Trade Promotion1.pdf

7/29/2019 Trade Promotion1.pdf

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Trade Promotion


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Sales Promotion!

What is sales promotion anyway?

Why do it?Who does it?

How do you do it?


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WHAT?

Sales Promotion is a form of CommunicationThe sale of a product, fashion or otherwise, occurs only when it meets or

satisfies the customers

NEEDS WANTS

DESIRES


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WHY?

build customer loyalty

disseminate information

Establish or reinforce a companys image


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WHY?

The Objective of Sales Promotion is

To sell an idea, product or service

arouses the buying impulse by addressing the customersbasic needs

giving reasons to buy

perking interest

Encouraging action


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WHO?

Retailers use sales promotion to bring traffic

into their stores, and it includes advertising,

sales promotion, publicity, and personal

selling.


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WHO?

Manufacturers use incentives to induce the trade

and/or consumers to buy a brand and encourage

sales force to aggressively sell it by creating a

perception of greater brand value.


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HOW?

Targeting and research are essential FIRST!

Who are you selling to?

What do they want? What do they care about ?

Who do they want to be?


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Sales Promotion vs. Advertising

Short term demand

Encourage brand

switching Induce trial use

Promote price

Immediate results Measurable results

Long term demand

Brand loyalty

Encourage repeatpurchase

Promote image

Long term effects Difficult to measure


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Advertising spending as a percentage oftotal marketing communications

expenditures has declined in recent

years.

Promotional spending, however, has

steadily increased.


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Why should we promote?

To evaluate the effective and efficient use of

trade funds, we might first ask the question"why should we promote?"

Generally, the objective to promote is to

increase the visibilityand trigger new usage

ideas for the consumer.


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Reasons for Price Promotion

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

promotion;

Offensive sales gain - to offset competitive threats. Typically this maymean a situation where the supplier is prepared to forego short term

profits.

Recover market share - sustaining a nominated loss of contributionto gain a position over competitors

Stimulate Sales - without a loss of contribution and hopefully anincrease in overall profitability. This is probably the most commonrationale 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.


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Reasons for Price Promotion (Contd)

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 dealloyal users then they will switch brand frequently. When promoting to this groupthe 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.

Trial Generation - Gets new users to Trial. For new products every new trial isvaluable; this incentive is premised on the assumption that the long-term value ofa 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.


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The Extent of Promotion

Each of promotional scenarios has different parameters ;

Cost

Price point

Incremental volume gain.

In reality the sales team gets a certain amount of money to spend on

promotions, therefore it is the "cost of doing business".

Pitfall : Diminishing returns


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M E A S U R I N G P R O M O T I O N SE F F I C I E N C Y V S . E F F E C T I V E N E S S

Promotional programs can be evaluated using many different measures.

Weeks of stock cover sold

Contribution earned (Profit)

Incremental contribution earned

Average cost per case as a percentage of revenue

Cost per incremental case as a percentage of incremental revenue Supplier revenue

Total support investment and case deal ROI - The ratio of support investment to contribution

Retailers gross margin

Increase in retailer gross margin Increase in retailer sales revenue

The breakeven quantity needed to earn standard contribution


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Incremental contribution earned:

Regular Contribution (%) = 6% of MRP 100

Regular Sales = 1000

Regular Contribution (Rs.) = 100,000 x 6% = 6000

Deal Contribution (%) = 5% of MRP 100

Deal Sales = 10,000

Deal Contribution (Rs.) = 1000,000 x 5% = 50,000

Incremental Contribution: Rs.44,000


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The breakeven quantity needed to earn standard contribution

Regular Contribution (%) = 10% of MRP 100

Regular Sales = 1000 unitsRegular Contribution (Rs.) = 100,000 x 10% = 10,000

Deal Contribution (%) = 5% of MRP 100

Deal Contribution (Rs.) = 100 x Breakeven quantity x 5% = 10,000

Breakeven Quantity = 10,000/5 = 2000 units


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These different measures logically group themselves into two categories;

Efficiency - the extent to which trade spend is minimized

Effectiveness - the extent to which trade spend achieves an increase in

sales or profit.

Efficiency is a measure that looks at the average cost, and effectiveness is a

measure of the incremental cost.


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M E A S U R I N G P R O M O T I O N

E F F E C T I V E N E S S

The purpose of a trade promotion is to create a short-term increasein sales above what is normally experienced. In this short statementthere are a number of important components;

Normal sales - baseline

Promotion peak - profile of consumer off take

Buying pattern - when and how much will the retailer buy

Promotion uplift - what affects the volume? How can it becalculated?


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Fortunately, consumers are intimately aware of promotions. They soon

recognize promotional patterns and frequency. It is common to observe a

drop in sales before a promotion and subsequently a volume drop as a

result of "pantry fill".


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Supplier's performance there are four basic categories:

Market share

Cost of business

Cost of new business

Profit

From the retailer's perspective:

Net effect on the category sales achieved profit

Sales increase

The effectiveness of a promotion can be measured as a ratio of the cost to

the increase in sales.


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E F F I C I E N C Y

The efficiency of a promotion is a measure ofhow well trade funds are

used.

It is a measure of the average cost of the promotion in relation to the

revenue outcome.

In deciding if a promotion is efficient or not will depend on the strategic

objectives.

In most food and beverage businesses the percentage of trade funds tosales varies typically from 15% to 30%.

A business will generally have a policy or budget against which trade

spend is measured.


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BEST MODEL


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BEST MODEL

B A L L I S T I C - E F F E C T I V E O N L YPromotions in this category will deliver a good incremental volume at a reasonableincremental cost, but the average cost is too high. Just like rockets they lift off at great cost.

E C O N O M I C A L - E F F I C I E N T O N L Y

Promotions that fall into the economical category are generally volume products, which donot show a significant incremental volume gain. Mixing products that show this character

with ballistic items can often result in a superb promotion.

S U P E R B - B O T H E F F E C T I V E A N D E F F I C I E N T

Promotions that deliver both incremental volumes at low incremental cost and low averagecost. The biggest issue here would be to avoid over promoting if there were a possibilitythat regular price discounting will devalue the brand.

T E R R I B L E - N E I T H E R E F F E C T I V E N O R E F F I C I E N TPromotions in this category are expensive and do not deliver incremental volume. It may notbe wise to price promote these items. Typically low volume products are always expensive topromote and, if as well they do not lift (flat profit curve), they should not be price promoted.Promotions with a high fixed cost (co-op) can emerge with this quality tag.


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Why the increase in Sales

Promotion? Growing retailer power Declining brand loyalty Increased promotional sensitivity

Brand proliferation Fragmentation of consumer market Short-term focus Increased managerial accountability

Competition Clutter


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Long-Term Promotional

Allocation

010

20

30

4050

60

1986 88 90 92 94 1996

Year

%to

ftotal-3yr.MA

Trade Promo

Media Adv

Cons. Promo

Cox Direct 19th Annual Survey of Promotional Practices


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Channels of Sales Promotions

MANUFACTURER

RETAILER

TradePromotions

CONSUMER

Consumer

Promotions

Push

Push PullRetailPromotions


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Trade-PromotionObjectives

Trade-PromotionTools

Specialty

Advertising

ItemsContests

Free Goods

Buy-Back

Guarantees

Allowances

Price-Offs

PatronageRewards

PatronageRewards

Push Money

Discounts

Premiums

Displays

Persuade Retailers orWholesalers to Carry a Brand

Persuade Retailers orWholesalers to Carry a Brand

Give a Brand Shelf SpaceGive a Brand Shelf Space

Promote a Brand inAdvertising

Promote a Brand inAdvertising

Push a Brand to ConsumersPush a Brand to Consumers

Trade Promotions


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Trade Before Consumer

You have to figure out how you are going to

market your product successfully at the trade

level BEFORE you can market successfully to

consumers.

The TRADE is the GATEKEEPER.


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The TPM ProcessTrade Promotion Management (TPM) is defined as the process of planning, budgeting,

presenting and executing incentive programs which occur between the manufacturer and the

retailer to enhance sales of specific products. To provide a better understanding, we have

outlined a typical trade promotions cycle:

See Appendix for Process Step Details


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Promotion Programs

The following diagram provides listings of many of the types of incentives and programs that

are run.

Promotion programs vary widely from account to account discounts on each product sold

payments of a fixed sum of money

other special programs

Incentive programs are based on corporate strategy and account objectives

Costs PerformanceBenefi

tsManufacturers Offer

Incentives to trading

Partners

Off-invoice allowances

Favorable payment terms

Market development funds

Sell-through

guarantees/failure fees

Co-op advertising

Bracket allowances

In Return for Performance

At Headquarters

Plan Merchandising

Buy in advance of

demand

Set prices

Authorize new items

To Generate Consumer

Sales

Incremental Sales and ProfitsAt Retail

Merchandising Ads

Display

Reduced prices

Coupons

Everyday Low Prices

Shelving Space

Configuration

Location

Stock Rotation


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The near future will see the

emergence of 3-5 dominant

global retailers with room for

niche players.

The near future will see the

emergence of 3-5 dominant

global retailers with room for

niche players.

The primary issue, however, is that we are

some way off from seeing global retailers

manage the business in a truly global

fashion.

The primary issue, however, is that we are

some way off from seeing global retailers

manage the business in a truly global

fashion.

Retail competition is intensifying, consolidation is accelerating, leaders areemerging and the pressure on suppliers is increasing.

The Changing Market


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Although retail competition is intensifying and consolidation is accelerating,the fundamentals of the trade relationship remain the same.

What is my

ROI?

What is the

residual

impact on my

other brands?

Was compliance

achieved?

Did my trade

monies get

passed along to

the consumer?

How often should I

promote Product

X?

Should or how do I

extend a promotion

across regions of

my chain?Did my Product X

promotion drive

other market

basket sales?

What was the

impact of

Product Xon

Category Y?

What display location

produces the

strongest results?

Manufacture

r

Retail

Buyer

The trade relationship is becominginformation and insight hungry

The trade relationship is becominginformation and insight hungry

Dynamics of the Trade Relationship

Trade Promotion1.pdf

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