Changing the Channel:

A better way to do Trade Promotions

Presented by : Group 2Akshat| Piyush| Rohit| Susmita

What is Trade Promotions ?Trade Promotions are marketing activities

executed between manufacturers and retailers aimed at increasing demand for products in retail

stores.  • Special

Pricing• In store

Displays• Coupons

• Trade promotions are viewed with great suspicion.

• Each party believes that the other party in trying to get an upper hand.

• Trade promotions should be based on a transparent system that generates mutual trust.• There should

be Win-Win for both retailers & manufacturers.

• Retailers abuse trade promotions by purchasing more at discounted price and sell even after the discount period or sell at regular prices.

• They also engage in ‘Diverting’ by selling it to other retailers

• To counter retailers, tactics, manufacturers use ‘Pay for Performance’ trade promotion – to reward on the basis of how much they sell rather than how much they buy.

• Pay for Performance benefits all• Manufacturer

s – Boost Bottom line• Retailers –

Increased concentration on marketing than buying• Consumers –

Lower prices of Trusted brands

Redesigning the Trade Deal

What are the options?

• Scan Back

• Identical Deals

• The Mimic Scan Back

• Scan-Back variations

Scan Back, a.k.a Pay-for-Performance

• Eliminates Forward- buying• Eliminates diverting• Limit the duration of promotion• Helps predict real consumer demand

• Retailers are reluctant due to the low pay-off

Mimic- scan back

• Average cost of promoted and non-promoted goods are identical to off-invoice trade deal

• Retailer makes profits similar to off-invoice deal

• Avoids forward buying and diverting

• 3 main variables: the regular wholesale price, length of deal and depth of the discount

Slide-Back Variations

• Retailer revenue and profit is as high as off-invoice deal• Manufacturer numbers improve as well• The manufacturer can tweak any of the 3 variables• the regular wholesale price• length of deal and • depth of the discount

Does Scan-Back really work?• Statistical Analysis demonstrates efficacy of scan back

• Greater pass on of deals to customers (75% v/s 20-30% in off-invoice deals)

• Higher sales generated in an experiment with beverage company

• Simplified judgement of pay-for0performance

• Eliminates purchase distortions inherent in off-invoice deals

Implementation Challenges

• Higher retailer allegiance to off-invoice method• Distrust between retailers and manufacturers• Prima facie higher incentive to retailer in this setup

Can an auditor help?

• High instances of retailer manipulation • Scam Down• Auditor can verify sales with stocks to bring down ‘scam down’• Well established auditors can pay retailers for discount and collect from manufacturer later• Over see implementation of scan backs

Manufacturer Problems

• Tied up in Admin tasks•Complicated negotiations•Prisoner’s dilemma•Uncertainty over pass

through rates

Changing Organizational Culture• Performance metrics based

on product movement & profitability• Collaborative partnerships• Experimentation• Targets/ goals of each party

to be established• Cooperate to analyze the

results

Seeking Peace & Profits• Changes In culture to be

supported by tangible marketing initiatives• Software solutions are

important for merchandising response analysis attitudinal & organizational changes are even more important• Manufacturer & retailer should

develop close relations to better understand the roles in channel

Seeking Peace & Profits• Pay for performance• Assurance that dollars reach customers• Cut costs for retailers• Experiment, Collect Data, Cooperate