HoukTPM

June 23, 2008

The Future of TPM Outsourcing

It being an election year here in the US, it is inevitable that we hear concerns about jobs being outsourced overseas. I was reminded of this when I came across this item, in India’s Economic Times, about Wal-Mart outsourcing some of their IT functions to Bangalore, and possibly looking into setting up their own operation there, as some other major retailers (Tesco, Target) have done. The article mentions that “Wal-Mart may firm up plans only after the US presidential elections.”

Putting aside that point, there’s certainly nothing unusual about jobs moving overseas. What I find interesting, though, is that one of the first business processes to be outsourced in the US was trade promotion administration, but it has yet to be outsourced overseas.

Outsourcing of co-op advertising management began in the early 1950s, mostly as a protection against regulatory agencies rather than as a quest for efficiency. It has continued through the ensuing decades as a small but thriving niche business in the US, possibly too small for the major overseas BPO firms to take an interest in it.

As I was reading the Wal-Mart article, though, and pondering why TPM outsourcing remains firmly on-shore, it occurred to me that the opportunity for foreign (Indian and other) BPO providers may lie in providing TPM IT and/or process outsourcing to CPG manufacturers.

The companies that do TPM outsourcing in the US focus almost entirely on the consumer durables and business-to-business sectors – not a surprise, because that’s where back-end checking of documentation and processing of claims is still done. They have practically no clients in the health and beauty care, food and beverage, or related categories.

The categories not served by the existing US outsource companies are the largest spenders in trade promotion, and make the largest investments in IT and human resources to manage that spending. They have elaborate and very expensive software (home-grown or licensed from companies such as Oracle and then customized to their needs) to manage their programs, plus in many cases additional software to analyze the results of the program, and perhaps another package to manage the deductions associated with the program. In some cases these various software packages are integrated, in other cases not (in most cases, probably, they are somewhat integrated). In all cases, there are significant numbers of people to perform the human tasks connected to program management, deductions, and analytics, in addition to the staff assigned to maintain the software.

Two opportunities exist, therefore: First, to manage the TPM IT needs of customers, perhaps helping them integrate their software into a coherent whole; and second, managing the business processes associated with TPM.

A BPO who could take these burdens off a company’s hands, and allow the company to concentrate on the strategic uses of trade promotion rather than administration, could find a lucrative new revenue stream, and one that is currently uncontested.

Newspapers: The Slo-Mo Train Wreck

I have a friend in the newspaper business who remarked a couple years ago that watching what was happening to the papers was like watching a slow-motion train wreck. The good news is that he’s wrong; the the bad news is that he’s wrong only because it’s no longer slow-motion.

On top of long-term changes in the industry, the weak economy is also hurting ad sales, especially in Florida and California, where the severe contraction of the housing markets has cut deeply into real estate ads. Executives at the Hearst Corporation say that one of their biggest papers, The San Francisco Chronicle, is losing $1 million a week.

Over all, ad revenue fell almost 8 percent last year. This year, it is running about 12 percent below that dismal performance, and company reports issued last week suggested a 14 percent to 15 percent decline in May.

“Never in my most bearish dreams six months ago did I think we’d be talking about negative 15 percent numbers against weak comps,” said Peter S. Appert, an analyst at Goldman Sachs. “I think the probability is very high that there will be a number of examples of individual newspapers and newspaper companies that fall into a loss position. And I think it’s inevitable that there will be closures in this industry, and maybe bankruptcies.”

This is not a problem peculiar to newspapers, of course; it’s in part a media fragmentation issue, with the proliferation of new media meaning that radio and TV are seeing hard times as well. Newspapers are especially hard-hit because classified ads have proven the easiest form of advertising to move to the web, and because classified was a huge cash cow for the papers.

I examined the issue of media fragmentation in general and as it impacts trade promotion back in 2005 (time really flies, doesn’t it? I was shocked when I saw that date on that piece) and later the same year, I went into it a bit more, focusing more closely on newspapers, as the primary vehicle for trade promo in many product categories.

On the rare occasions when I’m right, I like to trumpet that fact, and so I’ll point out that I predicted back then that a result of the decline of the media would be a greater reliance on in-store marketing. Okay, so it was pretty obvious – still, I was right.

Marketing in a Recession

(or Whatever This Is)

I had an article in the Spring issue of The Journal of Trading Partner Practices (published by TPMA and their partner groups), which is now online. The article, "The Importance of Recession Marketing Remans Constant Through Time", is (as the title implies) on advertising and promoting during a recession, and examines numerous academic and business studies on the subject, covering economic downturns from 1921 through 2001. I don't want to give away the ending, but it comes down to saying that you ought to keep on promoting, and that trade promotion optimization might help you do so.

Given that some level of cuts may be inevitable, no matter how persuasively we argue otherwise, how can a marketer make the most of a bad situation?

Technology may now give us the means to make a smaller budget look bigger. The use of predictive modeling and trade promotion optimization tools give marketers an opportunity that didn’t exist even as recently as the last recession – they can now work with their partners to produce promotions that stretch budgets by producing as much or more consumer impact with less money.

My article is, of course, absolutely brilliant (well, okay, it's pretty good), but there's also a bunch of other good stuff: A couple of my Oracle colleagues, Ajay Koul and Colin Mccomb, wrote a good piece on forecast accuracy. Armen Najarian of DemandTec has "Lather, Rinse, Repeat: Why Yesterday's Promotions Won't Wash", and Wayne Spencer of Store Eyes discussed Shopper Marketing metrics and measurement.
Give it a read.

Meanwhile,

back at the blog ...

For more news and comment, visit my blog, TPMtoday. Some recent topics:

Update on the Tesco/Wal-Mart battle

Intel fined by South Korea

Fila: Resurrecting a brand

Of Woolworth's and Sears

More private-label music at Wal-Mart

Airline baggage fees and the law of unintended consequences

Hershey to increase ad spending

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