MINNEAPOLIS -- Pillsbury here will eliminate off-invoice allowances across its entire product line in conjunction with the Oct. 1 introduction of its Customer Development Fund.
"What we have tried to do is disconnect the supply chain from trade promotion monies," said Larry McWilliams, who is Pillsbury's vice president of frozen food sales and a member of the internal team that developed the CDF program. "It's a very self-regulating, fair and equitable system."
With the substitution of CDF for the old system of allowances, Pillsbury joins an exclusive club of brand marketers that includes Procter & Gamble and Campbell Soup. As with those manufacturers, Pillsbury's action follows the development of advanced capabilities in continuous replenishment and electronic data interchange.
Pillsbury's system is designed to allow long-term planning of promotions and ensure equality among trading partners. In the process, it reduces retail customers' incentives to forward buy. For each case of product shipped nationally from any of Pillsbury's lines, the customer accrues a predetermined amount of promotional money. The customer, along with Pillsbury's account representatives, determines the use and timing of those funds.
McWilliams outlined five main benefits of the CDF approach: it
is flexible, ties shipments to consumer demand, reduces forward buying and diverting, is fair to trading partners in all retail channels and focuses attention on selling to consumers.
By tying case shipments to promotional spending, Pillsbury expects to sharply reduce forward buying and diverting. "If you are shipping product in and matching that as closely as you can with consumer take-away, the customer makes money by turning the warehouse much faster, they don't have a lot of money tied up in storing product and diverting product and there's no incentive to buy more than they actually use," McWilliams said.
Pillsbury is emphasizing full disclosure to the trades, saying all customers, regardless of their trade channels, will be presented with the same plan. Pillsbury has established case rates through September 1995.
"This is just another in a continuing series of evolving trends toward replacing incentives to load with incentives to sell," said Kevin Price, president of Market Performance Group, a Fairfield, Conn., consulting firm.
"When they take costs out of the business system, doing business with Pillsbury becomes more profitable," he added, noting that CDF gives Pillsbury at least a temporary advantage over other companies that have yet to change their promotion strategies.
Micky Goodman, managing partner at Market Growth Resources, Westport, Conn., echoed his statement: "It is a unique strategy but it's in the same direction a lot of people are going. The commonality is people are trying to get out of off-invoice allowances, but it sounds like Pillsbury is taking a different approach."
McWilliams said that although some Pillsbury customers have been skeptical about the plan, they are slowly making the transition from the old promotion practices to the new CDF approach.
Pillsbury's sales force has been trained to employ consumer insights to help customers engage in long-range promotion planning. "How do the consumers behave, how do they shop, how do they make purchasing decisions? "We're using that knowledge to allow the customers to differentiate themselves in the marketplace," he said.
The account teams work with retailers to determine optimal use of CDF. If a customer indicates an affinity for feature advertisements, Pillsbury will fund feature ads. If a customer would like to build a Pillsbury display, the funds can be used toward that display. The primary requirement is that each customer ensure its share of funds are used to benefit consumers in some way.
"Until the product has walked out the retailer's front door in a brown paper bag, all we have done is moved our inventory location," said McWilliams. "CDF focuses all our attention on selling to consumers, which is really where we need to be focusing our attention."
The plan should assist the customer as well as provide a benefit to Pillsbury, said Price of Market Performance Group. "The real name of the game is to make money for the business, not just for your department, and the way to do that is to reduce your costs, increase your revenues or both. This program allows you to do that."