Putting into action the longstanding dialogue about integrating consumer direct marketing with trade channel promotion – the birth of real Trade Marketing
For most of the last decade, the conversation around how to effectively integrate consumer marketing with trade channel promotion has intensified. But for all that talk, little has been achieved in building a bona fide integrated and aligned omnichannel platform where ultimate consumer engagement is the unified objective.
The dominant objective among consumer products manufacturers and suppliers of trade channel promotion is to incite the reseller or distributor buyer to agree to a large volume of product generating strong revenue at high margins. Not my words, but those of many in sales I am interviewing nowadays.
Sure, configuring a schedule of promotional tactics, timing, and promoted product groups is required to generate enough interest from the buyer to trigger a large order, but where is the true focus of the deal? And, at the end of the day, doesn’t the buyer’s promotional plan end up as the primary direction?
In a recent interview for my upcoming book on trade promotion, I spoke with the long-time chief sales officer of one of the world’s largest and most well-known brands. “Clearly, we have to do our homework and configure an annual trade plan calendar that we believe will sell the most products in the store or through whatever channel we are negotiating for, “ he says, “But in reality, it’s the money that is the focus of the deal.”
He went on to boast that he believes if one-fourth of the promotions his key account managers create are accepted by the buyer, he considers it a successful negotiation. So, in the world of the key account managers, sales reps and other promotion planners, it’s the economics of the sell-in of the deal, not the mutual objective of enticing the shopper to purchase the product on promotion that has been the primary and, in many cases only objective of trade promotion.
Unfair, you say?
No, because historically the evolution of the modern trade promotion deal began with the total frustration the retailers had for the manufacturer’s lack of efficiency and effectiveness in reimbursing promotional activity that was claimed based on the actual cost of the media or activity, documented with real invoices and proof of performance. With margins dropping faster than the water table in California, retailers depended upon rapid turnaround of the money they spent promoting their store and the manufacturers’ products: co-operative advertising. Ninety and 120 days to process and pay claims became not only intolerable, but financially devastating.
Where do you think this practice of automatically deducting promotional costs from product invoices came from? Retailers took control of the promotion settlement process, and after a long and ugly fight that often ended up in court battles. CPG manufacturers had to relent and move from a direct audit of actual costs and proof of performance to a post promotion validation of an agreed-to plan submitted by the retailers at costs that were (a) never documented and (b) obviously not the net cost of the media or activity. So, the promotion took on a vector that centered on how much money each party in the deal could make at the sell-in.
It is this process of the retailer and account managers sitting down and deciding on a full promotion plan in advance that has become the foundation of the process of promotion planning we have today in CPG. This is not the process that happens for most other consumer products subsectors. They are still using the traditional co-op advertising and market development funding approach that works off of a very detailed set of promotional guidelines, terms and conditions of payment, and program participation eligibility with post-promotion compliance audit and payment based on the submission of a fully documented cost and proof of performance claim.
And it works extremely well. The retailer or online channel is free to configure and schedule their own promotions against these program guidelines and, as long as they stay within the boundaries of the program performance timeframes and submit a claim for actual proof of cost and performance, they get paid. Five to ten-day turnaround on claims processing is the norm.
After more than fifty years, the fast moving consumer goods industry has created a separate and distinct process of promotion planning in advance, agreement and commitment to that plan by the manufacturer, and the allowance of direct off-invoice deduction of the agreed-to expense of the promotion directly from the manufacturer’s product invoice. The actual cost of media and tactical promotional activities are no longer required, so the amount of cost for the promotion is what the retailer says it is. Compliance is largely now the responsibility of the manufacturer/supplier and is done through field merchandising retail execution audits in the store or verification from online and digital channels.
Over those last fifty years, the process of promotion planning has undergone radical changes in technology, but the purpose has remained largely intact – get the sell-in deal done. The very definition of deal success for a key account manager was the volume, revenue, and profit margin of the sell-in, not necessarily the ultimate success of the instore promotion. Likewise, for the buyer, the definition of success was all too often the amount of profit generated from the terms of the deal.
That is not to say either party cares about the success of the promotion, of course they do. But ask any KAM or buyer which is the most prominent concern. The buyer does have a bit more of a direct vested interest in the promotion attaining some level of positive return, but since their deal contributes directly to store profitability, guess where the allegiance is going to be.
Paying tacit homage to the importance of the ultimate success of the promotion is no longer acceptable. Making the promotion’s success a major objective with the end state being your product crosses the scanner in the checkout lane is becoming a larger part of the overall objective than ever before.
Now, this concept is finally taking hold in the CPG community across all manufacturer/suppliers and channels. Although nobody argues that the importance of the volume, revenue, and profit margin at the sell-in is still a main goal of both the CPG and the retailer or eCommerce channel, this paradigm shift is beginning to take hold.
Several manufacturer/suppliers have begun configuring promotion success as a metric for compensation of key account managers and sales reps, and the trend is upward. Of course, the advanced technology, improvement of data quality and promotion optimization has had to make a huge impact to this trend and will no doubt continue to do so.
The focus is now on the “how.” How do we make the promotion more successful? With an absolutely horrid record of failure for trade channel promotions which approaches 75% who fail to generate more volume and revenue than the sell-in, all of the industry concentration is on the effort to ensure more reliable achievement of positive ROI. For starters, ultimately gaining very high ROI rates in the 150 – 300% range most of the time is a consensus metric among revenue growth management executives.
There are four (4) reasons why promotions fail.
- The data used to base predictions of promotion performance is flawed or is unavailable
- Out-of-stock conditions decimate the opportunity for the shopper to actually buy the product
- The lack of adequate technology of promotion planning, and optimization of predictable, prescribed promotions
- The lack of alignment between trade channel promotions and direct consumer marketing
Everyone is well familiar with the first three above, and the pace of the attention being given them is quickening, to be sure.
However, it is the fourth reason that has now surfaced to be the dark horse opportunity that will make the greatest impact on the potential to reverse the course of promotion failure. Bringing to bear the enormous cache of data, intelligence, and insights into the consumer that is present in most marketing organizations should enable better outcomes of trade channel promotions.
Where traditionally the high collaboration barriers between corporate marketing, who owns direct consumer promotion, advertising, couponing and events, and sales, who owns the trade channel promotion have historically restricted legitimate alignment. The tide is turning. The most recent conversations around consumer direct marketing alignment with trade promotion have begun to tear down those barriers and build toward more effective promotion planning collaboration between the two organizations.
The technology has also begun to address consumer-direct marketing and trade channel promotion integration with data sharing, improved performance measurements, and new alignment metrics that favor smarter consumer engagement across a full omnichannel landscape. Plus, many retailers are now actively pursuing more three-way promotion planning involving themselves along with their suppliers’ sales and marketing teams to ensure greater efficiency and effectiveness of promotions.
All these efforts are not going unnoticed. Industry organizations like Promotion Optimization Institute, Association of National Advertisers, Consumer Goods Forum, Consumer Goods Technology Magazine, a brand of EnsembleIQ along with their other major brands like RIS News, Progressive Grocer, and Convenience Store, as well as the “Path To Purchase Institute,” and the consortium of CPG industry executives “League of Leaders” are all including the integration and alignment of marketing and trade promotion within their conference and educational agenda topics.
The real question is how long will it be before there is a full global consensus around the integration of direct-to-consumer marketing and trade channel promotion. There is still a great deal of reservation held among CMO’s and CSO’s as to the effectiveness of marketing and trade promotion alignment. Trade promotion solution vendors are all beginning to include both marketing and trade calendars in their user interfaces. Several of these vendors tout the ability of their AI-driven promotion optimization to include and integrate consumer marketing data into the mix of scenarios and algorithms.
Still, we are a long way from making the integration and alignment of consumer direct marketing and trade promotion a mainstream mandate across the sales, marketing, and channel planning process and technology. It is one thing to add in the results and performance metrics for traditional and digital media advertising, couponing and rebates, pricing actions, displays, demonstrations, and other direct marketing tactics in the mix of data inputs. But it is quite another to leverage all this data into real insights which result in real results. Being able to drive the combination of the consumer’s need, the shopping experience, the product availability and the price incentive – all strategically combined to drive the purchase of the product, is the ultimate value proposition for this new cross-channel marketing integration.
Isn’t this the essence of Trade Marketing?
This is the next frontier. How we combine the brilliance of corporate consumer engagement marketing experts with key account managers who know the retail and eCommerce accounts front and back, demand planners who know how to relate demand to supply, and retailer marketers who have the highest detail of shopper efficacy to achieve a level of promotion success that begins to reach dramatic ROI achievement, is the question on everyone’s mind today.
But the good news is that everyone’s mind is beginning to be focused on it. For the first time in a half century, the consumer products industry can return to focusing on the success of the promotion at the checkout counter and in the marketplace – not in the sell-in alone.
That is my two cents.
Follow Me: @RealRobHand