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In early 2004,
ACNielsen conducted its 13th annual Trade Promotion Practices
survey for manufacturers and retailers, uncovering their attitudes
and practices toward trade promotion for calendar year 2003.
Consistent with years past, the study addressed major areas
of trade promotion practices including spending, category
management and frequent shopper programs.
Overall Increase in Trade Promotion
Spending
Overall, trade spending levels showed an increase, with about
53% of the surveyed manufacturers reporting a measurable increase
in total budget spending, which includes advertising and promotional
dollars allocated across trade promotion, consumer promotion
and media advertising in 2003. However, this does represent
a decline from the proportion reporting budget increases in
some previous studies, including 68% in 2000 and 65% in 2001
[See chart 1].
Trade promotion spending constituted
12% of gross dollar sales on average, with health and beauty
care companies continuing to spend less on trade promotion
than their food and general merchandise/non-food counterparts.
Almost one-third of surveyed manufacturers reported their
organization’s trade spending increased as a percent
of gross dollar sales over 2002. In the previous study, only
16% of surveyed manufacturers reported an increase. Likewise,
the percentage reporting a decrease in spending declined sharply.
This represents a deviation from the past two surveys, in
which the proportion of companies reporting a decrease in
spending had risen considerably.
The increase in trade promotion spending by manufacturers
was recognized by retailers, with 55% of surveyed retailers
reporting that the trade promotion dollars they received from
manufacturers in 2003 increased measurably from 2002.
Higher Investment Satisfaction
of Trade Promotion Spending
Among manufacturers, 31% reported spending investment as being
an “Excellent/Good” value, which is an improvement
from the sharp drop recorded in the previous survey (24%).
Likewise, there is a decline in perceptions of receiving “Poor
Value” from trade promotion spending, decreasing from
22% to 18% in the current survey.
As in previous years, the majority of participating retailers
perceived that the share of trade promotion dollars they received
in 2003 was not enough. Only one in five reported that the
amount they received was sufficient. While the overall assessment
of the share of trade promotion dollars received by retailers
has remained consistently “not enough” over the
years, retailers surveyed in this study have been slightly
less unfavorable in their evaluation compared to the previous
two surveys.
A Few Contrasting Views
Manufacturers and retailers generally agreed on how trade
promotion spending was increased, relative to 2002. Specifically,
perceptions were aligned on pay for performance and frequent
shopper programs as the tools that received the highest levels
of increased spending in 2003.
The main differences in perceptions regarding the increase
in trade spending related to two components: 1) manufacturers
reported considerably higher levels of increased spending
allocation toward slotting allowances than retailers reported
receiving; and 2) retailers reported higher levels received
on bill-back advertising allowances than manufacturers reported
allocating.
Unlike the previous study, manufacturer and retailer perceptions
regarding the time period associated with off-invoice/trade
promotion funding in 2003 differed somewhat. The average number
of weeks allowed for off-invoice promotion during 2003 among
surveyed manufacturers was nearly 10 weeks, which is consistent
with the time period reported for 2001. Retailers reported
receiving funds for an off-invoice/trade promotion product
after six weeks, representing a declining trend from the 2001
figure of eight weeks and the 2000 figure of 11 weeks.
Main Reasons for Trade Spending
Increasing sales volume continued to be a main reason given
by manufacturers for spending on trade promotions. However,
it was mentioned by a significantly smaller proportion of
manufacturers compared to the previous two surveys.
Most retailers reported increasing store sales and increasing
basket size were the key reasons for trade spending. However,
other important reasons mentioned by a large percentage of
retailers included bringing in new customers, increasing store
traffic and improving category performance. Customer retention
was also cited by a higher percentage of retailers compared
to the previous study.
Manufacturers and retailers agreed on the impact of trade
spending on brand loyalty, but differed somewhat on the extent
of benefit. Thirty percent of retailers stated it “definitely”
helped, while manufacturers remained more moderate in their
assessment. Manufacturers’ responses also showed some
decline compared to the previous study, while retailers showed
an increase in those saying, “definitely helps.”
Driving Category Management
Overall, category management was shown to be a strong element
of trade promotion practices. More than three in four manufacturers
indicated that influencing decisions on their categories,
optimizing their item mix, ensuring category leadership and
creating positive relationships with retailers were the reasons
they practiced category management. Food and health and beauty
care companies were in agreement that the primary reason was
to influence decisions on category. General merchandise and
non-food companies stated that it was to increase their revenue.
Surveyed retailers identified the ability to increase profitability
of their organization as the most influential reason for practicing
category management.
More than 85% of manufacturers and over 90% of retailers included
shelf management, assortment planning, category business planning
and promotional planning activities within their category
management process in 2003. Among both manufacturers and retailers,
usage of most category management tools showed an increase
in 2003, compared to the previous study. Micro-marketing and
micro-merchandising emerged as the main tools that both manufacturers
and retailers planned to include in their category management
programs in the next 12 months.
Frequent Shopper Programs: Mixed
Blessing
In 2003, over 75% of manufacturers participated in frequent
shopper programs, and over 70% of retailers offered a program
that benefited frequent shoppers. Overall, surveyed retailers
perceived that frequent shopper programs were more beneficial
than did manufacturers, particularly to themselves and to
consumers. Manufacturing executives reported that they benefit
the least while retailers benefited the most from frequent
shopper programs.
While retailers do not actively share their frequent shopper
data with manufacturers, this has changed somewhat compared
to the previous study. Specifically, a higher percentage of
manufacturers reported that retailers shared data with them—increasing
from last year’s survey. Also, the percentage of manufacturers
reporting that retailers “never” shared their
data declined compared to last year.
Likewise, there is a slight shift among retailers who reported
sharing data with all manufacturers. Retailers also report
an increase in sharing frequent shopper data with vendor partners
such as ACNielsen, compared to past surveys.
While more than 40% of manufacturers reported “never”
using the data in everyday decision making, this is a considerable
increase since the previous study, and is in line with increasing
manufacturer access to the data.
Retailers were more likely to use the data than their manufacturer
counterparts, using it to develop direct marketing programs
to target individual consumers based on purchase habits. Among
manufacturers and retailers who were involved in frequent
shopper programs in 2003, nearly all plan to continue.
Critical Business Issues
Manufacturers and retailers agreed that the top three issues
most critical to their businesses in 2003 included new product
introduction/implementation, category management and promotion
efficiency/effectiveness. In fact, manufacturers and retailers
are in general alignment on the top 10 issues considered critical,
with slight differentiation on the hierarchy [See chart 2].
Retailers were more concerned than manufacturers about issues
more relevant to their business, including making the retailer
a brand, private label, changing store formats, customer loyalty/retention,
food safety/security and home meal replacement. The ability
to market at store levels was of greater concern among manufacturers
than retailers.
Over the next 12 months, two-thirds of manufacturers believe
that promotion efficiency and effectiveness will increase
in importance, and retailers feel that understanding the consumer
will increase in importance.
The 2003 Trade
Promotion Practices report was recently distributed to ACNielsen
clients and is available for purchase. Please visit our web
site at http://acnielsen.com/pubs/
to obtain ordering information.
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