CPGmatters: Transforming Trade Promotion

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Aug 25, 2010
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By Rose Anthony

Through a special arrangement, presented here for discussion
is a summary of a current article from the monthly e-zine, CPGmatters.

Optimization
has been the key goal of trade promotion practice since 2000 as CPG manufacturers
have worked to make their spending as efficient as possible, according to a
new study, Transforming Trade Promotion/Shopper-Centric Approach,
from Kantar Retail. But the consultancy claims, while efficiency is a sine qua
non of modern trade, the real frontier lies with the shopper.

The report explains
that CPG companies must consider how they can reach shoppers along the path-to-purchase.
Industry leaders will be able to influence shoppers as they choose the outlet,
shop the store and ultimately select which products to buy. The new challenge
in trade promotion will be learning how best to steer one’s organization
along this shopper path.

"Transforming trade promotion into a shopper-driven marketing investment
designed to influence behavior along the shoppers’ path-to-purchase will
become the common language that aligns successful trading partner relationships
in the next decade," said Mike Urness, managing director at Kantar Retail. "In
this environment, transforming trade promotion should be the number one issue
to improve for both manufacturers and retailers."

As shopper-centric trade
evolves, CPG companies will confront a host of new issues. Shoppers are reacting
to economic conditions by making fewer trips and cutting costs. Traditional
trade promotion has become less relevant as retailers focus increasingly on
price.

To address these new challenges, Kantar Retail has provided specific
recommendations and best-in-class case studies to guide the way to successful
trade promotion practice. The study identifies four strategic pillars that
underpin path-to-purchase marketing:


  • Possession of unique consumer insights will enable manufacturers to initiate
    appropriate planning conversations with their trading partners.
  • Manufacturers must collaborate with retailers to broaden their frame of
    reference beyond the category; a broader view will make the manufacturer
    more valuable to the retailer and will result in wins for both parties.
  • Marketing capabilities are fundamental to shopper-driven trade; manufacturers
    must stay abreast of the latest technology to woo consumers.
  • Funding reallocation must occur so that price dollars and shopper marketing
    dollars are each used as effectively as possible.

The study, based on more than 250 responses from a variety of retailers and
manufacturers, found that trade promotion among consumer packaged goods companies
is a $176 billion dollar business. Spending has risen more than 60 percent
since 1997, and the percentage of manufacturers’ marketing budgets devoted
to trade has reached an all time high of 56 percent.

Discussion Questions: How would
you transform trade promotions? Do you agree on the need to shift trade promotions
towards path-to-purchase marketing? What are the main obstacles to doing so?

Please practice The RetailWire Golden Rule when submitting your comments.

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6 Comments on "CPGmatters: Transforming Trade Promotion"


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David Biernbaum
Guest
10 years 8 months ago

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.

Peter Fader
Guest
10 years 8 months ago

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.

Ed Dennis
Guest
Ed Dennis
10 years 8 months ago
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… Read more »
Gene Detroyer
Guest
10 years 8 months ago

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.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 8 months ago

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.

Dave Wendland
Guest
10 years 8 months ago

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.

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