The definition of Trade Promotion can differ depending upon who you ask. But the genesis of trade promotion is deeply rooted in the quest to satisfy the need of the consumer by providing a product that is easy to find, in sufficient quantities and at the right price—in the local marketplace.
There is a long history of conflicting responses to the question, What is the purpose of trade promotion? The sales organization will answer that it is the funding that enables a deal to be made which achieves the forecasted volume, revenue or profitability—the Sell-In. Of course they will also say that the funds provided are intended to help the retailer promote the product in their respective markets to incite the consumer to buy the product when they shop.
For the marketeers, the purpose is purely to promote the product in the local marketplace through an effective and successful promotion—the Sell-Out. Of course they admit that the way business is done today in the mass retail environment is to pay significant dollars, euros, yuens and yens as an incentive for them to buy the product as well. But notice the order of priority in these two responses.
I’ve interviewed literally thousands of executives in sales, marketing, supply chain and finance, all of whom respond in one of those two ways. But at the end of the day, can we say that equal force has been applied to the efforts to accomplish both of those tasks—the Sell-In and the Sell-Out?
As an industry, consumer products has a very good record of accomplishment of forecast achievement, but not so good with trade promotion. The return on the investment of almost one trillion dollars in trade spending is remarkably poor, by everyone’s definition. It is fair to say that the majority of analysts and pundits place the rate of ROI on trade spending at no better than 50%, while Nielsen contends it is as high as 70%. The latter may be closer to reality.
Most of the industry analysts and trade organizations continue to point to four key areas of failure:
- Poor data—lack of accurate, timely, and sufficiently granular data to effectively predict and analyze performance.
- Out-of-Stock Conditions—still a problem that does not seem to go away.
- Inefficient Planning – Advanced promotion planning and optimization tools are still an immature science and susceptible to error due to poor data.
- Marketing Alignment – The lack of effective collaboration between sales (trade promotion planners) and corporate marketing, limiting alignment and creating potential conflicting messages to the consumer.
We’ve tackled the first three of the above reasons for failure several times, but let’s look at number 4—the failure to align trade promotions and corporate advertising, direct-to-consumer marketing, coupons and other key corporate promotional events. This has become a major topic at recent trade organization conferences and webinars, so the good news right off the bat is that it is a recognized problem and we are beginning to address the issue effectively.
In my new book, “The Invisible Economy of Consumer Engagement,” I devote an entire chapter to this issue because I believe it to be more important today, coming off the Covid-19 pandemic and concentrating on the supply chain than ever before. There is an equal need to focus more attention and give higher priority to the consumer than we have done in the planning and execution of trade promotions.
Trade promotion planners are becoming more adept at determining what makes a trade promotion successful by focusing on the tactics and mechanics of the promotion. This can be done through the historical data-based predictive planning tools that can provide optimized scenario modeling; however this is not always aligned with the local consumer’s needs when they shop. It is purely based on the historical numbers—”this worked before and should work again.”
But more and more successful promotions are being created in a collaborative process with marketing who knows the consumer and has so much research about how, when, why and where the shopping takes place and what drives the consumer’s desire to buy. To know that, it takes an understanding of the consumer from the time they determine a need until they purchase, consume and form an opinion about the product that might lead to loyalty or a decision never to buy again.
Smart planners will pay attention to what actually forms the consumer demand.
There is a natural progression a person typically goes through to become a consumer. It begins with the feeling or desire for something to fulfil a particular need and continues through the process of researching, deciding, buying, consuming (using), and deciding if they are satisfied with the end result, product or service. If you add to that the expansion of the well-worn process of sharing opinions of the good or service with someone else that social media has blessed us with, you now have a complete loop.
This is the Consumer Chain.
The level of sophistication now evident in the modern engagement of consumers is going to further tax the trade channel promotion paradigms because of the way consumer products manufacturers typically manage their trade promotion programs and processes. So, trade spending levels we see today, which approach 30% of gross revenues for the largest consumer 
products companies are likely to experience a new incremental increase, exponentially higher than the patterns of the past two or three decades. To understand the reasoning for this projection, we need to consider what the Consumer Chain is and how it impacts the typical buying process of the consumer.
Each link of the Consumer Chain represents a pattern of thought and action the consumer experiences that all culminate in the purchase decision, the actual purchase, and the level of satisfaction the consumer has with that purchase and consumption. Most key account managers and sales reps that are charged with the responsibility to plan trade promotions may resist the time and effort required to think through each of these “links” in the Consumer Chain, but in reality, and with strong collaboration with their corporate marketing counterparts and retail customers, this is exactly what needs to take place to ensure success.
Success comes from not only alignment of the trade promotion calendar with the corporate marketing events calendar, but the careful consideration of whether or not the trade promotion tactics, timing and costs line up with where the consumer is along this journey.
“The Invisible Economy of Consumer Engagement” goes deep into how each of these “links” can be made a focus of trade promotion, and how to use the tactical promotion planning to target each link. And remember, each of these links represents the consumer’s thought patterns, so aligning with those positions the trade promotion tactics of price, visual display, advertising, demonstrations or other activities at effective intersections with the consumer as they plan and execute their shopping runs.
“We’ve had pretty solid POS numbers, but we can’t seem to hold loyalty,” said the VP of marketing for a cheese and snacking dip manufacturer. “We always spend time following up with our focus groups on why they bought our dips and what did they use them for,” he continued. He stated that they noticed that dips that seemed to be favorites during the holiday seasons sat on the shelves the rest of the time. Trade promotions continued to produce low POS numbers, and often the more popular dips were dropped in favor of new flavors and mixes. “There was too much change in our product portfolio, and we needed to establish some strong flavor loyalties to avoid the cost of change. We needed to find out how we could keep the popular mixes selling throughout the year.”
Working with the team of key account managers, they decided to build campaigns that included displays and ads that the retailers could run promoting the continually high consumer preferences during the holidays and created messaging that focused the consumers’ memories of holiday preferences that could and should remain year-around, stimulating purchases in between holidays. “We leveraged the consumer responses measured during the holidays about how much they loved the dips and used that message to build interest in sensing that same pleasure dipping their favorite chip or veggie during the holidays, and the promotions were extremely successful.”
They took the “Evaluate Product” and “Validate Purchase Decision” links from the Consumer Chain and developed a highly successful trade promotion plan that resulted in an increase of more than 30% increase in baseline measurement for their top three flavor mixes. In my book, I reveal many more examples of each and every link in the Consumer Chain, with the bottom line being that trade promotion planning must be a collaborative action between sales and marketing.
We often hear sales executives ask about the right way to effectively collaborate with marketing that delivers a mutual value to each organization. This is the way to do that—establish a foundation that focuses on the Consumer and how to leverage each link in the Consumer Chain to achieve tactical competitive and brand success.
That is my two cents.
The book, “The Invisible Economy of Consumer Goods” is now available everywhere you buy your books online including Barnes & Noble, Amazon and many more.
