Spreadsheets are no answer for your chargeback woes
Automation is key
It’s estimated that many midsize and large consumer packaged goods (CPG) companies spend up to 30 percent annually of their revenues on trade promotion, which includes marketing and sales activities, like advertising, rebates, temporary price reductions, contests and sweepstakes and special premiums, to name a few. Trade promotion is frequently the second-largest expense line of a consumer products manufacturer or wholesale distributor, and its strategic success is often paramount to an organization’s continued growth; yet, it can be rife with challenges, especially when it comes to chargebacks.
Ignoring your chargebacks can cost you big
At a CPG manufacturer or wholesaler, a chargeback refers to that operation performed by a business in order to recover money from a customer in the event the customer made an unauthorized deduction. For example, let’s say a customer receives an invoice for $10,000 on a shipped good, but pays only $9,000, because $1,000 was deducted for a temporary price reduction. The legitimacy of this deduction could be disputed if the price reduction within the trade promotion was inaccurate, had a limited usage time or was unjust for some other pricing condition. In that case, the $1,000 is considered a chargeback, and a business can explore collection from the customer.
The problem? A company can encounter hundreds of these chargebacks over the course of a year. And, what’s even more distressing, the tracking of these trade promotion programs and speculative chargebacks is often relegated to an antiquated system of spreadsheets and manual entries. Some companies find the management of trade promotions and collection of chargebacks so consuming and complex they deem it easier to not pursue claim collection at all, and accept the chargeback as a loss, which according to some industry experts, could collectively total up to 3 percent of a business’ annual revenue. If you’re a $100 million manufacturer of consumer goods, for instance, that specializes in high-end ladies’ boots, that’s $3 million a year lost in chargebacks, enough to make you want to kick yourself with one of your fancy boots, no doubt.
Trade promotion management to the rescue
What’s a business to do? For starters, abandon the old spreadsheet method. While the spreadsheet tracking method has been the industry standard, automation and the use of specialized technology platforms provide the answers to managing trade promotions and chargeback challenges in today’s complex sales market. In addition, today’s trade promotion management packages do much more than simply assist in decreasing your chargebacks. In the past, these systems were complex, expensive and only used by large organizations. Today’s applications, built around popular enterprise resource planning (ERP) and customer relationship management (CRM) applications, allow middle-market CPG companies to ditch the spreadsheets.
A good system should provide that single integration source for all your trade-related information. In addition to tracking, contesting and resolving chargebacks, a trade promotion management program can help track trade spend budgets against promotions, provide forecasting reports, decrease outstanding and duplicate deductions, increase insight into trade promotions profitability and ROI, tighten controls over accruals and payments, and as a result, increase sales performance and smarter promotion spend in the future.
There are a number of trade promotion programs out there; some, like Flintfox Promotions for AX, will extend the capabilities of your ERP application. Others, like Flintfox TRM, add capabilities to your CRM product, allowing you and your sales representatives to plan, manage and review the success of your trade promotion management decisions.
In short, a sound trade promotion management system should reveal a more holistic view of your entire trade operation, fostering regular communication between your business’ channels, giving you information on what activities are working and automating follow-up on every facet of your trade strategy, including the dreaded chargeback event. And isn’t that more than a spreadsheet could ever provide?