Trade Promotion

1. Changing the Channel:
A better way to do Trade Promotions
GROUP 2

2. What is Trade Promotions ?
Trade Promotions are marketing activities executed between
manufacturers and retailers aimed at increasing demand for
products in retail stores.
• Special Pricing • In store Displays • Coupons

3. • Trade
promotions are
viewed with
great suspicion.
• Each party
believes that the
other party in
trying to get an
upper hand.

4. • Retailers abuse
trade promotions
by purchasing
more at
discounted price.
• They also engage
in ‘Diverting’
by selling it to
other retailers

5. • Trade promotions
should be based
on a transparent
system that
generates
mutual trust.
• There should be
Win-Win for
both retailers &
manufacturers.

6. Redesigning
the
Trade Deal

7. What
are the
options
?

8. • Scan-Back
variations
• The Mimic
Scan Back
• Scan Back• Identical Deals

9.  Eliminates Forward- buying
 Eliminates diverting
 Limit the duration of
promotion
 Helps predict real consumer
demand
 Retailers are reluctant due to
the low pay-off
Scan Back / Pay-for-Performance

10. • To counter
retailers, tactics,
manufacturers
use ‘Pay for
Performance’
trade promotion
– to reward on
the basis of how
much they sell
rather than how
much they buy.

11. • Pay for Performance
benefits all
• Manufacturers –
Boost Bottom line
• Retailers – Increased
concentration on
marketing than
buying
• Consumers – Lower
prices of Trusted
brands

12. The Mimic
Scan Back
• Average cost of
promoted and non-
promoted goods are
identical to off-invoice
trade deal
• Retailer makes profits
similar to off-invoice
deal
• Avoids forward buying
and diverting

13. Slide-Back Variations• Retailer revenue and
profit is as high as off-
invoice deal
• Manufacturer numbers
improve as well
• The manufacturer can
tweak any of the 3
variables, the regular
wholesale price
length of deal and
depth of the discount

14.  Statistical Analysis
demonstrates efficacy of
scan back
 Greater pass on of deals to
customers (75% v/s 20-
30% in off-invoice deals)
 Higher sales generated in
an experiment with
beverage company
 Eliminates purchase
distortions inherent in
off-invoice deals

15. Implementation
Challenges
 Higher retailer
allegiance to off-
invoice method
 Distrust between
retailers and
manufacturers
 Prima facie
higher incentive
to retailer in this
setup

16. Can an auditor help?
 High instances of retailer
manipulation
 Scam Down
 Auditor can verify sales with
stocks to bring down ‘scam
down’
 Well established auditors
can pay retailers for
discount and collect from
manufacturer later
 Over see implementation of
scan backs

17. Changing
Organizationa
l Culture
Auditors
Cant Solve
All the
problems

18. Manufacturer
Problems
 Tied up in Admin tasks
 Complicated
negotiations
 Prisoner’s dilemma
 Uncertainty over pass
through rates

19. Retailer
Problems
 Built in infrastructure for
efficient buying
 Company rewards for
profitable buys
 Large investment in
warehousing
 Resistance to change
compensation structures
and operations

20. Steps Ahead
 Performance metrics based
on product movement &
profitability
 Collaborative partnerships
 Experimentation
 Targets/ goals of each party
to be established
 Cooperate to analyze the
results

21. Support with tangible marketing activities
 Retailer manager compensation
linked to Brand/ Category
performance than profits from
smart buys
 Inclusion of customer
satisfaction metrics
 Software Solutions
 Software Solutions are important ! NOT AS MUCH AS Organizational and
attitudinal changes ! ! !

22. Manufactur
er
Retailer
Seeking Peace & Profits

23. The Case of Vodafone UP East
Vodafone UP East
• Covers 95.67% of population ( 12.65 r)
• Total of 2500+ Channel partners –
Distributors and Retailers
Pay-outs
Acquisition
Distribution
RevenueHygiene
Infra
 Retailers payout on basis of:
 No. of new subscribers
 Quality of Users (Churn )
 Revenue (Tertiary)

24. The Indian Context: A difficult experience
 Difficult to implement
trade promotions
 High instances of benefit
not passing to consumer
 90% unorganized retail
 Implementation easier in
organized retail
 Pay for performance a
partial solution
 No billings for many items

25. The Indian Context: A difficult experience
Cracking the Indian Code

26. Cracking the Indian Code#1
 Barcode scanner apps;
Information encrypted
barcodes
 Empowers consumers
and make them more
aware
 Companies should push
consumers using these
apps, especially for high
value items

27. Cracking the Indian Code#2
 Targeting association of
retailers in areas/districts
of particular trades
 Like Labour unions, there
are unions of retailers in a
market/district/area
 Behaviors can be
governed by putting
pressure on these groups
which inturn would prompt
retailers for rightful action

28. Cracking the Indian Code#3
 Regular audits difficult
to manage
 Empower distributors
 Infrequent audits by
distributors
 Easier for
manufacturers to control
behaviors of distributors

29. Submitted to:
Prof. Sameer Mathur
Ph.D. Carnegie Mellon
WWW.mbaskills.in
Group 2
Akshat Goenka | Piyush Soneja
Rohit Sharma | Sushmita Kraleti