Across the greater consumer products industries, more focus and attention is being given to trade and channel promotion management than at any time in the past 100 years. Why is that?
By: Rob Hand
CEO, Hand Promotion Management, LLC.
In the first seasons of the American CBS network show “60 Minutes,” one of the most anticipated segments featured the late great Andy Rooney, who provided a serious, often satirical, wonderment about so many things of American society. His rumpled suit, unkempt white hair and bushy eyebrows gave him the look of a grizzled, yet somehow lovable old grandpa. His first words were often, “Did you ever wonder…” with whatever followed that Andy picked out to elevate to all of us who viewed.
Well, did you ever wonder why we are seeing so much about trade and channel promotion spending in the consumer products industries today?
At the risk of dating myself (or many of you who regularly read my blogs), there was a time in the very recent past when the existence of trade promotion was tightly controlled and there were only a very few people who knew anything about it.
Chief among those people were sales reps who used trade funds to sweeten the deal to a retail buyer—and, of course, the retail buyer.
Naturally, the CFOs knew about trade promotion because they spent their waking hours trying to figure out how to reduce trade spending in the financials. CMOs were constantly aware of it because every year they lost more of their budget to trade funds; and the armies of front line claim and deduction processors, cash appliers and retail order management folks spent their work hours wading through the painful quagmire of trade promotion settlement.
You never saw trade promotion or co-op advertising or any of the monikers it went by in the press unless it was a major legal case involving a tier one consumer products company or retailer—and that was even rare.
And if you looked at job boards or classifieds (pre-internet, of course), for trade promotion, co-op or channel funds positions of employment, you would be hard-pressed to see any of these jobs.
So why now?
First, a bit of historical perspective…
In one of my early research studies, I decided to take on the task of tracking trade promotion spending for consumer products since the turn of the last century (For you millennials and gen Z’ers, that’s 1900). I used that as a starting point because, frankly, that is the earliest record of promotional spending I could find, even though forms of channel incentive programs existed as far back as the late 1700’s. It was a fascinating study, because I compared the spending with what was happening all across consumer products industry sectors to determine any and all correlations with economic, political, social and technological environments.
The early co-op advertising and ingredient marketing programs were little more than pocket money provided to the retailers in exchange for their performing ads supporting the manufacturer’s products in the local marketplace. Because the manufacturers could not afford to make direct advertising buys in all of the local markets, they had their retailers do it and pay a much lower price. The term “co-operative advertising” originated as just that—a program wherein the manufacturer agreed to provide a fund as a percentage of net product purchases from which the retailer could draw financial support for their ads promoting the products to the local consumer.
This is an entire undergraduate class, but the key is that these percentages were very low, because the manufacturers protected their margins and felt that any funding would be better than none, and it was simply smart to ensure the products were advertised to the local consumer where key information like price, where to buy, and service and support would be included in the ads.
We overlayed some key historical events and technological environments to illustrate the correlation between them and the rise in the total percentage of gross revenues over the decades. These include the two world wars, key legal and regulatory issues like the Robinson-Patman Act which strengthened anti-competitive regulations and defined penalties for failure to comply.
Note that there was a huge jump between 1940 and the1960’s which was the direct result of the booming post war economy in the USA.
One of the most significant events was the famous Fred Meyer Case of 1967 which resulted in the publication of the first set of “Guides” for merchandising and promotional allowance programs. These “Guides” had teeth, and throughout the late 60’s and into the 70’s, there were numerous cases brought and fines levied against both manufacturers and retailers for anti-competitive actions.
These had huge impact on how trade promotion and co-op was offered, managed and paid, represented by a significant rise in the percentage of funding and spending. Notwithstanding the hit taken by the Fred Meyer organization for it’s legal action, the growth in large retail chains and powerful wholesale distributors created an even higher demand for more co-op and trade promotion funds, especially within the fast-moving consumer goods sector of the consumer products industry.
One huge development in the last 20 years of the 20th century was the explosion of trade promotion management software and service vendors and the expanded use of technology to better manage the funding, planning, execution, settlement and analysis of trade channel promotion performance. Early on, software companies like Siebel, SAP, and Oracle dominated the TPM technology, however soon, companies like CAS, Vistex, Adesso, Vista Technologies and Gelco began to offer lower cost alternatives some of which included actual outsourced service companies like ACB, MEDIANET, Co-op Communications, Creditek, and Pinpoint Marketing to manage the flow and processing of claims and deductions.
The race for trade promotion management technology was on.
So, the first answer to “Why now?” is the rapid growth of technology in the fund management, planning, execution, settlement and analysis of trade promotion.
Since the mid-1990s, the new technology vendors and their systems integration partners began heavily canvassing the upper executive levels of CPG manufacturers (especially FMCG) pushing the need to better manage all of this money, which now approaches more than 30% of gross revenues for the largest companies—and they listened! 
The large TPM vendors and major consulting companies began to expand the sophistication of promotional planning and analytical technologies which, along with the big data initiatives brought white hot light to the need to control the funding and expand the value of trade spend as the major incentive for product sales volume.
The second answer to “Why now?” is the change in how the consumer shops—specifically where they shop. Online ecommerce has upended the shopping experience with a rapidly accelerating percentage of shopping done online versus going to the brick and mortar store.
This is a key issue for all consumer products manufacturers/suppliers, and an already maxed-out trade promotion budget had to be spread to this new channel. Trade funding budgets continued to be expanded at the expense of frustrated marketing organizations because the top revenue generating retail accounts in the brick and mortar customer base would not settle for cuts in funding to them. Yet the impact of the Covid pandemic and the subsequent disruption in the supply chains caused the consumer to double down on their online buying, forcing raids on margin and other internal budgets to support the manufacturer’s ability to maintain competitive parity in promotional funding offers.
You can see this reflected in the rise from an average of 19.1% in 2000 to the current level of 25.3% in average spending percentage to gross revenues. If anyone tells you that they expect a “leveling off” or “flattening” of trade spend, they’re not reading the tea leaves, and certainly aren’t controlling the trade funds budgets, are they?
The pressures on the corporate finances to maintain these levels forces an action that provides the next answer to the question “Why now?”
When you have no more, you have to DO more with what you have. Isn’t that what we’re taught from an early age?
The third answer—Enter Promotion Optimization.
Think of all of those upward stair-step charts we have looked at over the past two decades showing the incremental steps from basic reporting to real-time reporting and analysis of performance with the ability to actually predict and prescribe a promotion that delivers the highest ROI. The desired outcomes of those initiatives are beginning to materialize in real advancements in planning and execution of trade promotion.
So much of what you see in today’s modern trade promotion is centered on the planning of promotions. This is where the one and only point of control the manufacturer/supplier has on how the trade spending happens and how it might be configured to achieve the desired objectives takes place. Once the negotiations begin between the rep or key account manager and their retailer counterpart, the retailer has the most leverage and, for many decades now, the power to set the plan.
The better, more trustworthy, believable, and precise the promotion plan is, the more likely the retail buyer is to commit to it. To get there, it takes significant technical capability in the function of the TPM software application and, most importantly, the capability of the solution’s advanced analytics—notably, AI and machine learning.
That’s another two-day workshop, but for now, understand that this means that the literally millions of sales reps and key account managers responsible for the selling and servicing of the consumer channels of distribution are deeply involved in what the trade promotion eventually does and how it achieves its predicted ROI.
The fourth answer to “Why now?” is the frustration with status quo.
When I did research for my book, “The Invisible Economy of Consumer Engagement,” the level of frustration I saw and heard among the hundreds of executives I interviewed was high and consistent:
“Why can’t we stop out-of-stocks?”
“Why can’t we get more trusted and precise analytics?”
“Why can’t our sales and marketing organizations work more collaboratively?”
“Why do our promotions continue to fail over and over again?”
All of those vendors I mentioned before and the 20+ more that have come into the market in the past decade like Salesforce, UpClear, CPGVision, Blacksmith, Vividly, Aforza, Puls8 and o9 to name a few are all working feverishly to solve these critical problems by delivering strong and innovative promotion planning and execution functionality.
We see significant increases in analytical tools and advanced database technology from companies like PwC, Retail Velocity, Accenture, Deloitte, Sequoya, TABS Analytics, and McKinsey—all digging deep into the fabric of sales, finance and marketing operations to build new capabilities toward improving promotion performance.
All of these companies and so many more are tackling these issues every day, and the manufacturers, distributors, retailers, and wholesalers are all working with them to deliver the next generation of tools that hope to eliminate all of these problems. But for now, it’s raising the issue high in the marketplace and, along with the major trade organizations, keeping it top of mind for the industry executives charged with making it all work.
Speaking of the trade organizations, they too have added significantly to the elevation of trade and channel promotion. If you want to grow your own knowledge and experience, make one OR ALL of these upcoming events:
- Promotion Optimization Institute – Multiple conferences starting with the Spring Hybrid Conference in Chicago (https://poinstitute.com/events/poi-2024-spring-hybrid-summit/)
- CGT/RIS – Multiple conferences beginning with Analytics Unite 2024 in Chicago (https://www.analyticsunite.com/)
- Consumer Goods Forum – CGF Summit in Chicago (https://www.theconsumergoodsforum.com/events/the-global-summit/)
- Retail Value Chain Federation – Fall conference in Tucson, AZ (https://www.rvcf.com/events/EventDetails.aspx?id=1801983)
So there you have it—four answers to “Why Now.” And I’m sure you will find more because there are, but these are the four I’ve heard most now for the past several years.
Modern trade and channel promotion across all sectors of the consumer products industry has elevated to become one of the top priorities in the corporate planning for digital transformation.
And for good reason.
Because NOW is the time to make trade promotion a 100% ROI, 100% of the time!
Rob Hand is the CEO of Hand Promotion Management, one of the industry’s premier analysts and consultants in trade and channel promotion. He is the author of “The Invisible Economy of Consumer Engagement,” the most comprehensive book on modern trade promotion to date. www.handpromotion.com.
