Trade Promotion

Sales Promotion!
What is sales promotion anyway? Why do it? Who does it? How do you do it?

Sales Promotion is a form of Communication

The sale of a product, fashion or otherwise, occurs only when it meets or satisfies the customers

WHAT?

NEEDS WANTS DESIRES

WHY?
build customer loyalty disseminate information Establish or reinforce a companys image

WHY?
The Objective of Sales Promotion is

To sell an idea, product or service

arouses the buying impulse by addressing the customers basic needs giving reasons to buy perking interest Encouraging action

WHO?
Retailers use sales promotion to bring traffic into their stores, and it includes advertising, sales promotion, publicity, and personal selling.

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.

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?

Sales Promotion
Short term demand Encourage brand switching Induce trial use Promote price Immediate results Measurable results

vs.

Advertising
Long term demand Brand loyalty Encourage repeat purchase Promote image Long term effects Difficult to measure

 Advertising spending as a percentage of total marketing communications expenditures has declined in recent years. Promotional spending, however, has steadily increased.

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 visibility and trigger new usage ideas for the consumer.

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 may

mean a situation where the supplier is prepared to forego short term profits. to gain a position over competitors

Recover market share - sustaining a nominated loss of contribution 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.

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 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.

Trial Generation - 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.

Reasons for Price Promotion (Contd)

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.

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

MEASURING PROMOTIONS
EFFICIENCY VS.EFFECTIVENESS
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

MEASURING PROMOTIONS
EFFICIENCY VS.EFFECTIVENESS

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

MEASURING PROMOTIONS
EFFICIENCY VS.EFFECTIVENESS

The breakeven quantity needed to earn standard contribution Regular Contribution (%) = 10% of MRP 100 Regular Sales = 1000 units Regular 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

MEASURING PROMOTIONS
EFFICIENCY VS.EFFECTIVENESS

These different measures logically group themselves into two categories; Efficiency the extent to which trade spend is minimized the extent to which trade spend achieves an increase in sales or profit.

Effectiveness -

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

MEASURING PROMOTION EFFECTIVENESS

The purpose of a trade promotion is to create a short-term increase in sales above what is normally experienced. In this short statement there 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 be calculated?

MEASURING PROMOTION EFFECTIVENESS

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".

MEASURING PROMOTION EFFECTIVENESS

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.

MEASURING PROMOTION EFFICIENCY

The efficiency of a promotion is a measure of how 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 to sales varies typically from 15% to 30%. A business will generally have a policy or budget against which trade spend is measured.

BEST MODEL

BEST MODEL
BALLISTIC-EFFECTIVEONLY Promotions in this category will deliver a good incremental volume at a reasonable incremental cost, but the average cost is too high. Just like rockets they lift off at great cost. ECONOMICAL -EFFICIENTONLY Promotions that fall into the economical category are generally volume products, which do not show a significant incremental volume gain. Mixing products that show this character with ballistic items can often result in a superb promotion. SUPERB-BOTHEFFECTIVEANDEFFICIENT Promotions that deliver both incremental volumes at low incremental cost and low average cost. The biggest issue here would be to avoid over promoting if there were a possibility that regular price discounting will devalue the brand. TERRIBLE-NEITHEREFFECTIVENOREFFICIENT Promotions in this category are expensive and do not deliver incremental volume. It may not be wise to price promote these items. Typically low volume products are always expensive to promote 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.

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

Long-Term Promotional Allocation

60 50 40 30 20 10 0 1986 88 90 92 94 1996

%t of total - 3 yr.MA

Trade Promo Media Adv Cons. Promo

Year Cox Direct 19th Annual Survey of Promotional Practices

Channels of Sales Promotions

MANUFACTURER Push Trade Promotions RETAILER Push Retail Promotions CONSUMER Consumer Promotions Pull

Trade Promotions
Trade-Promotion Objectives
Persuade Retailers or Wholesalers to Carry a Brand Give a Brand Shelf Space Promote a Brand in Advertising Push a Brand to Consumers

Trade-Promotion Tools
Price-Offs Allowances Buy-Back Guarantees Free Goods Contests Premiums Patronage Displays Rewards Discounts Push Money Specialty Advertising Items

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.

The TPM Process

Trade 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

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
Manufacturers Offer Incentives to trading Partners Off-invoice allowances Favorable payment terms Market development funds Sell-through guarantees/failure fees Co-op advertising Bracket allowances

Performance
In Return for Performance At Headquarters Plan Merchandising Buy in advance of demand Set prices Authorize new items At Retail Merchandising

Benefi ts
To Generate Consumer Sales Incremental Sales and Profits

Everyday Low Prices Shelving

Space Configuration Location

Ads Display Reduced prices Coupons

Stock Rotation

Who Manages TPM?

The National Sales Director leads the sales force, and gives direction in terms of merchandising priorities, product assortment, revenue targets, products focus (new and established), budget and thresholds for key metrics such as promotion ROI. The key account manager is responsible for account and promotion planning, category management, new product introductions.

National Sales Director

The Controller is responsible for the accurate recording of promotional results, customer payments, rebates and the tracking of free product. Customer P&L, Product P&L Controller

Key Account Manager

The demand planner captures customer orders, and tracks their progress The Brand Manager is responsible for providing strategic direction for brand growth and managing the P&L. She develops the consumer plan and provides guidelines on brand priorities and price points to the sales force.

Demand Planner

Brand Manager

Retail competition is intensifying, consolidation is accelerating, leaders are emerging and the pressure on suppliers is increasing.
The near future will see the emergence of 3-5 dominant global retailers with room for niche players.

The Changing Market

The primary issue, however, is that we are some way off from seeing global retailers manage the business in a truly global fashion.

Dynamics of the Trade Relationship

Although retail competition is intensifying and consolidation is accelerating, the fundamentals of the trade relationship remain the same.
What display location What is my Was compliance produces the How often should I ROI? achieved? strongest results? promote Product X? Manufacture Retail r Buyer Should or how do I extend a promotion What is the Did my trade across regions of What was the Did my Product X residual monies get my chain? impact of promotion drive impact on my passed along to Product X on other market other brands? the consumer? Category Y? basket sales?

The trade relationship is becoming information and insight hungry