December 8, 2006
Trade Promotion: Who decides?
By Larry Kagel, Competitive Promotion Report, special to GMDC
Hundreds of millions of dollars are spent every year by HBC manufacturers to get their products promoted by their retail customers.
Whether it is well spent will always be an issue. It will always be part of the mix and requires evaluation to determine what is most effective for the brand and the retailer. We continue to talk about trade partners, but let’s face reality. Manufacturers want to sell more of their own products and retailers want to sell more of any product, preferably the most profitable ones.
This does not mean both groups cannot work together to achieve their separate goals. In fact, they must work together effectively to reach those goals. But it is important for both sides to recognize their different objectives.
In recent years, everyday low pricing (EDLP, EDLC) and contract pricing have grown and developed. Added to this has been an accrual allowance that provides the retailer money to promote with a specific brand or supplier. The accrual methods may vary by manufacturer but there is a formula, either stated or unstated, that allows the money to be earned.
It seems that EDLP may not be the true lowest price if a manufacturer is still required to add more funds for their brands to be promoted. That being said, other determinants of how funds are to be used arise.
Ideally, this should be a joint effort as the manufacturer is better able to articulate its experiences, track record, knowledge of the brand and its target customers. The retailer knows what works for their stores and in their marketplace.
Discussion Questions: Should the manufacturer or the
retailer decide how the funds should be spent and choose the brands to be promoted?
And who determines how the brand is to be promoted- advertised, prices lowered
or displays used? What happens when there is disagreement about how to use these
funds? Who has the final say? And does this help both sides achieve their objectives?
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There is no simple answer, but the best one is centered on the consumer and building the type of offering that stimulates them to buy more product during the event.
You are correct that the supplier wants to sell the most possible product during the promotion and the retailer wants to maximize POS sales as well, so the common theme of focusing on the shopper will minimize the “push and pull” that takes place when promotions are negotiated.
Supplier marketing should set guidelines to ensure the brand’s positioning never gets compromised.
When trade promotion is done right — all parties developing realistic expectations regarding timing, cost sharing and retail execution — programs work well. When promotion is not well balanced, it is a waste of time, effort and resources.
Retailers and manufacturers are not pre-disposed to conflict or cross purpose focus but they do have different expectations. Getting clear definition of market need, execution requirements and expectations will lead to improved results.
I agree with both Mark and Dan. It starts with bringing a clear awareness of the desired outcomes by both the retailer and manufacturer.
The retailer can be motivated by several factors including driving trips and overall category sales.
The manufacturer wants to drive the awareness and share of their brands.
The above mentioned is the obvious. The real challenge resides in reaching agreement on overall intentions during the planning phase. Which should also include disclosure of the retailers business process and both parties financial model.
Really great point Robert makes. If the product brand — and the product itself — is superior and in high consumer demand, the control battles around promotion are lessened. After all, law of supply/demand still apply here…hot products get hot promotional opportunities. They sell.
Others have to work a little harder to get that space and come armed with smart insights and even smarter promo ideas to earn the right to be there. As much as retailers are motivated by those promo funds, many are getting it that an idea is only as good as its ability to connect with and motivate shoppers.
It’s refreshing to see all of this intelligent debate about this subject, as it could be used as a reference for the Marketing at Retail newcomers regarding the realities of the store as a channel. For those of us who have been in the trenches for a while, it’s important that this subject is thoroughly explained and revisited.
Myself, being tightly involved in digital signage and the retail media services, I have to keep talking about this issue and convincing others that it is real — and one of the key reasons why looking at the store as an advertising vehicle that traditional media will intermediate is highly unlikely.
Ben is right…this topic could go on and on. But it’s a hot one that we should keep pushing on, as much has to be gained by that team mentality…that is, if the ultimate prize is the customer, rather than control.
This is a subject that we can explore for many weeks – with no clear answer ever coming. Trade $ come from and are controlled by manufacturers but specific activity is negotiated between manufacturer and retailer. As others have pointed out, the problem arise from the fact that objectives of the two parties are different; the marketer wants to drive incremental case volume thru trade promotion in a cost-effective manner; retailers want to increase volume and profits too but also depend on selling store real estate to manufacturers as a profit center to subsidize their bottom line. Overlay this against a backdrop of retailers playing one manufacturer against another and competing with national brands thru their private label and the relationship gets interesting.
The best a manufacturer can hope for is to negotiate from a position of strength by ensuring that trade promotion is only part of a brand’s overall marketing activities. If you are the No. 3 or 4 brand, the buyer has you between a rock and a hard place. Once you start upping the “pay-to-play” ante, this a slippery slope.
The answer, if there is one, is to build strong consumer brand franchises through a company/brand investment in integrated marketing and not to rely on the retailer as the only way to market your product. “Live by price, die by price.”
A truly collaborative trade promotion relationship can rise well above the failure rate cited above if it is based on solid data and analytics. The tools exist (and some are using them) to forecast with reasonable accuracy the results of various types of promotions, e.g. “Based on past performance, what will happen in this type of store if we put our canned vegetables on an end-cap at 20¢ off, in the month of March? What if we also do a feature ad? How much better will it do at 30¢ off?”
When all the what-ifs are done, the buyer and rep can choose the version that provides the best return for both.
This subject has filled articles, white papers and even books, so there is no opportunity to do it justice in a few comments. Rather that try, we would offer three observations:
1. 95% of all “traditional trade promotion” we evaluate for manufacturers does not break-even financially. When you look at the margin generated by the incremental units sold at retail and compare that to the resource infusion to the retailer at the beginning of the promotion cycle, “profitable incremental volume” is about as easy to find as the treasure of the Knights Templar.
2. The primary effect of promotion activity is to shift share. Whether it be from brand to brand or retailer to retailer.
3. There is hope. As traditional trade promotion is refocused on in-store marketing activities by both the manufacturer and the retailer, both parties can begin to enjoy the benefits of real growth. Only brands with the strongest consumer franchises (and that doesn’t necessarily mean the biggest brands) are going to get this opportunity, however. Others will simply continue to “pay to stay.”
How can both manufacturers and retailers “always” achieve a win-win result in trade promotions? That’s a puzzlement since the objectives of each party are different. The manufacturer really only wants to sell more of his products via his trade dollars, the retailer really only wants any combination of trade promotions to enhance and sustain his store’s appeal with his customers. Both sides, at times, could possibly have unrealistically high expectations.
Trade promotions remind me of a football game. Both sides come well-prepared to excite and gratify a good portion of the people in the stands (mainly their bosses). Then the game begins and the only apparent goal of either side is to win “their” game not create a win-win tie. Opposing players rarely get cozy with each other until after the game is over, or if ever, and at that time only one side has actually won. So the “losers” reschedule another game and try again. Thus, we have topic such as this repeating itself. There’s a good deal of human nature in man and in trade promotions.
Influence and control in any business relationship is often fundamentally determined by just a few factors – including relative size, the availability of alternatives, and quality of information and insights.
Historically, manufacturers have held the upper hand in promotion discussions or negotiations as they brought superior consumer insights and analytic capabilities to the table. This is no longer true as retailers are making better use of their point-of-sale data by availing themselves of the advanced tools that are available today to understand the effectiveness of promotions and discreet tactics such as ad, display, etc. at a granular level. Now retailers understand what promotions really work for their business. The consolidation and emergence of giants in retail has further tipped the balance of power in their direction. Manufacturers are moving to respond — P&G/Gillette is but one example.
So we are in a considerable state of flux now, and the level of partnering or teaming that is taking place varies dramatically by retailer/manufacturer ecosystem. Where there is successful teaming, that ecosystem typically becomes more efficient with less waste and fewer missed opportunities and gains an advantage over others. Whomever is deciding, making good decisions based on the best information and insights available and having the infrastructure and processes in place to execute against those fact-based decisions and plans is probably most important of all.
My views on this are closest to Don’s. Manufacturers know where their products sell best (or should) but retailers know which, in a range of products of which the manufacturer is only partially aware in specific outlets, are most popular. So they do have to work together and neither can absolutely rely on the other but cooperation and team work ought, theoretically, to benefit both as well as their consumers. Win win is definitely strategically and implementationally (if there is such a word) achievable.
As much as I hate to admit it, I tend to agree with Steve. Promotional issues bring out the worst side of both Manufacturers and Retailers, usually becoming a battle because of their short-sightedness. A real collaboration would work as follows: the manufacturer offers a variety of promotions and deals and the retailer allows their stores to choose the ones on an individual basis (or cluster) that best suits their consumers. Wouldn’t that be special?
Let’s not be naive – the assumption that there are strategic goals behind trade deals is naive — trade deals are a tactic (and a source of margin revenue for the retailer) and not a strategy. And the assumption that a manufacturer is going to give a retailer control of their money is likewise naive. There is usually room to negotiate how a retailer will spend a brand’s money — do we do ads or just displays, for example — but at the end of the day the manufacturer needs to see sales levels and a spend/sales ratio hit on their brands.
Trade promotion from a manufacturer has to be intended to grow BRAND sales; I mean, let’s be fair! However, it is also true that one size no longer fits all. The kind of activation that is in keeping with the feel of one store might be different for another, so I think a retailer has a right to create a menu of possible performance activities. The manufacturer and retailer would then plan within that menu, which would be somewhat different for different retailers. This actually gives the manufacturer more control and influence than they have with some current practices that give a case performance allowance but don’t stipulate the type of performance activity or the length of time that the in-store activity runs.
This very old issue of partnering to build “profitable business and increased shopper traffic” as well as meet specific objectives that each party has, supposedly was to be answered by the development of category management on the retail side and a like effort on the manufacturer/ supplier side.
In general — and it is fair to say — the money flows to ‘no end’ (or consumer benefit) unless both partners have a predisposition to understand, execute according to shopper needs, and gain feedback from shoppers.
Interestingly, we haven’t evidenced this above mentioned direction in meaningful propositions yet!
Are the retailers in the business to move units, or to satisfy their shoppers’ needs and desires, in order to build loyalty and quality gross profit?
Examples? Yes! They are: Publix, Starbucks, Macy’s, Friday’s, Nordstrom, Marriot, Gelson’s, Target, Ukrop’s, Dean & Deluca, Barnes & Noble; Harp’s, Victoria’s Secret, Chico’s, Gelson’s, Bristol Farms, and more. Hmmmmmmmmmmmmmmmm
As others have clearly stated, the best trade promotions are partnerships revolving around shared goals explicitly stated at the outset, driven by methods and practices in alignment with those goals.
No, retailers and manufacturers are NOT partners. I believe that word does not apply. Instead, they can be seen as teams. The manufacturer belongs to lots of teams (one with each retailer) and the retailer as well (one with each manufacturer). As a high performing team, they share a commitment, goal and have to work together to achieve the outcome. Their success is mutually dependent. So “team” dynamics, theory and practice really do apply here. “Partnership” aspects do not.
Teams form, accomplish a purpose, and then go away until they are needed again. High volume manufacturers with key retailers have teams that are constantly meeting and accomplishing purposes.
If you want to maximize the value of your trade promotion, be you a retailer or a manufacturer, I suggest you apply best practices in teaming.
Most trade promotion in the health and beauty aids business is rote repetition. The retailer and the supplier know what the promotions will be, month by month, a year in advance, because they’re endlessly repeated at the same times. There may be some variations, but the basic deals and their timing are rarely surprising. These promotions are repeated because the parties involved can predict the results and haven’t found a better formula.
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There is no simple answer, but the best one is centered on the consumer and building the type of offering that stimulates them to buy more product during the event.
You are correct that the supplier wants to sell the most possible product during the promotion and the retailer wants to maximize POS sales as well, so the common theme of focusing on the shopper will minimize the “push and pull” that takes place when promotions are negotiated.
Supplier marketing should set guidelines to ensure the brand’s positioning never gets compromised.
When trade promotion is done right — all parties developing realistic expectations regarding timing, cost sharing and retail execution — programs work well. When promotion is not well balanced, it is a waste of time, effort and resources.
Retailers and manufacturers are not pre-disposed to conflict or cross purpose focus but they do have different expectations. Getting clear definition of market need, execution requirements and expectations will lead to improved results.
I agree with both Mark and Dan. It starts with bringing a clear awareness of the desired outcomes by both the retailer and manufacturer.
The retailer can be motivated by several factors including driving trips and overall category sales.
The manufacturer wants to drive the awareness and share of their brands.
The above mentioned is the obvious. The real challenge resides in reaching agreement on overall intentions during the planning phase. Which should also include disclosure of the retailers business process and both parties financial model.
Really great point Robert makes. If the product brand — and the product itself — is superior and in high consumer demand, the control battles around promotion are lessened. After all, law of supply/demand still apply here…hot products get hot promotional opportunities. They sell.
Others have to work a little harder to get that space and come armed with smart insights and even smarter promo ideas to earn the right to be there. As much as retailers are motivated by those promo funds, many are getting it that an idea is only as good as its ability to connect with and motivate shoppers.
It’s refreshing to see all of this intelligent debate about this subject, as it could be used as a reference for the Marketing at Retail newcomers regarding the realities of the store as a channel. For those of us who have been in the trenches for a while, it’s important that this subject is thoroughly explained and revisited.
Myself, being tightly involved in digital signage and the retail media services, I have to keep talking about this issue and convincing others that it is real — and one of the key reasons why looking at the store as an advertising vehicle that traditional media will intermediate is highly unlikely.
Ben is right…this topic could go on and on. But it’s a hot one that we should keep pushing on, as much has to be gained by that team mentality…that is, if the ultimate prize is the customer, rather than control.
This is a subject that we can explore for many weeks – with no clear answer ever coming. Trade $ come from and are controlled by manufacturers but specific activity is negotiated between manufacturer and retailer. As others have pointed out, the problem arise from the fact that objectives of the two parties are different; the marketer wants to drive incremental case volume thru trade promotion in a cost-effective manner; retailers want to increase volume and profits too but also depend on selling store real estate to manufacturers as a profit center to subsidize their bottom line. Overlay this against a backdrop of retailers playing one manufacturer against another and competing with national brands thru their private label and the relationship gets interesting.
The best a manufacturer can hope for is to negotiate from a position of strength by ensuring that trade promotion is only part of a brand’s overall marketing activities. If you are the No. 3 or 4 brand, the buyer has you between a rock and a hard place. Once you start upping the “pay-to-play” ante, this a slippery slope.
The answer, if there is one, is to build strong consumer brand franchises through a company/brand investment in integrated marketing and not to rely on the retailer as the only way to market your product. “Live by price, die by price.”
A truly collaborative trade promotion relationship can rise well above the failure rate cited above if it is based on solid data and analytics. The tools exist (and some are using them) to forecast with reasonable accuracy the results of various types of promotions, e.g. “Based on past performance, what will happen in this type of store if we put our canned vegetables on an end-cap at 20¢ off, in the month of March? What if we also do a feature ad? How much better will it do at 30¢ off?”
When all the what-ifs are done, the buyer and rep can choose the version that provides the best return for both.
This subject has filled articles, white papers and even books, so there is no opportunity to do it justice in a few comments. Rather that try, we would offer three observations:
1. 95% of all “traditional trade promotion” we evaluate for manufacturers does not break-even financially. When you look at the margin generated by the incremental units sold at retail and compare that to the resource infusion to the retailer at the beginning of the promotion cycle, “profitable incremental volume” is about as easy to find as the treasure of the Knights Templar.
2. The primary effect of promotion activity is to shift share. Whether it be from brand to brand or retailer to retailer.
3. There is hope. As traditional trade promotion is refocused on in-store marketing activities by both the manufacturer and the retailer, both parties can begin to enjoy the benefits of real growth. Only brands with the strongest consumer franchises (and that doesn’t necessarily mean the biggest brands) are going to get this opportunity, however. Others will simply continue to “pay to stay.”
How can both manufacturers and retailers “always” achieve a win-win result in trade promotions? That’s a puzzlement since the objectives of each party are different. The manufacturer really only wants to sell more of his products via his trade dollars, the retailer really only wants any combination of trade promotions to enhance and sustain his store’s appeal with his customers. Both sides, at times, could possibly have unrealistically high expectations.
Trade promotions remind me of a football game. Both sides come well-prepared to excite and gratify a good portion of the people in the stands (mainly their bosses). Then the game begins and the only apparent goal of either side is to win “their” game not create a win-win tie. Opposing players rarely get cozy with each other until after the game is over, or if ever, and at that time only one side has actually won. So the “losers” reschedule another game and try again. Thus, we have topic such as this repeating itself. There’s a good deal of human nature in man and in trade promotions.
Influence and control in any business relationship is often fundamentally determined by just a few factors – including relative size, the availability of alternatives, and quality of information and insights.
Historically, manufacturers have held the upper hand in promotion discussions or negotiations as they brought superior consumer insights and analytic capabilities to the table. This is no longer true as retailers are making better use of their point-of-sale data by availing themselves of the advanced tools that are available today to understand the effectiveness of promotions and discreet tactics such as ad, display, etc. at a granular level. Now retailers understand what promotions really work for their business. The consolidation and emergence of giants in retail has further tipped the balance of power in their direction. Manufacturers are moving to respond — P&G/Gillette is but one example.
So we are in a considerable state of flux now, and the level of partnering or teaming that is taking place varies dramatically by retailer/manufacturer ecosystem. Where there is successful teaming, that ecosystem typically becomes more efficient with less waste and fewer missed opportunities and gains an advantage over others. Whomever is deciding, making good decisions based on the best information and insights available and having the infrastructure and processes in place to execute against those fact-based decisions and plans is probably most important of all.
My views on this are closest to Don’s. Manufacturers know where their products sell best (or should) but retailers know which, in a range of products of which the manufacturer is only partially aware in specific outlets, are most popular. So they do have to work together and neither can absolutely rely on the other but cooperation and team work ought, theoretically, to benefit both as well as their consumers. Win win is definitely strategically and implementationally (if there is such a word) achievable.
As much as I hate to admit it, I tend to agree with Steve. Promotional issues bring out the worst side of both Manufacturers and Retailers, usually becoming a battle because of their short-sightedness. A real collaboration would work as follows: the manufacturer offers a variety of promotions and deals and the retailer allows their stores to choose the ones on an individual basis (or cluster) that best suits their consumers. Wouldn’t that be special?
Let’s not be naive – the assumption that there are strategic goals behind trade deals is naive — trade deals are a tactic (and a source of margin revenue for the retailer) and not a strategy. And the assumption that a manufacturer is going to give a retailer control of their money is likewise naive. There is usually room to negotiate how a retailer will spend a brand’s money — do we do ads or just displays, for example — but at the end of the day the manufacturer needs to see sales levels and a spend/sales ratio hit on their brands.
Trade promotion from a manufacturer has to be intended to grow BRAND sales; I mean, let’s be fair! However, it is also true that one size no longer fits all. The kind of activation that is in keeping with the feel of one store might be different for another, so I think a retailer has a right to create a menu of possible performance activities. The manufacturer and retailer would then plan within that menu, which would be somewhat different for different retailers. This actually gives the manufacturer more control and influence than they have with some current practices that give a case performance allowance but don’t stipulate the type of performance activity or the length of time that the in-store activity runs.
This very old issue of partnering to build “profitable business and increased shopper traffic” as well as meet specific objectives that each party has, supposedly was to be answered by the development of category management on the retail side and a like effort on the manufacturer/ supplier side.
In general — and it is fair to say — the money flows to ‘no end’ (or consumer benefit) unless both partners have a predisposition to understand, execute according to shopper needs, and gain feedback from shoppers.
Interestingly, we haven’t evidenced this above mentioned direction in meaningful propositions yet!
Are the retailers in the business to move units, or to satisfy their shoppers’ needs and desires, in order to build loyalty and quality gross profit?
Examples? Yes! They are: Publix, Starbucks, Macy’s, Friday’s, Nordstrom, Marriot, Gelson’s, Target, Ukrop’s, Dean & Deluca, Barnes & Noble; Harp’s, Victoria’s Secret, Chico’s, Gelson’s, Bristol Farms, and more. Hmmmmmmmmmmmmmmmm
As others have clearly stated, the best trade promotions are partnerships revolving around shared goals explicitly stated at the outset, driven by methods and practices in alignment with those goals.
No, retailers and manufacturers are NOT partners. I believe that word does not apply. Instead, they can be seen as teams. The manufacturer belongs to lots of teams (one with each retailer) and the retailer as well (one with each manufacturer). As a high performing team, they share a commitment, goal and have to work together to achieve the outcome. Their success is mutually dependent. So “team” dynamics, theory and practice really do apply here. “Partnership” aspects do not.
Teams form, accomplish a purpose, and then go away until they are needed again. High volume manufacturers with key retailers have teams that are constantly meeting and accomplishing purposes.
If you want to maximize the value of your trade promotion, be you a retailer or a manufacturer, I suggest you apply best practices in teaming.
Most trade promotion in the health and beauty aids business is rote repetition. The retailer and the supplier know what the promotions will be, month by month, a year in advance, because they’re endlessly repeated at the same times. There may be some variations, but the basic deals and their timing are rarely surprising. These promotions are repeated because the parties involved can predict the results and haven’t found a better formula.