Why Pay for Performance Remains the Most Important Currency of Retailer Partnerships
Over the last decade, retailers have asked manufacturers to help fund new capabilities – and the list has continued to expand from retail media networks and loyalty programs to Omnichannel fulfillment, digital merchandising, and marketplace growth. At the same time, manufacturers are facing higher logistics costs, increased compliance deductions, greater supply chain complexity, and continued pressure to improve profitability.
The result is a simple question every commercial leader should be asking:
If the costs-to-serve continue to increase, can we maximize the value delivered as well?
Leading CPG companies believe the answer is “yes” – and AI is providing valuable insights in value creation.
According to Simpactful trade benchmarking studies, manufacturers have continued to increase trade incentives over the past 5 years. For example, trade promotion alone accounts for 11-27% of CPG revenue – yet many organizations still struggle to measure whether those investments generate incremental value.
To combat this, leading organizations have adopted Pay for Performance, a commercial model that ties trade spending to measurable outcomes, rather than guaranteed discounts. Instead of negotiating how much funding will be provided, manufacturers use simple but impactful principles to establish performance-based programs with retailers, building upon a joint vision for success, key performance measures, and payment terms.
In the program’s early days, manufacturers focused on paying for execution (Pay for Performance 1.0). However, critics complained that these programs disproportionately benefited retailers and that decisions were based on lagging indicators. In response, many CPG companies evolved from “pay for activities” (e.g., displays, ads, feature placements) towards a Pay for Performance 2.0 model in which technology provided tracking to unlock gated investment tied to strategic business outcomes. For example, brands began using joint Business Intelligence dashboards to guide investments based on key outcomes like incremental volume, distribution gains, shopper conversion and/or retail execution.
The 3.0 frontier of AI-powered Pay for Performance is already here – and is being driven by leading brands and retailers alike. Simpactful Senior Partner, Mike Tolkowsky, leads Simpactful’s Revenue Growth Management practice – with clients looking to adopt best practices. As an expert practitioner, Mike notes, “Artificial Intelligence is transforming Pay for Performance from a retrospective trade reimbursement model – into a predictive, personalized, and continuously optimized investment model – enabling manufacturers and retailers to create greater mutual value while improving trade investment effectiveness.” Early adopters are using more comprehensive data, AI, and decision triggers to drive human-in-the-loop approvals and further improve optimization. We expect that Pay for Performance 4.0 will leverage Agentic capability and predictive models will not be far behind, but will require further data integrations, guardrails and clear governance with pilots ahead of adoption.
Simpactful can staff projects with experienced talent from both the manufacturer and brand sides of the desk – which can be particularly beneficial when navigating trade terms. Simpactful Partner Bob Cinq-Mars spent his career in retail and sees the rapid shift happening in Pay for Performance, “In many cases, retailers are embracing AI more quickly than vendors. Manufacturers that fail to adopt best practices and AI risk the creation of negotiation imbalances and worse – uncompetitive and inefficient investments – versus leading-edge competitors and private label brands”.
The Simpactful Perspective
As retailer expectations continue to expand and commercial costs rise, manufacturers benefit from leveraging Pay for Performance negotiation models, channel-specific approaches and technology to target investment where joint value is created. We have built a team of experienced commercial and retailer experts, simple and impactful frameworks and access to cutting-edge AI models to enable brands to create competitive advantage during this industry transformation.
Need help transitioning your negotiations to AI-enabled Pay for Performance models? Simpactful can help! Our team of Revenue Growth Management and commercial experts have worked for – and with – leading-edge brands and retailers. With this insight, we can apply best practices and proven AI models to optimize trade terms based on channel-specific costs. Contact us today at contact@simpactful.com or 925-234-6394. Visit www.simpactful.com.
The result is a simple question every commercial leader should be asking:
If the costs-to-serve continue to increase, can we maximize the value delivered as well?
Leading CPG companies believe the answer is “yes” – and AI is providing valuable insights in value creation.
According to Simpactful trade benchmarking studies, manufacturers have continued to increase trade incentives over the past 5 years. For example, trade promotion alone accounts for 11-27% of CPG revenue – yet many organizations still struggle to measure whether those investments generate incremental value.
To combat this, leading organizations have adopted Pay for Performance, a commercial model that ties trade spending to measurable outcomes, rather than guaranteed discounts. Instead of negotiating how much funding will be provided, manufacturers use simple but impactful principles to establish performance-based programs with retailers, building upon a joint vision for success, key performance measures, and payment terms.
In the program’s early days, manufacturers focused on paying for execution (Pay for Performance 1.0). However, critics complained that these programs disproportionately benefited retailers and that decisions were based on lagging indicators. In response, many CPG companies evolved from “pay for activities” (e.g., displays, ads, feature placements) towards a Pay for Performance 2.0 model in which technology provided tracking to unlock gated investment tied to strategic business outcomes. For example, brands began using joint Business Intelligence dashboards to guide investments based on key outcomes like incremental volume, distribution gains, shopper conversion and/or retail execution.
The 3.0 frontier of AI-powered Pay for Performance is already here – and is being driven by leading brands and retailers alike. Simpactful Senior Partner, Mike Tolkowsky, leads Simpactful’s Revenue Growth Management practice – with clients looking to adopt best practices. As an expert practitioner, Mike notes, “Artificial Intelligence is transforming Pay for Performance from a retrospective trade reimbursement model – into a predictive, personalized, and continuously optimized investment model – enabling manufacturers and retailers to create greater mutual value while improving trade investment effectiveness.” Early adopters are using more comprehensive data, AI, and decision triggers to drive human-in-the-loop approvals and further improve optimization. We expect that Pay for Performance 4.0 will leverage Agentic capability and predictive models will not be far behind, but will require further data integrations, guardrails and clear governance with pilots ahead of adoption.
Simpactful can staff projects with experienced talent from both the manufacturer and brand sides of the desk – which can be particularly beneficial when navigating trade terms. Simpactful Partner Bob Cinq-Mars spent his career in retail and sees the rapid shift happening in Pay for Performance, “In many cases, retailers are embracing AI more quickly than vendors. Manufacturers that fail to adopt best practices and AI risk the creation of negotiation imbalances and worse – uncompetitive and inefficient investments – versus leading-edge competitors and private label brands”.
The Simpactful Perspective
As retailer expectations continue to expand and commercial costs rise, manufacturers benefit from leveraging Pay for Performance negotiation models, channel-specific approaches and technology to target investment where joint value is created. We have built a team of experienced commercial and retailer experts, simple and impactful frameworks and access to cutting-edge AI models to enable brands to create competitive advantage during this industry transformation.
Need help transitioning your negotiations to AI-enabled Pay for Performance models? Simpactful can help! Our team of Revenue Growth Management and commercial experts have worked for – and with – leading-edge brands and retailers. With this insight, we can apply best practices and proven AI models to optimize trade terms based on channel-specific costs. Contact us today at contact@simpactful.com or 925-234-6394. Visit www.simpactful.com.
