NABISCO TESTS PAY-ON-CONSUMPTION

JAMES TENSER

PARSIPPANY, N.J. -- Nabisco Foods Group is making final preparations for a "live" one-market test of a pay-on-consumption compensation system for its brokers and sales organization.

The pilot is expected to begin on or about Jan. 1, said Steve Geary, vice president of market development and sales technology applications for the Sales & Integrated Logistics Co., a unit of the Nabisco group. It will cover all Nabisco's warehouse-delivered products sold through brokers, he said.

The company has tentatively selected an individual market and a broker to participate in the pilot. It is withholding those identities while specifics of the test design are being fleshed out, a process that should be completed "in the next few weeks," Geary said.

"Among the questions we are trying to answer right now are, 'How do you start something like this?' and, 'What rate do you pay?' " he said, warning of the potential to "double-pay" brokers during the transition, as previously bought and warehoused merchandise makes its way to the scanner.

A possibly offsetting effect could be that as warehouse-loading is reduced due to changing incentives, brokers will face a one-time dip in commissions, similar to the volume hits brand marketers faced when they shifted to level pricing and continuous replenishment under Efficient Consumer Response.

"We haven't perfected a transitional plan yet," he added.

Geary said Nabisco is working closely with Information Resources Inc. on preparations for the test, and has sought participation from its broker advisory council and the National Food Brokers Association. Once the test is under way, Nabisco will use IRI "census-quality" point-of-sale data as the sole measure for broker compensation.

"We are only doing this for those accounts where we have census data. There will be no projection off of sampling at all," he said.

The one-broker live test will follow a year of studies, currently under way, in which Nabisco and IRI have tracked consumption data on a parallel with factory shipments on a cumulative basis in 28 IRI retail market areas.

"Over time, we are finding that they start to track closer," Geary said, adding, "Now we have a high degree of confidence in it; however, that is still based on looking at only nine months of the data. We have not looked at a full business cycle yet."

The parallel test was aimed at establishing credibility of census-based syndicated scan data, he said. This will be critical not only for Nabisco's broker management, but to motivate its in-house sales organization.

"We will evolve our internal compensation programs to be in synch, also based on scanner data," Geary said, adding, "Part of what we are doing with our field sales organization is trying to evolve our sales managers into the business managers of the future."

He cited several reasons Nabisco is moving to consumer sales instead of shipments as the basis for sales and broker compensation:

It encourages a focus on sell-through and a more productive use of trade promotion dollars.

It encourages a focus on productive execution of fundamentals, including retail distribution, retail pricing, in-store merchandising, etc.

It is ECR-compatible; that is, it is consumer-driven, uses technology and supports continuous replenishment efforts.

It protects brokers against the ongoing inventory reduction efforts of ECR. That is a "serious income issue for brokers."

It gives a true evaluation of sales activities, retail execution and promotion effectiveness.

It eliminates the incentive to load warehouses and also neutralizes the effect of diverting.

"In building volume objectives, we will need to acknowledge changes in business practice," Geary observed. "You are eliminating period-end load-ins, so you need to establish volume bases on an understanding of base volume plus marketing-plan-driven incremental volume."

He added, "So far it hasn't driven behavioral change, because we haven't changed way we pay anybody. The live test is where we are going to figure out if this drives the behavior change."

Geary said he did not expect Nabisco to move to pay-on-consumption on a broad scale until at least 1996.