Trade promotion inefficiencies are a significant concern of manufacturers. These companies spend billions of dollars each year — sometimes with little to show in increased sales. Disconnected sales systems — with trade promotion planning in one system and sales order execution (with associated pricing) in a different system — often lead to incorrect pricing and subsequent deductions by customers. Finally, the legal requirement to justify disparate pricing (at least in the United States) because of the provisions contained in the Robinson-Patman and Sarbanes-Oxley acts force manufacturers to develop much more complex and complete systems for trade promotion funds management.

Trade dollars are usually allocated to key accounts based on the previous year’s volume. Different companies use different processes to allocate trade dollars, but all companies go through a planning process in which they attempt to determine how much they will spend with each account and what the expected sales volume and revenue will be as a result of the spending process. The account plan consists of long-term incentives as well as short-term (typically one to two weeks) promotional events for a specific set of products. In the past, the primary concern of the manufacturer was to correctly accrue the trade funds to report financial results accurately and provide a mechanism to pay customers when they submit billbacks — an accounting method for cost recovery — for the promotional event.

As a consumer, you may be aware of such an event by looking at the weekly advertising circular inserted into your daily paper, known as a free standing insert (FSI). The circular may contain a special price, a buy-one, get-one-free promotion, or a coupon that you can redeem at the time of sale. In discussing SAP Trade Promotion Management (TPM), I will look at how you can use it to capture the initial promotion proposal of a two-week sale of a product at a 20% discount from the normal retail price. To encourage sell-through, the key account manager (KAM) proposes to set up end-aisle displays in the customer stores, for which the manufacturer will reimburse the customer at a predetermined rate. The KAM expects that this event will result in a 25% volume uplift.

I’ll explain the typical system landscape for TPM, and then I’ll go over the key system components that make up TPM, including the Basic Data, Products, and Volumes/Trade Spends tabs. Then I’ll cover some of the design restrictions with TPM. Finally, I’ll show you what happens in TPM when you release a promotion. Most of the features discussed are available with SAP CRM 4.0, but I will point out when a feature is new to SAP CRM 2005. It is somewhat difficult to identify technical prerequisites. In many cases, the prerequisites arise because of the desire to use specific functionality. For example, the dynamic link to Advanced Planning and Optimization (APO) requires that you are on at least APO 4.0. Functionality associated with rebates to indirect customers requires that the ERP release be at least R/3 4.7. This article is a combination of business process and technical functionality. For additional information about TPM, see my article, “Trade Promotion Management Ensure a Promotion Uses the Right Buying Pattern.”

The TPM Landscape

TPM can improve the effectiveness of your trade dollars and your supply chain by linking products in orders to a specific trade promotion. Using TPM, you assign attributes to promotional spending that help you analyze actual results and compare the actuals to the original plans. You assign each promotional event an identifier that you link to a new type of condition record, a campaign determination record. During order processing, you use the combination of customer, product, and date to determine if an active promotion is available.

If one is available, the system stores the promotion identifier with the sales order line item. You can then extract data from Profitability Analysis (CO-PA) and load it into the trade promotion planning InfoCube based on the common identifier. You can compare the sum of the volumes for each product with the promotion identifier to the forecasted volume key figure from the planned promotion. TPM allows you to generate pricing conditions and rebate agreements automatically based on the plan status to reduce invoice discrepancies and deductions.

TPM also provides a direct link to APO Demand Planning (DP) so that the supply chain is less surprised by a surge in demand. Finally, TPM provides visibility to consumer spending plans (couponing and other marketing campaigns) to enhance the impact of trade events. This is possible because trade promotions are a type of marketing planning object. You can write queries (linked by product) that enable the display of trade promotions, couponing campaigns, and other marketing events in the Marketing Calendar (as a split display). Here you can see your planned trade promotion events and the associated marketing campaign for a given time period and product.

In TPM, the promotion life cycle consists of three phases: planning, execution, and analysis. Figure 1 shows how TPM interacts with your SAP systems as it goes through the cycle. In the planning phase, TPM uses SAP CRM Marketing with Business Planning and Simulation (BW- BPS) and APO DP to ensure adequate supply. The execution phase involves SAP ERP. Finally, the analysis phase ties the plan to the execution within BW reporting. The Mobile Sales component is available for companies that require KAMs to plan while disconnected from the planning systems.

Figure 1

TPM system landscape

TPM Components

The TPM layout consists of a set of tabs that represent different types of trade promotion data. At minimum, a trade promotion captures who is involved, what products are involved, when the promotion occurs, and how much volume the promotion will realize (and dollars spent). In addition, the data capture improves the analysis of the trade promotion effectiveness and future trade promotion planning.

Figure 2 shows the Basic Data screen in Marketing Planner that you use for the initial data capture, which you access in Create Trade Promotion option in transaction CRM_MKTPL. You can classify data entered into a trade promotion into three categories: data that facilitates the analysis of promotional effectiveness, data that you need to generate condition records and send demand to APO, and supplemental information that you can use during the sell-in process with the customer (e.g., the negotiations with the customer to accept running the promotion).

Figure 2

Basic Data tab in TPM

Basic Data Tab

This tab contains the majority of the non-planning attributes of the trade promotion. You can use the Objective and Tactic fields as filters during the post-execution analysis of the trade promotions. Tactics may include a temporary price reduction, coupon, or FSI. The Planning Profile Grp represents the link to the BW planning functions. Although you model the layouts and InfoCubes in BW, you configure the use of the layouts in CRM.

The basic trade promotion object has two sets of dates — Plan and Actual — which you configure in the Dates section of the Basic Data tab. In the implementations that I have been involved with, the Plan data represents the actual in-store event — the companies have not gone back to the trade promotion and updated the actual date fields after the event has run.

The Dates section contains five additional date fields that you can assign to a trade promotion. SAP provides five different period types to classify the dates: pre-dip, buying, post-dip, goods receipt date, and creation of the subsequent document. You can control what is displayed on the screen via configuration. For example, at one customer site, we labeled the Goods Receipt Date as the Shipping Date. 

In the Status area, the status profile controls important events, such as generation of the campaign determination key (used to find specific condition records in your ERP system for pricing) and transfer of forecasted demand to APO. The status you set here determines other available status settings for a promotion. For example, when a trade promotion is in the Create status, the only available status may be Planned. In addition, you can use authorization objects to control which roles can set a particular status. For example, you can permit only sales managers to set the status to Approved.

Products Tab

In the Products tab, you assign specific products to the promotion (Figure 3). To select products, enter individual product numbers, select a specific product group, or select a product hierarchy value. If the products associated with your selection change, the system uses this information when you create a new promotion. In this case, it copies an entire existing promotion and then you can change the dates, planning account, or the spend types as needed. In addition, if the date changes for an existing promotion, then the system re-determines the product group members. For this reason, if you want to exclude certain products from the group when you plan a promotion, make sure to select the Exclude check box.

Figure 3

Products tab in TPM

Finally, if you utilize free goods as a promotion technique, then you can select a planning profile that contains the fields necessary to describe the free goods rules. The system uses this to generate the free goods rules to use during order processing. When the planning profile group contains a profile with a free goods plan type, then the additional data capture fields become visible in the Products tab.

Volumes/Trade Spends Tab

The Volumes/Trade Spends tab has two sections. The top section displays the planning profile and the Spend Type section. You configure the values displayed in the Spend Type section by following menu path IMG>Customer Relationship Management>Marketing>Marketing Planning and Campaign Management>Key Figure Planning>Define Trade Spends for Expected Values in SAP CRM 2005 (the IMG path in CRM 4.0 may be different). The combination of spend type and spend category points to a unique key figure that is included in the displayed layout. This combination plus the aggregate of spend method and related volume points to a second key figure that represents the associated volume. For example, one volume may be shipping volume. A second possibility is scanner volume.

One of the most important functions of TPM is the ability to generate promotion- specific condition types. The combination of spend type, spend category, spend method, and discount method determines the condition type to generate. In Figure 4, the combination results in a discount condition type that uses a percentage calculation method, which you can see in the Spend Category OI: Temp. Price Red. % and the condition type (CTyp) Y004. If the spend method were deferred, then you would have to select a rebate condition instead.

Figure 4

Volumes/Trade Spends tab

Figure 5 shows how you link the condition type to the multiple tables within the access sequence of that condition type. Follow menu path IMG>Customer Relationship Management>Marketing>Marketing Planning and Campaign Management>Condition Maintenance>Define Condition Generation in SAP CRM 2005. TPM is somewhat limited in the types of condition records that it can generate based on the trade promotion. For example, any TPM condition type must have a customer type field and a product type field in the key. The customer type field represents the three types of objects that you can plan with TPM: Business Partners, Business Group Hierarchy Nodes, and Target Groups.

Figure 6

Assignment of condition tables

The product level can be a product hierarchy field, product group field (only one of the five), or a product ID. The combination of the condition type, customer type, and product level points to a condition table. For example, if you return to Figure 2, you can see that the customer type is a Hierarchy Node. If I were to select the trade spend combination shown in Figure 4, which pointed to condition type Y004, then the system would select the condition table highlighted in Figure 5.

When you generate a condition, you can determine the optimum level to create condition records. If all of the products in the same product group have the same rate, then the system generates one condition record at the product group level instead of multiple product level condition records. For example, if I create a trade promotion for all products in product group 1A3 (which contains 10 products) and the discount is the same for all 10 products, then the system would choose the table above the highlighted table in Figure 5 and create a single product group record instead of 10 product records. The fewer the records, the better the system performance when retrieving the trade promotion and sending the promotion information to R/3 or SAP ERP Central Component (ECC).

Design Restrictions

In the TPM design, you must make sure that the design meets certain criteria. You must take the following into account in TPM:

• Condition records
  
  
• Overlapping promotions
  
  
• Dynamically generated planning layout
  
  
• Net price list

Condition records. These must contain a business partner dimension and a product dimension. In Sales and Distribution (R/3 or ECC), some companies may use the sales office to represent a sales territory. They then create a discount to offer to all customers within that territory. You cannot model this type of promotional discount in the same way in CRM. You can create a target group of all customers in a particular sales area, but the system generates conditions on a customer-by-customer basis. In general, these generic discounts are independent of specific promotional events and may represent more broad-based incentives. For now, it’s best if you continue to maintain these conditions in ECC and download them to CRM if you want to include them in a price list calculation. Then, the planning layout can include these existing, high-level discounts when determining the final net price within the promotion period.

Overlapping promotions. The system stores the promotion key (called the campaign determination key) at the item level in the sales order, so prior to ECC 5.0, it is not possible to create overlapping trade promotions, which contain the same combination of a customer and product for the same time period. From one perspective, this makes sense because it would be difficult to determine which promotion is responsible for the promotion uplift. However, current business practices often result in overlapping events. You may have multiple spend types (condition types) in a single trade promotion, so you can emulate the effect of multiple promotions. In this case the KAM must be aware that the original promotion exists to add additional spends. If the KAM is not aware, then the KAM will not find out about the overlap until the KAM releases the promotion and the system raises an error.

Dynamically generated planning layout. The system generates the planning layout dynamically, based on the promotion’s time period, the number of products in the promotion, and the number of key figures the system must display. This means that a direct inverse relationship exists between the size and detail to capture in the promotion and the performance of the system during viewing and maintenance. SAP’s system recommendations are based on the average size and duration of your promotions. For promotions that are larger than average, the amount of time needed to display the planning layout initially can run into minutes. The SAP Notes in Table 1 include updates to improve this performance.

Net price list. When TPM was first released in CRM 4.0, the base price used to calculate the discount cost was the product list price. Some promotional discounts are based off an adjusted gross price, so SAP used the net price list application to calculate multiple price adjustments that the system could store in the subtotal values of the pricing procedure. For example, many customers offer a full-truck discount when orders are over 20,000 pounds. Since most major customers order in truckload quantities, for planning purposes, you would apply this discount to the group price prior to calculating any further promotional discounts. In CRM 4.0, this was not possible without using a Business Add-In (BAdI) to alter the value of the gross price condition.

To configure the condition generation in CRM 2005, follow menu path IMG>Customer Relationship Management>Marketing>Marketing Planning and Campaign Management>Condition Maintenance>Define Condition Generation. Choose NPL Subtotals for pricing and link each subtotal value to a key figure that you add to the planning layout. Then, when you calculate a discount value, multiply the estimated volume * CUS_NLP_2 * the discount percentage to get the discounted value.

Suppose the gross price is $100/case and the expected promotion volume is 1,000 cases. The gross sales (prior to discounts) would be $100,000. If the truckload discount is 5%, then the adjusted gross sales would be $95,000. If a promotion offers an additional 3% off, the promotion cost would be $3,000 if I used the gross price as the base, but $2,850 if I used the more accurate adjusted gross price. The net price list enables a more accurate modeling of the promotion pricing.

What Happens During Order Execution

After you release a promotion and generate condition records, SAP CRM passes the data to ECC via middleware. If you are using APO, the same release can pass the expected demand to the production planner so that sufficient product is available for shipment. The data consists of campaign determination records, condition records, and rebate agreements. At order entry time, if you have activated campaign determination, the system uses the condition technique to see if a campaign determination record is valid for that customer/material combination — you can use customer hierarchy levels to plan at a corporate level for multiple sold-to parties. If the system finds a record, it stores the campaign determination key at the item level. You use this key to find the specific discount records that are valid.

To retrieve the record, select a sales order item and click on the conditions icon to view the conditions in the pricing procedure. Select a specific condition type and click on the display condition record icon to display the record. The first key field is the Campaign ID, which is found at the time of order entry via campaign determination using the same pricing date used in the standard pricing determination process (Figure 6). If campaign determination doesn’t find a campaign ID record, then the system doesn’t retrieve the pricing discount records, even if records exist for the combination of the customer and material. When a trade promotion is cancelled, the system deletes the campaign determination records, but not the pricing records. The system cannot find the campaign ID, so it cannot find the condition records, either. In pricing analysis, the system displays the message Initialized field for the Campaign ID field.

Figure 6

TPM condition record details

At invoicing time, the system passes the campaign key to CO-PA in a new field called the Marketing element. Display the CO-PA records by clicking on the accounting overview icon for an invoice and selecting a CO-PA document. You map the value fields in CO-PA to specific condition types and planning key figures. So, you can use the marketing element from the trade promotion in CRM and the marketing element in the CO-PA records to link the planned quantities and costs to the actual quantities and costs. This link occurs even in the event that the only spend type in the trade promotion is a fixed rebate (e.g., to pay for an FSI ). If the KAM estimates that the customer will purchase a product a week prior to the promotion and sets the buying period accordingly, then all sales orders for that week are tagged with the promotion ID, even though there are no condition records in the actual order or invoice. When the fixed rebate is settled, the system tags the credit memo with the same promotional ID for analysis.

Michael Debevec

Michael Debevec is president of Debevec Consulting, Inc., and is a senior consultant with more than 14 years of experience with SAP. He has worked with SAP CRM for the past nine years and assisted in implementations in the high tech, consumer products, and pharmaceuticals industries. Prior to working in SAP, Michael was an IS manager in charge of logistics systems.

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