The “Dark Side” of Trade Spending

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The “Dark Side” of Trade Spending

03/09/2015
A conflict has existed for too long between CPGs and retailers over huge, yet notoriously low performing, trade funds (also called vendor funds.) Without a significant change, these trapped resources may delay sorely needed new programs at retail. 
 
January’s National Retail Federation’s Big Show in NYC unveiled a wealth of new tactics ready for deployment. The question is, will funds for roll out of these exciting tactics be found? 
 
Trade Spending is Broken
It’s time for CPG’s to take an honest look at trade spending and admit, despite all efforts, it’s just not working. Change is overdue.
 
Retailers should question if “their” vendor funds are fighting an old battle with antiquated weapons. Retailers’ competition is no longer the store down the street, but now the countless available in shopper’s cellphones.  Funding 20-year-old tactics with millions of vendor dollars is a costly mistake.  
 
Without redirecting the use of trade/vendor funds, retailers risk becoming redundant in a world of Amazon, Quick Serve Restaurants (QSRs), and others that are increasingly hijacking shoppers.  Times and competitors have changed, so should the use of trade funds. 
 
Redirecting those millions can deliver real solutions for both retailers and vendors. And here’s a clue: it ain’t another in-ad or on-shelf temporary price reduction (TPR).
 
Trade Spending 101
CPG’s trade spending can be categorized in two parts:
Funds to adjust retail pricing to boost sales via Temporary Price Reductions (TPRs) 
Funds to “support” retailer’s marketing programs (retailer circular ads, shelf merchandising, etc.)  
 
Do those programs generate incremental sales when mobile shoppers can order anything from anywhere? Sometimes, but far less than current funding warrants.
 
TPRs can build trial and sales for impulse items and new products needing trial. Yet currently, TPRs are often used on products that don’t respond profitably to price cuts. Syndicated data often shows TPRs are many times barely incremental and often just shift short-term volume. 
 
The other portion of trade spending, support for retailer programs, can show some solid business-building results when innovative.  But often, the in-ad or shelf merchandising program “suggested” is more often like hold up money.  If CPGs don’t fork over the funds, their products are at risk for “not supporting the category.”
 
Proof That Trade Spend Is Broken
Check your syndicated data. Volume increases from retailer circulars and TPRs have declined. CPGs often correctly implore sales forces to focus on better merchandising (ie, displays.) But given limited supply, many slow-moving products don’t justify display, and the fallback is often the same non-incremental tactics. 
 
Many retailers offer few alternatives making trade funds “frozen,” and not in a Disney way.  
Funds are viewed by retailers as essential, even for the low level of current retailer profit.
Category managers are often rated on the funds they accrue.  
 
Admittedly, some shoppers need the savings from TPRs, but trade spending should focus far less on price and more on “entice.” 
 
We now have proof that these costly retailer tactics may have little rationale. Catalina’s 2013 study, “Gauging the Selective Shopper”, showed that of the more than 2/3rds of shoppers’ baskets had not ONE item featured in a retailer’s circular. (”Following Memorial Day 2013, Catalina compared purchases to the items promoted in the holiday shopping circular. Two thirds of all shopping baskets didn’t include a single item among the 1,172 advertised.”   -Catalina, “Gauging the Selective Shopper”, 2013)
 
Batting .333 in baseball is great, but it’s a poor record for in-ads and the TPRs often required to gain that in-ad.  And, note, this study was done during Memorial Day when shoppers’ permission to buy is at a high level. One would hope at least one featured chip, hot dog or beer would fall into all shoppers’ carts.  The funds wasted throughout the year may be enormous while other channels steal shoppers.
 
The Real Retailer Need: Repeat Traffic 
Despite retailers swearing ad circulars and low prices are the lifeblood of their stores, they generate less and less traffic in part because online shopping, QSRs and other channels continue to reduce trips to traditional retail.
 
Much of this investment should instead be spent providing what Amazon and others can not—a physical store where superior merchandising (read: shopper experience) entices immediate purchase. For that, retailers need programs to generate more trips and more shoppers. 
 
Many enhancements are ready for retail, we only need the funding to test, optimize, and roll them out. Let’s refocus trade spending to support the top needs of most retailers—gaining traffic and repeat shoppers.  Then, cancel the drone landing pad, we’ll all visit our local stores far more often. And purchase!
 
We are not abdicating all decisions to the retailer, nor suggesting CPGs merely hack away at trade budgets. This is about sharing the one lifeboat available. View each other as true partners and act accordingly, and retail can thrive. 
 
Brian DeLancey is VP, Shopper Marketing, at Trepoint. Reach him at [email protected]
 
Sidebar:
Disruption is Mandatory: Here’s how to get unstuck!
 
1. First, manage categories for growth. When CPG companies successfully innovate, the category thrives, sales and profit rise and everyone is happy. So retailers, don’t push the CPGs that are category builders into over-investing in lower price.  Let them build; push them if they don’t!
2. Second, partner to fight today’s battles. The battle retailers face now is regaining trips to bring more traffic to their stores.  This means more sales of CPG products, so invest together to bring more shoppers to an enticing retail environment that generates returning shoppers.
 

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