3 B2B MDF solutions that provide the ability to analyze the ROI in Consumer Products

One of the most challenging aspects of working in the Consumer Products industry, or any industry for that matter, is analysis of the MDF investment. Specifically, aligning MDF to volume regardless of the investment amount. Now we have a real unsolved mystery on our hands!

MDF, not a big mystery

MDF is utilized in many ways in Consumer Products, with the ultimate goal of growing sales by developing new or existing markets. To develop a new market, CP manufacturers invest funds to obtain new points of distribution for existing products. Manufacturers will invest MDF to get a new product into a current customer and expand their product portfolio. This concept is straightforward since manufacturers can directly link MDF to a specific customer and coinciding sales. This is a standard MDF investment in a retail, B2C route to market. 

In contrast, there are other ways to use funds to develop markets that cannot be directly tied to customers and sales. For instance, in the foodservice, B2B route to market, contra revenue expenses for co-marketing activities that target specific groups are not aligned to a particular sales outlet and coinciding sales. This is an enigma or unknown MDF investment for revenue growth since it cannot be directly tied to distribution points: customer, product or revenue source.

MDF, the unsolved mystery

The reality is that Consumer Products co-marketing funds are paid to the customer to directly impact sales. In one example, a manufacturer in the B2B route to market gives a distributor an upfront lump sum or varied case rate and told to get new points of distribution. We’ve uncovered some clues

Too much gray area:  3 key challenges 

1. Unconnected data sources: Getting insights from your data has always been a challenge in the CP industry plus, the industry has been slow to evolve and adopt new technology. As the entities begin to capture data for analytics, we find that the data is available but it’s difficult to connect the distribution points together. In the distribution supply chain model, there are multiple touchpoints: manufacturer to distributor, distributor to reseller, reseller to GPO and so on, making it difficult to align the volume to the MDF deployment period. MDF ROI analysis could be misleading as the volume may not be related to the MDF investment.
   
   
2. Delayed or undefined period results: In contrast, MDF in the retail B2C route to market deploys MDF with a defined start and end date while MDF investments in the B2B route to market may be for a much more extraneous period: quarterly, 6 months or for an entire plan year. This is due to the lack of a consistent buying frequency in the distribution tiers. Also, there’s volatility in the marketplace: restaurants open, restaurants close, seasonality and patron popularity.
   
   
3. Volume allocation complexity: It’s difficult to align large volumes of data to MDF investment due to the disconnect of multiple distribution points. For some B2B manufacturers, this causes margin erosion or revenue leakage. Volume allocation to MDF  is needed in order to confidently determine a return on investment. Some manufacturers have been successful perhaps due to a small sample size. However, most manufacturers need MDF investment in the marketplace to drive top-line sales, regardless of the potential margin impact on sales. The concern is that an ROI analysis requires a subjective volume allocation, which would allow for a bad decision or missed MDF investment.

Make it black and white: 3 solutions

1. Unified analytics platform: The Consumer Products industry is evolving as it progresses through a digital transformation, fusing this and lean transformation together. Some have automated previously manual tasks, while others seek to replace older technology with newer, updated systems or a combination of both, adding efficiency by reducing manual operations. Lean transformation is a methodology centered around mapping the value stream and integrating the entire ecosystem to provide the best flow of value across the entire chain — from suppliers to customers. Its evolution progresses and gains momentum as entities within the channel embrace this approach and lay the foundation for unified analytics. 
   
   
2. Automated data allocation: As digital transformation advances, data is centralized within an organization and made available. The next step is determining how to collect the data and ingesting it into a platform where the data can be queried. Historically, data allocation would be manual and labor intensive and end users would have to go to a site or source and download the data in a standard format CSV, TXT or Excel. The data would then need to be mapped to a unified format and standard type to ingest into a data pool. Currently, software providers are looking at AI to do this type of data gathering and formatting.
   
   
3. Predictive analysis: As the lean transformation process achieves a stage that provides CP manufacturers with a large, connected data set that encompasses 2-3 years of data, the industry can apply predictive analytics from algorithms within machine learning software. This allows entities within the channel to predict the volume reaction based on the MDF investment and the ability to do a pre-MDF investment ROI analysis with confidence.

The goal is to make all the internal, external, upstream and downstream systems communicate with touch points in the channel. The system needs to evolve based on margin erosion and costs because comparing and connecting sales volume on Excel worksheets across systems is problematic.

Ultimately, Consumer Products companies are being forced to begin their digitalization transformation and Revenue Growth Management journey as soaring costs have deeply impacted margins. Learn more about maintaining margins and gaining control even under heightened pressure.