Insights -- May 2005

Demand for the brand

By revisiting the fundamentals of trade promotion management, consumer goods firms will hit the fast track to marketing success

Many of us have forgotten that the true purpose behind trade promotion funding is marketing and building demand for the brand. It's easy to lose our direction when the competitive landscape is filled with hungry retailers hoping to build their profit margins versus support our promotional plans. But the construct of many trade promotion programs guarantees that the outcome will be more about discounting than it is about building brand franchises. Deloitte Consulting estimates that only 43 percent of most trade spend reaches the consumer.

In any marketer's bag of tools, there are three primary areas of influence: consumer (media) advertising, consumer promotion and trade promotion. This triad of strategies and dollars should all be focused at the same objective, and directed like an orchestra in which different sections play varied but complementary parts. But the end result should be improved brand recognition for both the manufacturer and the retailer.

Everyone is looking for more effective promotion programs, given the massive amount of currency exchanging hands and apparently delivering few concrete results. It is this mass of spending that has made evaluating promotion effectiveness a hot topic in the industry today. But if truth be told, many companies need to go back to program basics to make sure they're set up for success.

1. Organizational Structure - If the purpose of trade promotion is to maintain and extend customer relationships through marketing funds, it is the responsibility of both marketing and sales to first create strategies, then develop tactics that consistently flow from these strategies at the retailer level.

Leading-edge companies, such as Welch's, have aligned their organization to integrate trade promotion into its rightful place as part of the marketing mix. While sales owns trade promotion due to its direct tie with grocery customers, trade strategy and direction are set by a central group called "Customer Marketing." This group thinks half as brand marketers and half as customer-focused sales people, enabling sales personnel to work against strategic marketing objectives that consider brand development, as well as price.

As a result, Welch's has been able to build share, as well as strong brand awareness, in an increasingly competitive marketplace.

2. Program Structure - The "best" retailers are those whose execution of trade promotion programs results in incremental volume and profit for the brand, while increasing retailer profit and long-term foot traffic into their stores. Are your programs designed to reward your "best" retailers? The way to evaluate this is to do a breakout by profit margin and volume. After doing this analysis, many companies are surprised to find some of their non-performing retailers are receiving more than their fair share of trade funds. Working within Robinson-Patman guidelines, it is possible to make sure that your most productive retailers are being recognized for their contributions.

3. Resources for Collaborative Retailer Relationships - According to Phil Bonnano of Management Ventures Inc., not all retailers can compete against Wal-Mart and they shouldn't. Each retailer must find its own core competency. They want to be better and they want to be different. Over the past 20-plus years, most salespeople have focused on how they get compensated, which is most often on delivering volume. And they will take the path of least resistance to achieve their goals. Everyone knows how to use trade funds to "load" the customer. But in the long run, this does little to help make the retailer better or different.

The industry innovators are now holding their sales teams to a spending and/or profit objective, in conjunction with their volume objectives, in order to rein in the uncontrolled spending behavior.

Others, such as Milnot/Beech-Nut, have complemented their sales organizations with co-marketing teams that work with the retailers on collaborative, promotional programs. The goal is to align media and consumer promotion activities with in-store activity, so there is a convergence of consumer demand and customer support, resulting in the optimization of sell-through for both the manufacturer and the retailer.

In calling out these three basic building blocks, I am not discounting the need for technology equipped to handle these functions appropriately and accurately, especially in these days of Sarbanes-Oxley. But technology is not what it's about -- technology is just the platform that is used to deliver the trade promotion program; the program itself is all about marketing.

4Metro Group Nabs CPFR Success

By collaborating over the Web with manufacturers on supply and demand data, Metro Group boosted the percentage of promotional products delivered to stores, resulting in higher sales and customer satisfaction. As one of Europe's largest retail companies, Metro has been conducting web-based collaborative planning, forecasting and replenishment (CPFR) through the GlobalNetXchange with several suppliers to its Metro Cash and Carry chain of wholesale grocery stores. Participants in Metro's CPFR program have shown a 99 percent deliverability rate of planned shipments, compared to 97.5 percent for non-CPFR partners. While 1.5 percentage points appear to be a small increment on the surface, it has a huge impact in profit margins and in customer satisfaction levels.

4West Marine Fishes for Promo Planning

West Marine, the nation's largest specialty retailer of boating supplies and apparel, selected Planalytics to better understand and manage weather-related risk and opportunity. The Planalytics solution provides West Marine with specific analysis related to its product mix to enable marketing executives to run more effective and targeted promotional campaigns in the upcoming year. Extensive retrospective analysis has also been done to better understand the specific impact that weather has on the West Marine customer and it's effect on overall business performance.

4The Home Depot Integrates revenue optimization

The Home Depot, the world's largest home improvement retailer, will use a revenue optimization software solution from SAS to enable optimal pricing, promotion and clearance decisions throughout the entire merchandise life cycle. The new software will be integrated into the retailer's centralized merchandising system to provide price and promotion decisions. Currently, The Home Depot merchants must collect information from multiple sources to make decisions. The new software is expected to streamline this process while applying analytics and predictive modeling across the merchandising process.