What is Trade Promotions Management?

Trade Promotions Management is a challenge faced by most CPG/FMCG companies around the globe. Key Account Managers and Category/Brand Managers are responsible for developing and implementing a promotional programme which delivers the maximum return on investment and manages the trade off between incremental volume and maintenance of a reasonable level of trade spend.

During this process they must deal with the complexities of large product portfolios, phasing in and out new/old products, various retailer types with unique discounts, trading terms, ranging & display processes and that’s before they consider the effects of the promotion on other key stakeholders within their business such as Manufacturing, Supply Chain, Finance, Merchandising and Sales.

Lack of control and the ability to accurately monitor the effectiveness and efficiency of Trade Promotions is the key area of concern. Many companies still utilise vast arrays of fragmented spreadsheet style reports to manage their TPM activities.

The complexities of the typical Trade Promotion Management process can be appreciated in this diagram which is based on just one individual retailer account.

Not all promotions are created equal and there are many ways of looking at a promotion and evaluating the effective and efficient use of trade funds. The characteristics of your product portfolio eg beer, toilet paper, toothpaste and yoghurt will impact on the performance of your trade promotion even if the same promotional strategy is used.

For example: with the same size and display location, toilet tissue wipes up the competition with an 82% display driven lift, with yoghurt a distant second at 28%, beer at 15% and toothbrushes at 14%.

(Source: Nielsenwire “Six Trade Promotion Tips: Why Less Can be More”)

Why Promote?

Promotions are undertaken with the intention of driving an increase in consumer sales. This may be instigated as the Brand Manager has a target/KPI to achieve and the promotion is designed to close the gap between the baseline sales and the target. Generally the manufacturer will sell their products to retailers at a discount to help fund the promotion. This discounting is of no benefit if there are no additional sales as a result of the promotion.

Promax delivers key information that helps Brand Managers answer questions, such as:

• What to promote?
• How often to promote?
• Timing – when to promote?
• Duration – how long to promote?
• Promotional level – how much should I offer?
• Product selection – which bundle of products to select?
• Are the trade deals aligned with the Brand positioning?
• What is the level of sales lift during the promotional period?
• Has the promotion created a long-term impact on base-line consumer sales?
• What happens if I change the frequency of my promotions?
• Do my promotions clash amongst various retailers?
• Are specific promotions cannibalising sales of other products in my portfolio and/or competitor products?
• What is the optimum scenario in terms of volume and profitability?
• What impact do these promotions have on customer profitability?
• How do I communicate and implement these promotions via the salesforce?

There are a number of good reasons why one might choose a simple price promotion:

• Offensive sales gain – to offset competitive threats. Typically this may mean a situation where the supplier is prepared to forego short term profits.
• Recover market share – sustaining a nominated loss of contribution to gain a position over competitors
• Stimulate Sales – without a loss of contribution and hopefully an increase in overall profitability. This is probably the most common rationale for promotions. Implicit in this is that the company will increase sales revenue and thus the total profit from the promotion will be greater than if there were no promotion at all.
• Reward – for existing brand loyal users. This may be a short-term loss of profitability and may even make money if a lot of brand loyal consumers stock up.
• Switch – However, if there are a large number of promotions targeted at “deal loyal” users then they will switch brand frequently. When promoting to this group the best course of action is to make sure that the promotion is profitable as there may be no long-term future gains to be had.
• Gets new users to Trial – for new products every new trial is valuable; this incentive is premised on the assumption that the long-term value of a new user may be worth many times the cost of the initial purchase, so the supplier is prepared to invest heavily to obtain a new consumer. This may justify the high cost of a promotion. Trade promotions of new items often need to be supported by other vehicles such as demonstrations and media advertising.
• Reward to Trade. This often happens to get a buyer off your back. If however, it is viewed as being good for both parties, there should be a profit opportunity.
• Because the trade threatens deletion – in many instances buyers have co-op budgets to achieve. There is pressure on suppliers to maintain ranging and promotion of your products in the category ensures support for your brand.

Each of these scenarios has different parameters of cost, price point, mechanic, vehicle and incremental volume gain. In reality the sales team gets a certain amount of money to spend on promotions, some say that these funds are a “cost of doing business”. The more money that is provided the more we will sell. If only this were true! We really need to understand how we can effectively apply the limited trade funds to maximise their efficiency. Download the “What’s a Good Promotion” whitepaper to learn more.

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