Trade Promotion Best Practices

Jesse Hopps

Trade promotion is any expenditure paid directly by a manufacturer to the trade or retail factors in a given industry as a set amount on a per unit basis or in payment for a merchandising value provided by the retailer.

- Source: Promotion Marketing Association (PMA)

Trade promotion is a key activity for all consumer marketing plans which encourages increased short-term sales by effectively decreasing the cost-per-item to the end consumer.

By measuring the incremental increases in sales volume relative to the costs of the trade promotion campaign, marketers can identify which trade campaigns provide the most return on investment and optimize their trade plan by investing in the most effective trade channels and promotions.

Types of Trade Promotions

Corporate Promotions

  • In-Store Displays: Point-of-Purchase (POP), Floor Stickers, Feature Display, Carton Display, Special Racks, Banners, Signs, Mechanical Product Dispensers, Demonstrations, etc.
  • Temporary Price Reduction (TPR): Cents off, Price pack, Bonus pack, Branded pack.
  • Coupons: Grant savings on specified products.
  • Contests: Generates a high degree of customer involvement and website traffic.
  • Sweepstakes: Participants must submit names to be entered in a draw. Can use multiple mediums. (i.e. POP display and website)
  • Refunds and Rebates: The offer to return a certain amount of money to the customer.
  • Premiums: A tangible reward for performing a particular act. (i.e. receive a free bar of soap with purchase of body wash)
  • Sampling: Allowing the customer to experience the product or service by providing free samples.

Discretionary/Account Promotions

  • Templates to be used by key account managers when establishing promotions at their accounts.

Trade Promotion Management Lifecycle

There are 8 major components in the trade promotion management lifecycle for consumer products.

  1. Promotion Planning and Modeling - Selection of the proper channel, promotional plan, and estimated results.
  2. Presentation - Present the campaign to key stakeholders to achieve buy-in or sponsorship.
  3. Sales Agreement - Between Manufacturer and Retailer
  4. Supply Chain Planning and Execution - All aspects of the supply chain must be taken into consideration before moving forward. Will expediting be necessary? Will inventory levels change based on the campaign?
  5. Retail Execution - Carrying out the sales agreement in the market place through the entire value chain.
  6. Settlement - Reimbursement from manufacturer to the retailer based on actual sales volumes & promo costs.
  7. Monitoring, Reporting and Post Event Analysis - conducting a Trade Promotion ROI Calculation.
  8. Category Optimization - A comprehensive understanding of trade promotion spend will allow management to recommend profit maximizing tactics.

Benefits of Closing the Loop

 The key benefits of closing the loop on trade promotion by using the preceding lifecycle framework include:

  1. Providing management with greater visibility into market's price elasticity of demand for specific products.
  2. Increased internal collaboration between functional groups within an organization to promote alignment.
  3. If done properly, will result in fewer stock-outs and cost-savings from reduced inventory levels.
  4. Helps foster relationships and increase collaboration between retailers and manufacturers.
  5. Increase profits for both retailer and manufacturer.
  6. Improved management of current promotions based on past performance and reduced spending on ineffective trade promotion channels and campaign techniques.
  7. Building brand awareness & recognition for product lines
  8. Helps close the gaps on analytics and generate predictive insights for both retailers and manufacturers.

Measuring Trade Promotions

This section will outline the steps required to implement an effective trade promotion campaign.

    1. Learn Trade Promotion Best Practices to get started, read this whitepaper from DemandTec: Consumer-Centric Merchandising and Marketing.
    2. Achieve Consensus among Stakeholders - have a meeting with key stakeholders to align campaign objectives. Use our Trade Promotion Evaluation Matrix to select the best promotion for your needs.
  1. Review Historical Information - Review past sales volumes for the period, market research data, costs of prior trade promos, and customer data, to benchmark results from previous trade promotion campaigns.
  2. Gather New Information - if you don't have historical information, consider adding a vendor solution that can be easily integrated into your ERP system.
  3. Set Goals, Timeframes, & Objectives - your goals may be to improve upon an existing campaign, create a new campaign or to improve relationships with retailers.
  4. Define Measures of Success - like all objectives, you need to determine how success will be measured, BEFORE you kick-off your initiative. These are the Key Performance Indicators (KPIs) that will be benchmarked and monitored to demonstrate return on investment.
  5. Follow the Trade Promotion Framework - Use this preceding lifecycle to execute your campaigns.
  6. Monitor, Report, and Analyze - Monitor the campaign closely and use our Trade Promotion ROI Calculator determine the return on your investment.
  7. Category Optimization - Continue to test & monitor campaigns and implement profit maximizing tactics.

Manufacturers and retailers are becoming increasingly interdependent and trade promotion is a key collaboration touch point. Currently there are significant gaps between manufacturers and retailers around analytics and insight.

Closing the loop with trade promotion campaigns can significantly increase ROI by providing insight into the key drivers of sales volumes and trade promotion costs. Be sure to meticulously measure the incremental impacts of your trade promotion campaigns to optimize spending for this channel.

Marketing