Chapter Seventeen
Trade-Oriented Sales
Promotion
Chapter Seventeen Objectives
• Discuss the objectives of trade-oriented
promotions and the factors critical to
building a successful trade promotion
program
• Explain the various forms of trade
allowances and the reasons for their
usage
Chapter Seventeen Objectives
• Understand forward buying and
diverting and how they are created by
manufacturers’ use of off-invoice
allowances
• Explain the role of everyday low pricing
(EDLP) and pay-for-performance
programs in overcoming forward
buying and diverting
Chapter Seventeen Objectives
• Describe the concept and practice
known as efficient consumer response
(ECR)
• Understand the practice of category
management
• Describe the role of cooperative advertising
and vendor support programs
• Discuss the nature and role of trade shows
Objectives of Trade Promotion
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Introduce new or revised products
Increase distribution of new packages or sizes
Build retail inventories
Maintain/Increase manufacturer’s shelf space
Obtain displays outside shelf locations
Reduce excess inventory
Achieve product features in retailer’s ads
Counter competitive activity
Sell as much as possible to final consumers
Trade Promotion
Key Ingredients to Success
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Financial incentive
Correct timing
Minimize retailer’s effort/cost
Quick results
Improve retailer performance
Types of Trade Promotions
• Trade allowances
• Cooperative advertising and vendor
support programs
• Trade contests and incentives
• Trade shows
Trade Allowances
Trade Allowances
Used by manufacturers to reward
wholesalers and retailers for
performing activities in support of the
manufacturer’s brand
Major Forms of Trade Allowances
Slotting allowances
Bill-back allowances
Off-invoice allowances
• The fees manufacturers pay retailers for
access to the slot, or location,
• Typically when a manufacturer to get its
new brand accepted by retailers
• A form of bribery? or Legitimate cost of
doing business?
Major Forms of Trade Allowances
Slotting allowances
Bill-back allowances
Off-invoice allowances
• Retailers receive allowances for featuring
the manufacturer’s brand in
advertisements or for providing special
displays
Major Forms of Trade Allowances
Slotting allowances
Bill-back allowances
Off-invoice allowances
• Most frequently used form
• Deals offered periodically to trade that
permit wholesalers and retailers to deduct
a fixed amount from the invoice
• Retailers do not necessarily pass along to
consumers the discounts
Forward Buying and Diverting
Forward Buying
Diverting
• Retailers purchase enough products on deal
to carry them over until the manufacturer’s
next regularly scheduled deal
• Retailers’ savings from forward buying often
are not passed on to consumers
• Leads to increased distribution costs
• Manufacturers experience reduced margins
due to price discounts
Forward Buying and Diverting
Forward Buying
Diverting
• Occurs when a manufacturer restricts a deal
to a limited geographical area
• Retailers buy large quantities at the deal price
and then resell the excess quantities in other
geographical areas
• Product quality potentially suffers due to
delays and serious problem could result from
product tampering
Efforts to Rectify Trade Promotion
Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Efficient Consumer Response
Efficient Consumer Response (ECP)
A broad-based concept of business
management that is oriented toward
enhancing efficiencies and reducing
costs in the grocery industry
Efficient Consumer Response
1. Improved productreplenishment
practices
- move product more efficiently
- Electronic Data Interchange
(EDI)
2. Reduced trade
promotions
- minimize inventory costs and
reduce forward buying and
diverting
- EDLP,
Pay-for-Performance programs
- respond to consumers’ needs
for new product
- avoid simply introducing metoo products
3. Improved product
introductions
Efforts to Rectify Trade Promotion
Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Category Management
Category Management
Retailers and manufacturers must
work together, share market
intelligence, and develop strategies
that are mutually beneficial
Category Management
Reviewing the
product category
Targeting
consumers
Implementing
strategy
Planning
merchandising
Evaluating results
Efforts to Rectify Trade Promotion
Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Everyday Low Pricing (EDLP)
EDLP
A manufacturer charges the same
price for a particular brand
day in and day out
Why Some Retailers Resist
• Many retailers have established
distribution infrastructures to avail
themselves of high-low prices
• EDLP pricing benefits the manufacturers
• EDLP pricing takes some of the
excitement out of retailing
Efforts to Rectify Trade Promotion
Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Pay-for-Performance Programs
Pay-for- Performance Programs
Designed to reward retailers for
selling the brands supported with
trade allowances rather than merely
buying these brands
Pay-for-Performance Programs
• Provide incentive to the retailer only
for the items that are sold to
consumers during the agreed-upon
time period
• Benefit all parties: consumers,
retailers, and manufacturers
• A natural correlate for the efficient
consumer response (ECR)
Efforts to Rectify Trade Promotion
Problems
Efficient Consumer Response (ECR)
Category Management
Everyday Low Pricing (EDLP)
Pay-for-Performance Programs
Account-Specific Marketing
Account Specific Marketing
Account Specific Marketing
Also called co-marketing,
characterizes promotional and
advertising activity that a manufacturer
customizes to specific retail accounts
Account Specific Marketing
• Relatively recent innovation
• e.g., Local radio tie-in advertising,
loyalty programs
• Requires a lot of effort and can be
costly
• The future of this practice is
uncertain yet
Cooperative Advertising
Cooperative (co-op) advertising
An arrangement between a manufacturer
and reseller whereby the manufacturer
pays for all or some of the advertising
costs undertaken by the reseller
Cooperative Advertising
Five Common Elements
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Specified time period
Accrual
Payment share
Performance guidelines
Billing for reimbursement
Why is Co-op Advertising Used?
• Manufacturers can achieve advertising
support on a local-market basis
• Provide them with a way to associate
their products in the consumer’s mind
with specific retail outlets
• Stimulates greater retailer buying and
merchandising support
• Enables manufacturers to have access
to local media with lower rates
Open-Ended Co-op Advertising
Open-ended Co-op Advertising
Involves paying for part of the
retailer’s advertising cost without
relating the reimbursement to the
amount of products purchased from
the manufacturer
Why is Open-Ended Co-op
Advertising Used?
• Wants to encourage the use of funds by
smaller retailers
• Manufacturer sells through
intermediaries and does not have access
to retailers’ purchase figures
• It simplifies the record-keeping task
Vendor Support Programs
Vendor support programs (VSPs)
A retailers develops an advertising program in
consultation with local advertising media and
then invites its vendors to pay for a specific
percentage of the media cost for the
proposed campaign
Vendor Support Programs
• Retailer benefits
• Often a manufacturer pays a large sum
but receives very little actual promotion
• The less powerful a manufacturer, the
more susceptible to retailers’ demands
• The more the manufacturer invests in
the retailer’s advertising, the less funds
available to it own brands
Trade Contests and Incentives
Trade contest generally based on
Trade
incentives
Push money
managers meeting a sales
goal
given to retail managers and
salespeople for performing
certain tasks
provide financial incentives
to retail salespeople to
aggressively sell to
consumers a selected item
Trade Shows
Trade show
A temporary forum for sellers of a
product category to exhibit and
demonstrate their wares to present
and prospective buyers
Functions of Trade Shows
• Servicing present customers
• Identifying prospects
• Introducing new or modified
products
• Gathering information about
competitors’ new products
• Taking product orders
• Enhancing the company’s image