Are brand marketers detecting greater benefit from their trade promotion activities? Are they really equipped to judge?
A new survey by Nielsen North America indicates that increasing numbers of consumer packaged goods manufacturers view trade promotions as beneficial to brand loyalty. How they know this is less clear, however, since most also say they lack adequate expertise in promotion evaluation.
"We've made so much noise about the problems with trade promotion that it often is viewed as an evil," said Karl Gnau, vice president of tactical management services at Nielsen. "The role has changed."
Gnau, who spearheaded work on Nielsen's Manufacturers' Fifth Annual Trade Promotion Practices Survey with survey author Pamela Domin, told Brand Marketing that the results point toward continued rapid evolution in trade marketing practices and attitudes, driven by progress in category management and Efficient Consumer Response activities.
The survey was conducted by mail in the final weeks of 1993. Its results were tabulated over the winter and released to Brand Marketing April 15. Respondents were asked to base their answers on their companies' activities during 1992. Asked to gauge the impact of trade promotion on brand loyalty, fully 60% of respondents said it "helps," while just 18% said it "hurts," the survey reported. That compares with a nearly even split in the previous year's survey: 41% said trade promotion helps and 37% said it hurts brand loyalty.
Manufacturers were asked
in the survey to estimate what fraction of trade promotion dollars they believed were actually passed along to consumers. While their responses varied widely, a significant group, 60%, put the pass-through rate at between 50% and 79% in the 1993 survey. In 1992 just 40% put the pass-though rate in that range.
"The impact of trade promotion on brand equity connects to the belief that promotion dollars are reaching the consumer," said Gnau. "Making money by selling is really being lived out there. The manufacturer believes that the retailer is doing more."
Belief and proof are two different things, however. When asked which tools they needed most to fully implement category management, top of the list was "expertise in analyzing promotion effectiveness," cited by 74% of manufacturers. Lack of "consumer purchase information based on household panel data" and of "retail account level information" were cited next most frequently, each by 59% of respondents.
The desire for greater ability to evaluate promotions reflects rising aspirations among brand marketers, Gnau said. Pursuit of category management and ECR activities naturally leads companies to seek the capabilities that can enable better performance.
"Companies really need promotion measuring techniques and they know it," he said.
According to the survey, 89% of brand marketers said they are practicing category management, a number that swells to 100% of larger companies, those with more than $1 billion in annual sales. Broken down into its component activities, 82% said they use category management "completely or to a large degree" for category review, and 63% use it for planning merchandising. However, so far only 35% said they use category management for evaluating results.
In addition, 51% of survey respondents said their companies were practicing ECR. That figure swells to 83% among larger companies.
Gaining skills and tools needed to evaluate trade promotion will likely remain a high priority for manufacturers, since spending levels continue to be high.
As a whole, the consumer packaged goods industry continued to spend about half, 52%, of its total advertising and promotion budget on trade promotion, compared with 20% on consumer promotion and 28% on media advertising. Those proportions changed slightly compared with the prior year survey, in which trade promotion spending was 50% and consumer promotion was 22%, said Gnau.
Looked at another way, brand marketers spent an amount equivalent to 13% of their gross sales on trade promotion in 1992, a level that had remained unchanged for two years, the survey said. However, companies with more than $1 billion in annual sales reduced trade promotion spending from 18% of gross sales in 1991 and 1992 to 17% in the latest year.
That larger companies have consistently outspent smaller companies on trade promotion comes as no surprise to followers of the industry, said Domin, who is manager of Nielsen's value-added service bureau. "Larger companies have economies of scale which can allow greater spending," she said.
WHERE THE MONEY GOES The off-invoice allowance is still king among trade promotions. Survey respondents said they spent 49% of expenditures on off-invoice allowances, compared with 15% on market development funds, 13% on bill-back ad allowances, 11% on accrual programs and 6% on bill-back display allowances. Slotting allowances, although the object of much scorn, account for just 5% of trade promotion expenditures. These proportions are essentially unchanged compared with prior years, said Gnau. When respondents asked to rate trade promotion practices causing the most problems, trade deductions from invoices led the list, with a severity rating of 3.93 on a scale of one to five in which five was most severe. Slotting allowances and nonpass-through of deals followed, with ratings of 3.37 and 3.11 respectively.
Gnau said deductions are a key to why electronic data interchange "is really coming into the fore," citing one estimate that as many as 62% of invoices that go out may be incorrect. Just the clerical costs of clearing the resultant deductions can justify the investment, he said.
WHO CONTROLS THE MONEY? Control of trade promotion spending at packaged goods manufacturers is steadily being shifted out of the hands of brand managers and into the hands of trade marketing or customer marketing departments.
Asked what company unit has primary responsibility for managing the trade promotion budget, 29% of respondents picked the trade marketing department, compared with 12% in 1992. In the 1991 survey, trade marketing departments, for practical purposes, did not exist. Today 60% of companies surveyed said they have trade marketing departments.
Among brand management departments, the trend is in the opposite direction: 24% of respondents located trade spending responsibility there in the current survey, down from 33% in 1992 and 42% in 1991. Senior sales management has also ceded some control here, cited by 30% of respondents this year, down from 38% in 1992 and 40% in 1991.
Implementation of category management appears to parallel the shift in trade marketing budget oversight. Responsibility for category management falls to senior sales management 35% of the time, and to the trade marketing department 27% of the time. Brand management carries the ball in just 11% of cases the survey said.
Who Manages the Trade Promotion Budget?
Trade marketing is gaining budget authority at the expense of brand management.
1993 1992 1991
Brand management 24% 33% 42%
Senior sales management 30% 38% 40%
Trade marketing dept. 29% 12% NA
Regional marketing team 7% 2% 6%
Promotion planning dept. 2% 4% 4%
Key account manager 0% 2% 1%
Other 8% 9% 7%
What Is the Impact of Trade Promotion on Brand Loyalty? Confidence in the efficacy of trade promotions is growing among vendors.
1992 Helps 41% Hurts 37%
1993 Helps 60% Hurts 18%
How Trade Promotion Dollars Are Spent
(For the fiscal year ended in 1993.)
Off-invoice allowances 49%
Market development funds 15%
Bill-back ad allowances 13%
Accrual programs 11%
Bill-back display allowances 6%
Slotting allowances 5%
Other 1%
What Are the Biggest Problems Facing Vendors?
Trade deductions from invoices were ranked highest on a scale of manufacturer headaches. On the scale, 1 represents no problem at all, 3 a problem that is manageable to a degree, and 5 is a severe, uncontrollable problem.
