Trade-Oriented Sales Promotion

Chapter Seventeen Trade-Oriented Sales Promotion

Chapter Seventeen Objectives • Discuss the objectives of trade-oriented promotions and the factors critical to building a successful trade promotion program • Explain the various forms of trade allowances and the reasons for their usage

Chapter Seventeen Objectives • Understand forward buying and diverting and how they are created by manufacturers’ use of off-invoice allowances • Explain the role of everyday low pricing (EDLP) and pay-for-performance programs in overcoming forward buying and diverting

Chapter Seventeen Objectives • Describe the concept and practice known as efficient consumer response (ECR) • Understand the practice of category management • Describe the role of cooperative advertising and vendor support programs • Discuss the nature and role of trade shows

Objectives of Trade Promotion • Introduce new or revised products • Increase distribution of new packages or sizes • Build retail inventories • Maintain/Increase manufacturer’s shelf space • Obtain displays outside shelf locations • Reduce excess inventory • Achieve product features in retailer’s ads • Counter competitive activity • Sell as much as possible to final consumers

Trade Promotion Key Ingredients to Success • Financial incentive • Correct timing • Minimize retailer’s effort/cost • Quick results • Improve retailer performance

Types of Trade Promotions • Trade allowances • Cooperative advertising and vendor support programs • Trade contests and incentives • Trade shows

Trade Allowances Trade Allowances Used by manufacturers to reward wholesalers and retailers for performing activities in support of the manufacturer’s brand

Major Forms of Trade Allowances Slotting allowances • The fees manufacturers pay retailers for access to the slot, or location, • Typically when a manufacturer to get its new brand accepted by retailers • A form of bribery? or Legitimate cost of doing business? Bill-back allowances Off-invoice allowances

Major Forms of Trade Allowances Slotting allowances • Retailers receive allowances for featuring the manufacturer’s brand in advertisements or for providing special displays Bill-back allowances Off-invoice allowances

Major Forms of Trade Allowances Slotting allowances • Most frequently used form • Deals offered periodically to trade that permit wholesalers and retailers to deduct a fixed amount from the invoice • Retailers do not necessarily pass along to consumers the discounts Bill-back allowances Off-invoice allowances

Forward Buying and Diverting Forward Buying Diverting • Retailers purchase enough products on deal to carry them over until the manufacturer’s next regularly scheduled deal • Retailers’ savings from forward buying often are not passed on to consumers • Leads to increased distribution costs • Manufacturers experience reduced margins due to price discounts

Forward Buying and Diverting Forward Buying Diverting • Occurs when a manufacturer restricts a deal to a limited geographical area • Retailers buy large quantities at the deal price and then resell the excess quantities in other geographical areas • Product quality potentially suffers due to delays and serious problem could result from product tampering

Efforts to Rectify Trade Promotion Problems Efficient Consumer Response (ECR) Category Management Everyday Low Pricing (EDLP) Pay-for-Performance Programs Account-Specific Marketing

Efficient Consumer Response Efficient Consumer Response (ECP) A broad-based concept of business management that is oriented toward enhancing efficiencies and reducing costs in the grocery industry

Efficient Consumer Response

Category Management Category Management Retailers and manufacturers must work together, share market intelligence, and develop strategies that are mutually beneficial

Category Management Reviewing the product category Targeting consumers Implementing strategy Planning merchandising Evaluating results

Everyday Low Pricing (EDLP) EDLP A manufacturer charges the same price for a particular brand day in and day out

Why Some Retailers Resist • Many retailers have established distribution infrastructures to avail themselves of high-low prices • EDLP pricing benefits the manufacturers • EDLP pricing takes some of the excitement out of retailing

Pay-for-Performance Programs Pay-for- Performance Programs Designed to reward retailers for selling the brands supported with trade allowances rather than merely buying these brands

Pay-for-Performance Programs • Provide incentive to the retailer only for the items that are sold to consumers during the agreed-upon time period • Benefit all parties: consumers, retailers, and manufacturers • A natural correlate for the efficient consumer response (ECR)

Account Specific Marketing Account Specific Marketing Also called co-marketing, characterizes promotional and advertising activity that a manufacturer customizes to specific retail accounts

Account Specific Marketing • Relatively recent innovation • e.g., Local radio tie-in advertising, loyalty programs • Requires a lot of effort and can be costly • The future of this practice is uncertain yet

Cooperative Advertising Cooperative (co-op) advertising An arrangement between a manufacturer and reseller whereby the manufacturer pays for all or some of the advertising costs undertaken by the reseller

Cooperative Advertising Five Common Elements • Specified time period • Accrual • Payment share • Performance guidelines • Billing for reimbursement

Why is Co-op Advertising Used? • Manufacturers can achieve advertising support on a local-market basis • Provide them with a way to associate their products in the consumer’s mind with specific retail outlets • Stimulates greater retailer buying and merchandising support • Enables manufacturers to have access to local media with lower rates

Open-Ended Co-op Advertising Open-ended Co-op Advertising Involves paying for part of the retailer’s advertising cost without relating the reimbursement to the amount of products purchased from the manufacturer

Why is Open-Ended Co-op Advertising Used? • Wants to encourage the use of funds by smaller retailers • Manufacturer sells through intermediaries and does not have access to retailers’ purchase figures • It simplifies the record-keeping task

Vendor Support Programs Vendor support programs (VSPs) A retailers develops an advertising program in consultation with local advertising media and then invites its vendors to pay for a specific percentage of the media cost for the proposed campaign

Vendor Support Programs • Retailer benefits • Often a manufacturer pays a large sum but receives very little actual promotion • The less powerful a manufacturer, the more susceptible to retailers’ demands • The more the manufacturer invests in the retailer’s advertising, the less funds available to it own brands

Trade Contests and Incentives

Trade Shows Trade show A temporary forum for sellers of a product category to exhibit and demonstrate their wares to present and prospective buyers

Functions of Trade Shows • Servicing present customers • Identifying prospects • Introducing new or modified products • Gathering information about competitors’ new products • Taking product orders • Enhancing the company’s image

Trade-Oriented Sales Promotion