How important is stepping up trade promotion effectiveness

1. How important is stepping up trade promotion effectiveness Trade promotion programs are key to increasing sales.They also help in building up of a brand by boosting channel partnerships. That explains why it takes nearly 14% revenue of an average consumer packaged goods company. However, in spite of its rising importance, several CPG companies choose to blindly carry on with the previous year’s trade spending practices, ignoring the need for their optimization. They do not find them important enough to measure their success. Such companies are failing to understand the potential of trade promotion tools in maximizing revenues. A simple framework can be followed to help managers to track trade spending effectiveness and spot opportunities amidst the complexities of promotion programs. 1.Companies should examine closely the promotion calendar and evaluate what kind of sales volume the trade spending on a category is driving. The resultant data will give company managers insights into the impact of a particular spending, which in turn helps in analyzing other options. The analysis, however, does not necessarily reveal how customers respond to changes in pricing structures in a given sector. Comprehending the flexibility of a category is crucial to evaluating the efficacy of trade spends as the volume marked at one point of time changes later. 2.Gaugethe elasticity of a category price so that you understand the consumers’ inherent price elasticity. In a particular category that is conventionally promotion-driven, the sales data does not help much in evaluatingcategory price elasticity. CPG firms and their retailers avoid running similar trade promotionplan simultaneously. This makes it difficult to know whether the rise in sales has been because of higher consumer demand or by relentless promotions.A well-planned consumer research program will help in learning the factors that determine consumers’ purchasing decisions and their response to different trade promotion levels.After the analysis, CPG companies can save ineffective trade

2. spending to move it to traditional advertising for better ROI in that particular consumer segment. Before they make major changes to their marketing programs, however, it is important that companies are alert about potential competitors, especially becauseshoppers are easily attracted to club retailers and everyday low price (EDLP) mass. A good market research program also brings the solution to this channel switching by consumers. 3.Assess competitive dynamics to comprehend the perspectives of the participants at different market places. This will help a company realize the impact on the action of a various players with a trade promotionchange undertaken by any one player. Those brands and retailers that were the first in scaling back trade promotions, had to lose initial share to those who have promotional strategies in place. A company can minimize the adverse impact on its bottom line by remaining alert about the need to simultaneously start alternative marketing and advertizing campaigns, whenever it is considering reducing its trade promotion programs. 4.Evaluating options is important because the players in the marketplace have different motivations, and consumers respond in various ways to trade promotionchanges.This understanding gives a company the options for optimizing the effectiveness of trade spends. A CPG company with different brands and product lines has the options of either maintaining the status quo, or reallocating trade spends from lowimpact areas to areas of high-growth opportunities, or simply changing the model. All this defines the options with which a brand can create a win-win situation for both CPG companies and retailers to enhance the overall value for the category. Conclusion Whether it is a retailer or a CPG company spending millions in trade promotions, an assessment of the strategies may underline the areas that need improvement. It is vital for senior executives to track the success of promotionprograms separately so that they can follow the market dynamics which determine the consumer decision making. Equipped with this

3. knowledge, companies can then build up strategies that can look at addressing competitive dynamics. A change in trade promotion strategy in some categories for long-term results will require CPG companies to be prepared for temporary sales challenges.