modulating their proposals does not bring us closer to knowing what the expected final impact of their measures will be.

One of our proposals to overcome this situation is that marketers aggressively use quantitative models to analyze and make decisions, as well as to “sell their recommendations and proposals within their companies.”

Models Don’t Solve Problems, People Do.

However, it is not realistic to think that the construction of econometric models will directly solve the problems that arise in management because, by definition, a model is incomplete. The question we must ask ourselves is whether helping us with quantitative models to make decisions will improve their quality.

The answer seems to be increasingly clear: yes, emphatically. The process of building a quantitative model for decision-making improves their quality.

This happens for four reasons:

• Because the consistency of decisions is improved,
• Because a greater number of options are explored in the process,
• Because it allows assessing the relative impact of each alternative
• Because the group decision process is facilitated.

Making decisions and managing involves both the use and analysis of data and the managers’ own judgment. The combination of these two skills requires integrating quantitative models with mental models and the result of this process is always more enriching and profitable than using only one of the parts.

Technical And Business Knowledge.

The mechanical application of the optimization technique to the redistribution of Trade Marketing budgets is not a good idea. History does not provide us with enough customer-to-customer variation to be able to construct a sales response curve to changes in resources. It is, therefore, necessary to replace history with the business knowledge of the managers of the key accounts team.

Psychological Restrictions.

The tendency to keep budgets constant in the commercial area is common to all organizations. There is a strong anchoring effect that is intrinsic to our cognitive system and that pushes us to hold on tightly to a number that has already been given. Breaking the references compared to the previous year is not an easy task, since our brain is not prepared for it.

On the other hand, the volume of the budgets that each manager manages is a sign of status in the company. Reductions in the spending budgets of one area, to the benefit of another, are interpreted as a sign of withdrawal of confidence or demerit of the management carried out.

Participatory Work.

Changes in budget allocation must therefore arise from a well-reasoned process, informed and shared by all those affected and capable of being put into practice.

Only from a process in which those responsible for the accounts have actively participated can a new distribution of the budget arise that yields better returns for the company.

Combining The Quantitative And The Qualitative.

The exclusive use of mathematics for the redistribution of resources is often reluctantly welcomed by managers. It is necessary to incorporate the tacit knowledge of those responsible for the accounts and other managers of the customer and marketing areas to the models that are built.

The use of this tool and the simulations in work meetings would make it possible to design an optimal allocation of the budget among the different clients in the area.

For the construction of the response curve of each client, a series of work meetings were held with the client managers, the commercial management, the members of the Trade Marketing department and the marketing department.

The objective was to reach a consensus of the entire group, fueled by reasoned estimates, on the reactions of sales in each of the clients to variations in the TM stock budget.