Manufacturers realize they need to consolidate all their trade promotion information and manage it effectively, but many lack systems to do so.
So as companies grow larger and more sophisticated, some are turning to advanced ways to evaluate trade promotion spending.
For instance, McCormick & Co., the Hunt Valley, Md., spice and seasoning maker, recently purchased a system to track its trade spending as part of its Beyond 2000 (B2K) global initiative of business process improvement aided by technology.
"B2K is designed to optimize our supply chain, re-engineer our back office, strengthen our product development, extend collaborative processes with our trading partners and generally enhance our capabilities for delivering profitable growth," said Fran Contino, executive vice president, chief financial officer and B2K program, McCormick.
But other manufacturers, particularly smaller ones, aren't ready for software tools yet, and instead rely on their own internal systems to get the job done.
At present, 61% of a domestic consumer packaged goods company's marketing budget is spent on trade promotion dollars channeled through retailers, according to the "2001 Trade Promotion Spending and Merchandising Industry Study" by Cannondale Associates, a sales and marketing consulting firm.
Trade promotion as a percent of gross sales is at an all-time high of 16.4%, up from 15.1% in 2000. This translates into CPG companies spending anywhere from $90 billion to $100 billion each year on trade promotions, according to the study by Cannondale, with offices in Wilton, Conn., and Evanston, Ill.
While some put the figure lower, trade promotion inefficiency nevertheless remains the No. 1 concern for manufacturers, according to the study.
Tracking the effectiveness of trade promotion spending is an art and a science, said Don Stuart, partner, Cannondale.
"I feel good about the science part, and the art has come a long way," he said. "We've been able to establish a lot of benchmarks that help us tremendously with the analysis and in understanding the equity piece of the equation."
Following is a look at the different strategies used by a large and a small manufacturer: Ask consumer packaged good manufacturers what they want from trade promotion, and most will say "sales."
"Our strategy is to deliver strong top-line growth as well as bottom-line growth," said Tom McGough, general manager of customer marketing for frozen foods, Heinz USA, Pittsburgh. "Our emphasis is to sell more through retailers with the money we use to promote our products with them."
One of the ways Heinz is doing so is by grouping all its business units within the North American Heinz Sales Co. -- which includes its pet products, frozen foods and dry grocery -- under the same promotional theme, "All About Family."
Under a promotion that ran last March, Heinz used "All About Family" to promote brands such as Ore-Ida, Smart Ones, Bagel Bites and Star Kist tuna, along with Heinz's condiments and traditional sauces. The program was so successful that Heinz planned to run it again several weeks ago, and again in March 2002.
Heinz uses various systems to track and evaluate its promotional spending, moving from spreadsheet applications to more proprietary systems. McGough declined to name the vendor or provide details.
"Everybody is looking for a return on investment, and everybody tries different [promotional] programs," said Joe Kent, director of marketing for Michael Angelo Gourmet Foods, Austin, Texas, a family-owned manufacturer of frozen Italian meals.
To manage trade promotions more effectively, Kent works diligently to understand what the hot button is for a particular account. This calls for retailers and manufacturers to work as partners to grow both businesses.
"It's not one-size-fits-all," said Kent.
Trade promotion dollars funneled through retailers shouldn't be a matter of "lining the pockets of the retailers," as Kent put it, but moving products off the shelf. Doing so requires two old standbys: price point and display.
The Heinz program is also looking to upgrade its capabilities, McGough explained. Software-tracking aids standardize the reporting, McGough said.
"It's very much on the strategy of what we are doing as a company. We are becoming more sophisticated in how we analyze our marketing program. These [software] tools enable us to do that better," said McGough.
Michael Angelo's isn't ready for software tools yet. Although its products are nationally distributed in club stores, it is still a regional player in retail. But as they continue to grow, it probably will move into that arena.
At the moment, Kent said the company uses its own internal system, which is simple yet sophisticated enough to keep a handle on deduction management and trade dollar spending, even on a monthly basis. Kent said the company uses spreadsheets to keep a handle on deduction management and trade dollar spending on a monthly basis.
"We look to our partners and our brokers to say what works in their stores," said Kent. "We try to be creative and think outside the box, because we don't have the deep pockets that some other companies may have. We are a big dollar ring in terms of our product. We try to remind our partners that they take dollars to the bank.
"We ask, 'What works with your customers? Do they get excited about giveaways, or are they just price-conscious?"'
Heinz, though much larger than Michael Angelo's, follows the same strategy of going to retailers with merchandising programs and displays, ads and support for the leading brands.
The purpose of most of Michael Angelo's trade promotion spending is to change the mind-set of the consumer so that he or she will think of the grocery store, and in particular, the freezer case, as a source of quality Italian meals.
"When it comes to trade dollar spending, we've tied in with garlic breads, we've tied in with desserts, we've had 'buy Michael Angelo's family size and get a free 2-liter Coke or Haagen-Dazs ice cream.' Those are successful to a certain extent. But price and positioning are the most successful.
"A hot price point and a display moves product, no matter how you look at it. When we do that, the repeat purchase is amazing," Kent said.
To get shoppers to try the brand, Michael Angelo's does a lot of product demonstrations at Sam's Clubs and Costco stores.
"It shows how fluid the marketplace is. I don't think consumers are as brand loyal as we thought. They are willing to try something new, because they want to find something they really love," said Kent.
One of the providers of the relatively new software that tracks effectiveness of trade dollars is Vista Technology Group, St. Charles, Ill., the company from which McCormick purchased its system.
"One of the things we typically see with our customers is they have a pretty fragmented process," said Chris Tratar, marketing communications manager.
"In terms of planning trade promotions, a lot of them tend to use spreadsheets and can't do a lot of what-if analysis and post-promotion analysis, regarding what works and what doesn't," he said.
Another software provider is Gelco Information Network, Eden Prairie, Minn., where Sheryl Knapp, director of marketing, says that the 61% average seems a true, fair estimate for trade promotions as a part of the total marketing budget.
Tracking trade funds involves several steps, according to Vista. Among them:
Look at what the company did last year. Sometimes, this information is not all in one place. Various types of reporting and analysis tools can track what the company did with its trade funds, and determine what was effective and what wasn't in terms of providing incremental lift.
Look at the trade budget from a centralized location. However, it's important to be able to manage the funds in a decentralized way, using key managers who have specialized knowledge about accounts.
Plan the actual promotions.
Collect forecast information.
Present the deal to the retail buyers or category managers at the retailer.
On the back end, once the deal is executed and the retailers make a claim against those funds, manufacturers can disperse those funds off an invoice.