Trade Off

What gets promoted at retail is not by accident or left to the whims of individual store managers.

A new study released in September by retail consultancy Cannondale Associates Inc. attempts to make sense out of the behind-the-scenes machinations that result in P-O-P displays, shelf tags and consumer circulars, as well as how much co-op advertising goes on between retailers and manufacturers.

Colloquially known as trade promotion, such spending currently represents 51% of marketing expenditures, according to Cannondale. It reached 53% in 1999 before steadily declining to 48% in 2005.

The report, “Shopper-Centric Trade,” attributes the latest slight percentage increase to consumer package goods companies spending more on trade promotion.

The study identifies obstacles in trade promotion and ways manufacturers and retailers can maximize efforts for their mutual benefit.

Retailers are frustrated with manufacturers' use of trade promotion to drive short-term volume. Yet, 92% of companies said they are willing to consider new approaches to trade promotion strategies. Another 67% are predicting a major transformation or significant change at their company within five years.

“There is receptivity to change,” says Todd Bortel, senior consultant for Cannondale Associates. “That is encouraging.”

But obstacles remain for manufacturers. Some 73% fear changes to trade promotions would result in volume loss. Another 53% expressed concerned about a lack of analytical resources, the survey said. Despite the mixed views, transformations are on the horizon.

“There is a place for trade, but we need to understand the impact on shoppers,” Bortel says. “The key is focusing on shoppers. That's where both sides can win.”

The study recommends manufacturers expand their view of trade promotion from a brand-only to a category view. Also, suppliers should consider the short- and long-term impact of promotion and use trade as a strategic tool to influence shopper behavior.

Collaboration is also crucial.

“There has to be a solid foundation to work with from both sides,” Bortel says. “Both sides have to see the benefits for the other.”

Who's ranked best in trade promotion? Procter & Gamble, Kraft, PepsiCo., General Mills and Unilever rounded out the top five manufacturers, the report found. On the retailer side, Wal-Mart, Publix, Kroger, Target and H-E-B made the cut.

The study queried more than 450 manufacturers and retailers from all management levels and product categories, including food, HBC and general merchandise manufacturers as well as grocery, drug, and mass retailers.

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