Always start with strategy! And the best place to start is with brand strategy. Brand and trade promotion strategies that work intimately together drive sales growth for both the manufacturer and their retailer partners.
Brand life stages dictate trade promotion strategies.
Let’s define brand life stages this way: new-to-market brands (launch to 12 months); market and category leading brands (those brands that have the top market share, and who often are innovators); and declining or “fighter” brands whose sales are stagnant or slipping.
First, let’s talk about new brands and those critical initial 12 months. The number one priority for the business is to get established to have a chance at success. That means having a strong value proposition with clear differentiation (brand strategy). Then the brand must get retail distribution, followed by trial by consumers to pull the product through. Targeted trade promotion strategies include new distribution incentives, shelf placement and in-store signage guidelines, and secondary display locations, particularly during introductory discount deal periods.
Tips for success include:
First, present your retailer with a year-long marketing plan to show both the volume potential for your product and your confidence in its success. That marketing plan should include incentives for retailers to feature your brand in their store advertising vehicles, with an introductory purchase discount to generate consumer trial. (Note: larger ads with premium positioning cost more, but in the early days are worth it to build awareness.) Don’t give away the store but do make it attractive for those first purchases—say, a discount of 20-25% off regular pricing for two weeks with trade promotion funds to get secondary instore displays. That combination of ads, discounts, and displays can generate 4-10X sales versus baseline volume.
Second, follow-up trade promotion deal periods should be available regularly (quarterly in many cases) to keep those early triers of your product coming back for more. Plan out with your retailers the best timing for each subsequent promotion period, knowing that peak consumption holiday weeks likely will give you the best bang for your buck—but will also be the most competitive and therefore the most expensive. Ideally, scale back the discount level so that the incremental volume required for breakeven is lower. During holiday periods, consider deal structures that require a purchase of two (or more) items to get the discount. That approach drives up sales for your retailer and loads the pantry of your consumer.
Third, evaluate the sales data from your first six months of sales, with a particular focus on the lift achieved during promo periods. If results meet or exceed your plan, keep going—and be sure to showcase those numbers at your next business review with your retailer. If sales are not quite up to snuff, examine the reasons why and adjust accordingly. Did a competitor respond with a deeper discount or pay more for the front of the store end aisle display location to slow your product launch? Was repeat purchase slower than forecasted? Was there a product problem, or was your brand messaging off target? Fix it fast, as those second 6 months can make or break a new brand.
Now let’s talk about market leading brands and trade promotion. Likely these brands have been around for years and have invested to create strong franchises with a steady flow of new products and innovations to keep their customers satisfied.
For these brands, trade promotion can be an effective weapon to drive significant volume for the manufacturer and for their retailer partners. While costly, these brands should step up and secure the highest volume weeks of the year, with trade deal spending for high traffic secondary display locations (e.g., front of the store end-aisle displays with eye catching signage) and attractive pricing discounts. If there is a new line extension being introduced during these windows of time, the brand should consider in-store or cross-product sampling to gain consumer trial. Incremental volume and share gains versus non-promoted baseline can be significant. Just be sure to do the math to ensure that the trade spend investment is reasonable.
Finally, let’s turn our attention to “fighter” brands and how trade promotion can be an important strategy to boost volume and maintain retail distribution. These brands often have shelf positions on the lower 2 shelves due to lower weekly volume than the market leaders. That shelf placement, while justified, is a barrier to visibility—particularly in crowded categories like coffee, cereals, yogurt, detergent, snacks, and beverages.
For these brands, the frequency of trade promotions and the depth of the discount are key points of negotiation with retailers. If the product category is more heavily promoted, then these brands need to “be in the game”; otherwise, they risk a slow decline or being discontinued. Investing in secondary displays during promotion periods only makes sense when purchase seasonality is strong. As with top brands, any product news or upgraded packaging (graphics or materials) should be showcased during trade deals. Here again, sharing the volume lift and the total profit generated with your retailers is vital. Just as important, compare results versus prior promotions to make sure that the numbers still work, and that economics are acceptable.
Tips for success
For all brands, trade promotion is one of the largest dollar line items in the annual budget. And brands must be careful not to get too dependent on discounts to boost sales. In most cases, retailers have the upper hand as they control what brands get which weeks and display locations (if any) for their promotion calendar. Don’t forget to reinforce that you have trade deals going on by aligning your messaging in all digital channels (e.g., social media, digital ads, SEO, and keywords). A strong and experienced sales team is helpful in maximizing the return on investment of trade promotion, as well as the alignment with brand strategy.
Another “watch out” is that many retailers will want to purchase extra product during promotion periods to lower their cost of goods and improve their profit margins. For products with long shelf life, this behavior can reduce subsequent non-promoted sales. Brands may want to cap promoted volume while delivering against forecast when possible. But be cautious, as retailers and consumers are not happy when faced with out-of-stocks, particularly during promotion periods.
Accurate production forecasting is critical to success, so plan for promotion volumes with a cross-functional team to make sure that your business can supply adequate quantities for the entire trade deal period. These forecasts are challenging, and many firms now offer software and consulting services to help brands optimize their trade promotion strategies and results. A rigorous post-mortem for every promotion period is vital to learn what worked and what could be better going forward.
Want some help with those important decisions about trade promotion strategies?
At Damen Jackson, we have been there and done that. We thrive on helping clients get the biggest bang for their buck while staying keenly focused on being smart and nimble. We are here to be your partner, your conscience, your devil’s advocate—an extension of your team. And we will always bring the conversation back to strategy. How do we maximize the market opportunity for your brand, your business?
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