Every year, retailers and brands invest billions1 into promotions, loyalty offers, retail media and other activities designed to drive sales and deliver value to customers. Yet despite the scale of that investment, it is often difficult to understand which activities are creating the greatest value for shoppers, brands and retailers alike. That's why trade fund optimisation (TFO) is increasingly becoming a shared priority across the industry.
At its heart, TFO is about using trade funds more intelligently across the full range of retail investment levers, from price and promotions to loyalty, personalisation and retail media. But the ambition is big and the landscape is complex. In reality, retailers are unlikely to overhaul established processes and decision-making frameworks without compelling evidence that doing so will drive better commercial outcomes.
A problem worth solving
But TFO isn’t just about the economics. It’s also about building better and more collaborative relationships. When both sides can see where the money goes and what it delivers, after all, the conversation becomes that much more productive. Retailers can show the value that trade funds deliver across promotions, loyalty, and media. And brands, in turn, can invest with confidence – safe in the knowledge that their budget is being used effectively.
The concept of optimising suppliers' trade funds is still relatively recent given the high degree of complexity. Historically, these levers were managed independently from each other, by different internal teams and with distinct objectives. Despite the emergence of data science and improved analytical capabilities, even mature retailers struggle to find a place to start.
Increasingly, that starting point is promotions. Across dunnhumby’s work with retailers and brands around the world, promotions remain one of the biggest challenges. They can easily absorb a significant proportion of trade funds (approximately $500 billion or 15-25% of CPG annual investment) and planning effort, yet they are also an area where inefficiency and wastage can be high (industry research indicates roughly 59% of promotions are unprofitable2).
Where to start with TFO: Promotion Mix Optimisation (PMO)
Retailers now have more promotional options than ever before, from mass promotions and member pricing to loyalty rewards and personalised offers. So, the challenge is how to build the right mix of promotional activity, decide which products belong in which mechanic and ensure every investment works harder for customers, retailers and suppliers alike.
At dunnhumby, we refer to this as Promotion Mix Optimisation, or PMO. PMO sits within the broader discipline of TFO but provides a practical and customer-first starting point: helping retailers understand how mass promotions, member offers and personalised offers can work together, rather than compete with one another.
Customers are central to this approach. When promotional activity is fragmented, shoppers can receive confusing or inconsistent signals: a personalised discount in an app, a different member offer in-store and a mass promotion on the same product elsewhere. What should feel like value can quickly become unclear.
A more coordinated approach helps retailers avoid that confusion. By understanding how mass promotions, member offers and personalised rewards work together, retailers can deliver value in a more relevant and sustainable way. That matters at a time when customers continue to demand savings, but retailers cannot rely indefinitely on broad-based discounting without putting further pressure on margin.
The opportunities and challenges
When done well, PMO and ultimately TFO supports a genuine win-win-win: stronger performance for retailers, clearer returns for suppliers and more meaningful value for customers. In practice, that means helping retailers and brands make better decisions in four areas:
Sharper choices between mechanics: Mass promotions, member offers and personalised offers serve different purposes. One product might be right for mass promotion when the goal is volume, another for a member offer when the aim is loyalty or value perception, and another for personalisation when the opportunity is a more relevant saving for a specific customer group.
Better alignment across teams: These decisions are not interchangeable. They require different measures of success and a more coordinated approach across commercial, loyalty and marketing teams, each of which may otherwise be working to different objectives, systems and processes.
A single view of performance: This is not simply a technology problem. Many retailers do not lack data, but they often lack a unified view of promotional planning, loyalty activity and funding agreements, making it difficult to track where funds are allocated, how they are activated and what return they generate.
Clearer ROI for brands and retailers: For brands, PMO helps show how effective different promotional activities really are, both alone and in combination. For retailers, it helps coordinate those activities, reduce duplication and ensure everything works in service to the customer.
A clear path forward
The pressures driving interest in TFO aren't going away. Consumers continue to demand value, margins remain under pressure, and both retailers and suppliers face growing expectations to demonstrate the impact of every investment they make. The important point is that retailers do not need to solve everything at once. In fact, they probably shouldn’t try to. The best starting point is often a focused one: a category, supplier relationship, promotional mechanic or customer challenge where the opportunity is clear and the risk can be managed.
That is why PMO provides such a practical entry point into the broader TFO agenda. It focuses on the area where spend, complexity and customer impact most often collide: promotions.
By starting small, retailers can reduce risk, build evidence and create the confidence needed to scale. Over time, that creates a stronger foundation for customer-first trade fund optimisation: one that improves returns for suppliers, strengthens performance for retailers and delivers more meaningful value for customers.
As margin pressure continues to rise and CPG expectations grow, TPMO provides a clear path forward, putting evidence, order, and collaboration at the heart of decisions that create value for retailers, CPGs and crucially, for customers.
In the next post in this series, we’ll be looking in greater detail at the mechanics of TFO – and the steps that retailers can take now to set themselves up for future success.
