Consumer goods companies have been spending a significant portion of their marketing budgets on trade promotions. Now that the economy is recovering and marketing budgets are being increased again, vendors are taking another look at trade promotion spending. At the same time, about 30% of companies say they plan to increase trade promotion this year. But do they know what they’re getting for their money? A new report jointly published by Consumer Goods and Cognizant sheds some light on this important topic.
To increase sales, manufacturers often offer retailers numerous trade promotions ranging from price discounts, display racks, or coop advertising support. Currently, vendors spend between 15–20% of revenues on various aspects of trade promotion. The sheer size of the Trade Promotion Management (TPM) industry has induced vendors to look at ways to effectively manage this spending and to optimize efforts for the best ROI.
With respect to the current effectiveness of trade promotion events, vendors have this to say:
- Up to 25% of trade promotions are effective: 18%
- Up to 50% of trade promotions are effective: 26%
- Up to 75% of trade promotions are effective: 29%
- Meets all objective set: 5%
- Do not have a way to measure effectiveness: 18%
The Consumer Goods/Cognizant survey findings indicate that executives want to improve the results from their trade promotion spending. Top reasons for doing so include more visibility into promotion performance (86%), improved promotion planning and forecasting (86%), a need to reduce pressure on profit margins (46%), and a need to stop overspending on promotions (24%).
Senior executives point to a lack of a good TPM system as the root cause for their inability to get a handle on this part of marketing spending. They’re looking for access to point of sale and shipment data, detailed statistics on performance by promotion type, spend optimization by account and market mix analysis. This is a tall order for any software program and bits and pieces of these systems exist in most organizations. The challenge is to get these legacy systems to share data and to get management to spend the time necessary to put a complete system in place and analyze results. With the renewed emphasis on marketing spending, more vendors will focusing their efforts on trade promotion this year.[Source: Romanow, Kara. Analyzing Trade Promotions. Consumergoods-digital.com. April 2011. Web. 18 Apr. 2011]