Consumer products companies that sell to the general public through a network of retailers, typically provide incentives to those retailers to buy their products, buy their products at a specific time, display their products better in store, and other various reasons. These incentives are normally referred to as trade promotions. But what are they really? Are they truly promotions? Or are they just discounts? Too often, in our experience, they are just discounts - reduced prices to retailers because it is just easier to sell products that way.
Why Do Companies Give Discounts?
There are reasons why discounts, or trade promotions as they
are called by many companies, become routine in the way that companies
do business. Here are a few:
- Discounts become "grandfathered" with certain retailers, certain stores, or specific individuals.
- Discounts are given during specific time periods because additional sales are needed to make fiscal year quotas or revenue goals.
- Discounts are given when there are changes in products, or even packaging for products.
Discounts applied indiscriminately become, in effect, reductions in companies' price lists. As price lists are adjusted upward, usually due to profitability concerns, discounts tend to increase too. This is a dangerous precedent, because it puts a company's price list at a competitive disadvantage in the marketplace.
When Do Discounts Become Trade Promotions?
So, what are trade promotions supposed to be, if not
discounts? Trade promotions, as one component of overall promotion
campaigns, become incentives for retailers to actively support and
participate in the promotion campaigns. To provide a few examples,
let's attempt to describe what a typical promotion campaign might look
like, and how trade promotion might fit into it.
- Trade Promotion and Collateral. Trade promotions, dollars off per case, are typically offered to retailers that wish to participate in a campaign during the promotion period. In return for paying less than standard prices for products they purchase, retailers are normally asked to perform specific activities that support the promotion campaign. These activities can include such things as running in-store discounts during the promotion period, advertising product specials in local flyers and ads, including consumer coupons in local print ads, and/or displaying products in prominent positions within the stores. At times, retailers are asked to display products in special off-shelf displays supplied by the product companies. The special displays are called collateral promotions, and they are almost always tied to trade promotions.
- Advertising. Starting just prior to the promotion period, and running through most of it, advertising is normally used to draw the attention of consumers to the promotion. Advertising can be at the global, national, regional, and/or local level, and can be delivered through various types of media, including television, radio, newspapers, periodicals, and the internet.
- Consumer Promotion. Also coinciding with the promotion period, consumer coupons are usually dropped in various ways, such as being printed on the packages of products going to the retailers, or being placed inside the packages. Consumer coupons can also be placed in print media or in on-line ads, in conjunction with the advertising component of the campaign.
If a promotion campaign is effective, a company has pushed products onto the shelves of retailers through trade promotion, pulled it off the shelves quickly through advertising and consumer promotion, and forced the retailers to restock the shelves at full standard prices. Viewed as a component of an overall promotion campaign, trade promotions become value-added incentives for retailers, and not just discounts to reduce prices.
The goal of a promotion campaign is to boost sales of products, and therefore revenue, during a defined period of time, the promotion period. Retrospectively, companies should always analyze promotion campaigns in depth to ensure that they contributed incrementally to profitability.