CPGmatters: Transforming Trade Promotion

Trade spending is welfare to retailers and this isn't going to change regardless of the need to shift to path to purchase marketing unless we find a new way to pay retailers to stay in business.

David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

There is no doubt that transforming trade promotions to explicitly incorporate the "path to purchase" makes sense. It's hard to imagine that anyone would argue with that.

My concern here is the overly generous use of the O-word: "optimization." Given the limitations of today's data sources and the limited analytical capabilities of vendors in this space (despite their lofty claims), it's a clear case of caveat emptor. I am not aware of any current trade promotion "optimization" platforms that would pass muster with academics (which is one reason why firms are so reluctant to divulge their secret sauce). And as we move toward the "path to purchase," the optimization problem gets much harder (and the solutions become more ad hoc).

So I want to encourage researchers and consultants to move in this direction, but at the same time I want to warn their clients that they might be very surprised and disappointed if they put too much faith in the (supposedly) optimal strategies that their vendors will create for them.

Peter Fader, Professor of Marketing, The Wharton School of the Univ. of Pennsylvania

Trade promotion dollars don't drive sales like they should because often grocers do every possible thing to keep consumers from getting products on promotions. I see 20 products a month in my local grocery store that are out of stock when on promotion. Additionally, you can't get the promotion price when the item is in stock unless you are a member of this chain's "club." This chain has been bankrupt and is currently struggling. They have a competitor across town who is thriving, doesn't have massive OOS and doesn't have a "club."

If grocers would concentrate on customer service and quit messing with their customers, everyone would be better off.

If I were in the grocery supply business I would promote only with coupons. I would use ValPak and the internet to provide large discount coupons with short fuses. The internet has the ability to deliver coupons almost instantly and gives instant feedback regarding download rates by zip code, etc. Suppliers should quit trying to build relationships with retailers and use technology to build relationships with consumers. I can honestly envision a situation where retailers would beg suppliers to target coupons to their stores.

There is a better way!

Ed Dennis, president, Dennis Enterprises

What are the main obstacles for transforming trade promotion? It's the competition!!!

Once upon a time count and recount was a common promotion. It was simple, the vendor only paid for the units that were moved during the promotion period. Not perfect, but pretty efficient.

Then the competitor presents the same deal to the buyer, but said, "No count and recount...we'll pay on whatever you buy.

Guess who got the deal???

There is only one retailer who understands the nonsense of trade promotions. Wal-Mart says, don't give me any trade promotions. Give me a net price. We'll price your products on your net and we'll run the promotions ourselves. (And, by the way, we will pay you on time and we won't deduct.)

The result is a bit counter intuitive. Wal-Mart is likely every manufacturer's most profitable customer.

Gene Detroyer, Entrepreneur, Advisor, Consultant, Professor, Independent

Alert the media. Hell has just frozen over. Retailers are going to allow manufacturers to spend trade dollars on consumer marketing.

Haven't we had this same conversation for more than two decades of the nearly four decades of trade promotion payments? Research companies and consultancy firms regularly dress this issue up with new vernacular and "exciting new findings," but this most perniciously enduring remnant of the Nixon administration is only growing stronger as manufacturers pay tribute to retailers. Nixon's China policy? Gone. Nixon's New Federalism? Gone. Nixon's price freezes giving birth to trade payments? Here to stay. Trade dollars and Watergate, what a pair.

M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

The ongoing dialogue about trade promotion seems to continue in a vicious cycle rather than constructively reinventing a tired--and rather consumer unfriendly--approach to managing product assortment, selection and placement at retail. Radical change is required...and the industry needs to lead the charge putting the consumer at the center of the equation.

Dave Wendland, Vice President, Hamacher Resource Group