TRADE SPENDING STILL A TOUGH GAME: SURVEY

JAMES TENSER

WILTON, Conn. -- Despite a high industry profile and a spate of kinder, gentler language, trade spending practices remain an area of contention between brand marketers and retailers.

But shifts in the grocery industry power balance are altering the rules of the game, according to a survey just released by Cannondale Associates, a consulting firm here.

"Manufacturers feel they are not getting enough efficiency, and retailers think they are getting less than their fair share of dollars," said Don Stuart, a partner at Cannondale.

His firm's "1995 Benchmark Study on Trade Promotion Spending and Merchandising" found that this basic conflict, while perhaps less bitter than it was during the 1980s, remains pervasive today.

According to the survey, 91% of manufacturers think their trade spending is inefficient, while just 38% of retailers think they are receiving their "fair share" of trade dollars.

The good news, Stuart said, is that the trade promotion dynamic has shifted from what game theorists call the "hostage" scenario, in which only one party wins and the other must lose, to "the prisoner's dilemma," under which win-win outcomes are possible.

"Hostaging implies that the individual brand either loses its wallet or loses its brand equity," he said.

"Today, both retailers and manufacturers are facing the prisoner's dilemma. Each is concerned that the competition is getting a better deal." When faced with the choice between cooperation or competition, he added, "ultimately the only viable long-term outcome is win-win."

In the survey, Stuart said, "the win-win outcomes identified were 'manufacturer account-specific programs' and 'jointly developed programs.' "

Both trade tactics were rated "effective" by about 90% of both manufacturers and retailers. In comparison with other win-win options, such as "account-developed programs" and in-ads, Stuart said, "there is a clear breakaway" in the responses.

Trade tactics in which the retailer loses, according to respondents, were "contracted endcaps," "scan promote" and "strict pay for performance." Lose-lose propositions included everyday low pricing, broker-initiated programs and "checkout coupons."

Special packs, "consumer overlays" and in-store coupons received generally neutral ratings from manufacturers and retailers.

Trade promotion budgets, also explored in the survey, showed clear distinctions in spending patterns between food, health and beauty care and general merchandise categories. Trade spending in the food sector averaged 60% of the marketing budget, compared with 45% in the general merchandise sector, and 40% among HBC companies.

Stuart speculated that the higher spending in the food sector may be because of high duplication in many food categories. "There are some categories with six major manufacturers. That number may not be needed to satisfy variety vs. duplication needs for retailers and consumers. Trade promotions become the choice of last resort."

The survey also documented what he called a "dramatic shift" toward the use of discretionary funds, also known as market-development

funds. While 47% of current spending goes to off-invoice promotions, discretionary funds have grown to 30% of spending. When asked to identify trade spending trends, 76% of brand marketers said their use of discretionary funds had increased over the past five years, while 65% said they would increase further over the next five years. Stuart said these results reflected brand marketers' "decentralizing control and putting more authority in field."

The survey asked manufacturers to self-rate their capabilities in trade promotion evaluation. When plotted, the results fit a standard bell-curve distribution, said Stuart. The responses of "highly effective evaluators" to questions about their use of evaluation tools and retailer responsiveness indicated several strong correlations.

Many more highly effective evaluators (91%) said they usually or always use account-specific syndicated data, compared with 57% among all manufacturers. Similarly, 86% of highly effective evaluators said they usually or always use "integration of sales/causal/spending data," compared with 54% for the entire sample.

Asked whether they agree that retailers are willing to listen to their recommendations on how to promote more effectively, 74% of highly effective evaluators said yes. Less effective evaluators had correspondingly lower rates of agreement with this statement.