Retailers Seen As Leading, Manufacturers Lagging, In Fragmenting CPG Trade Promotion Market

As trade promotion marketing becomes increasingly fragmented, manufacturers are being slow to adapt and as a result have fallen significantly out of sync with the diversified approach being taken by their retail trading partners.

That’s one of the key findings from Kantar Retail’s 2016 Trade Promotion Study, Confronting Trade Promotion Fragmentation – Exceptional Agility Required.

According to the study, despite trade promotion activity and spending rapidly migrating to digital, just 13% of manufacturers have separate brick-and-mortar and e-commerce budgets and 24% have no e-commerce budget at all. In comparison, 33% of retailers have a dedicated e-commerce budget with just 8% having no e-commerce budget.

Further underscoring this growing gap, the study found that significantly different approaches to digital promotion activity are being taken, with manufacturers increasingly focused on promotion through retailer websites, while retailers are de-emphasizing their own websites in favor of social media, email and mobile couponing.

“The proliferation of digital options for directly engaging with shoppers has significantly fragmented the trade promotion market,” says Brad Golden, Vice President, Consulting, Kantar Retail. “Manufacturers must act with exceptional agility to keep pace and optimize spending.  Right now, retailers are demonstrating considerably more agility than suppliers. As a result, we are seeing considerable misalignment between the two.”

The findings are based on a quantitative analysis of responses from more than 200 manufacturers and retailers, as well as in-depth interviews with 20 industry executives. Target groups included a broad representation of Food, Health and Beauty Care and General Merchandise manufacturers, as well as Grocery, Drug, Mass and Club retailers and other channels. Kantar Retail has been conducting trade promotion research since 1995.

Trade spending still shifting to customer-specific tactics from traditional media

Overall, the report found that while total trade spending as a percent of gross sales continues to remain flat, manufacturers are increasingly shifting spend to growth channels and customers, seeking to better align investment with potential, while still complying with federal law. This growth of customer specific programs and digital promotions has come at the expense of traditional media (advertising plus consumer promotion), which now accounts for just 38% of total trade promotion spend, down from 42% in 2011. 62% of budgets now focus on more targeted customer spending (trade promotion plus account specific).

Combining trade promotion activity and shopper marketing insights with individual customer strategy is the next frontier for optimization

When it comes to use of measurement and optimization systems, the study found that while most manufacturers are using such tools to support the management and analysis of trade spending, they, along with retailers, feel that much more needs to be done. This includes analyzing the impact of spend on categories as well as brands, and better aligning spend with retailer-specific strategies.

Respondents identified that in their view the next level of optimization is to strive for better understanding of the longer-term effects of trade promotion on shopper purchase behavior.

“What the study clearly shows is that the industry knows the shopper remains boss,” says Golden.  “In an increasingly omni-channel world, both manufacturers and retailers believe the shopper will continue gaining power. However, more work is needed to understand how trade promotions affect shopper behavior longer-term.”

Golden says the findings point to some clear actions manufacturers and retailers need to take:

·         Manufacturers should establish separate e-commerce teams, budgets and goals and better align digital promotion spending and activity to retailer strategies and tactics;

·         Manufacturers should segment their retail customers strategically for better allocation and impact of trade funds, as well as develop customer-specific promotion strategies and tactics;

·         Manufacturers and retailers need to work together more effectively to find the right combination of strategies and tactics to achieve common goals;

·         Measurement should be focused on the impact of trade promotions on categories, not just brands, as well as longer-term shopper behavior;

·         When calculating ROI of trade promotions, a variety of performance components should be considered, including duration, incrementality and fully-loaded costs;

·         Combining trade promotion activity and shopper marketing insights with individual customer strategy is the next frontier for optimization.