Trade-Oriented Sales Promotion Chapter Seventeen

Trade-Oriented Sales Trade-Oriented Sales PromotionPromotion

Chapter Seventeen

Chapter Seventeen ObjectivesChapter 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 ObjectivesChapter 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 ObjectivesChapter 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 PromotionObjectives 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 PromotionTrade Promotion

Key Ingredients to Success

• Financial incentive

• Correct timing

• Minimize retailer’s effort/cost

• Quick results

• Improve retailer performance

Types of Trade PromotionsTypes of Trade Promotions

• Trade allowances

• Cooperative advertising and vendor support programs

• Trade contests and incentives

• Trade shows

Trade AllowancesTrade 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 AllowancesMajor Forms of Trade 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?

Slotting allowances

Bill-back allowances

Off-invoice allowances

Major Forms of Trade AllowancesMajor Forms of Trade Allowances

• Retailers receive allowances for featuring the manufacturer’s brand in advertisements or for providing special displays

Slotting allowances

Bill-back allowances

Off-invoice allowances

Major Forms of Trade AllowancesMajor Forms of Trade 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

Slotting allowances

Bill-back allowances

Off-invoice allowances

Forward Buying and DivertingForward Buying and 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 Diverting

Forward Buying and DivertingForward Buying and 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

Forward Buying Diverting

Efforts to Rectify Trade Promotion Efforts to Rectify Trade Promotion ProblemsProblems

Efficient Consumer Response (ECR)

Category Management

Everyday Low Pricing (EDLP)

Pay-for-Performance Programs

Account-Specific Marketing

Efficient Consumer Response 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 Efficient Consumer Response

1. Improved product-replenishmentpractices

- move product more efficiently- Electronic Data Interchange(EDI)

2. Reduced tradepromotions

- minimize inventory costs andreduce forward buying anddiverting- EDLP,Pay-for-Performance programs

3. Improved productintroductions

- respond to consumers’ needsfor new product- avoid simply introducing me-too products

Efforts to Rectify Trade Promotion Efforts to Rectify Trade Promotion ProblemsProblems

Efficient Consumer Response (ECR)

Category Management

Everyday Low Pricing (EDLP)

Pay-for-Performance Programs

Account-Specific Marketing

Category ManagementCategory Management

Category Management

Retailers and manufacturers must work together, share market

intelligence, and develop strategies that are mutually beneficial

Category ManagementCategory Management

Reviewing the product category

Targeting consumers

Planning merchandising

Implementing strategy

Evaluating results

Efforts to Rectify Trade Promotion Efforts to Rectify Trade Promotion ProblemsProblems

Efficient Consumer Response (ECR)

Category Management

Everyday Low Pricing (EDLP)

Pay-for-Performance Programs

Account-Specific Marketing

Everyday Low Pricing (EDLP)Everyday Low Pricing (EDLP)

EDLP

A manufacturer charges the same

price for a particular brand

day in and day out

Why Some Retailers Resist 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

Efforts to Rectify Trade Promotion Efforts to Rectify Trade Promotion ProblemsProblems

Efficient Consumer Response (ECR)

Category Management

Everyday Low Pricing (EDLP)

Pay-for-Performance Programs

Account-Specific Marketing

Pay-for-Performance ProgramsPay-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 ProgramsPay-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)

Efforts to Rectify Trade Promotion Efforts to Rectify Trade Promotion ProblemsProblems

Efficient Consumer Response (ECR)

Category Management

Everyday Low Pricing (EDLP)

Pay-for-Performance Programs

Account-Specific Marketing

Account Specific MarketingAccount Specific Marketing

Account Specific Marketing

Also called co-marketing,

characterizes promotional and

advertising activity that a manufacturer customizes to specific retail accounts

Account Specific MarketingAccount 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 AdvertisingCooperative 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 AdvertisingCooperative Advertising

Five Common Elements

• Specified time period

• Accrual

• Payment share

• Performance guidelines

• Billing for reimbursement

Why is Co-op Advertising Used?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 AdvertisingOpen-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-opWhy is Open-Ended Co-op Advertising Used? 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

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 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 IncentivesTrade Contests and Incentives

Trade contest generally based onmanagers meeting a salesgoal

Tradeincentives

given to retail managers andsalespeople for performingcertain tasks

Push money provide financial incentivesto retail salespeople toaggressively sell toconsumers a selected item

Trade ShowsTrade 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 ShowsFunctions 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