Changing the Channel:

A better way to do Trade Promotions

GROUP 2

What is Trade Promotions ?Trade Promotions are marketing activities

executed between manufacturers and retailers aimed at increasing demand for products in retail

stores.  • Special

Pricing• In store

Displays• Coupons

• Trade promotions are viewed with great suspicion.

• Each party believes that the other party in trying to get an upper hand.

• Retailers abuse trade promotions by purchasing more at discounted price.• They also

engage in ‘Diverting’ by selling it to other retailers

• Trade promotions should be based on a transparent system that generates mutual trust.• There should

be Win-Win for both retailers & manufacturers.

Redesigning the Trade Deal

What are the

options?

• Scan-Back variations

• The Mimic Scan Back

• Scan Back• Identical Deals

Eliminates Forward- buyingEliminates divertingLimit the duration of

promotionHelps predict real consumer

demand

Retailers are reluctant due to the low pay-off

Scan Back / Pay-for-Performance

• To counter retailers, tactics, manufacturers use ‘Pay for Performance’ trade promotion – to reward on the basis of how much they sell rather than how much they buy.

• Pay for Performance benefits all• Manufacturer

s – Boost Bottom line• Retailers –

Increased concentration on marketing than buying• Consumers –

Lower prices of Trusted brands

The Mimic Scan Back• Average cost of

promoted and non-promoted goods are identical to off-invoice trade deal

• Retailer makes profits similar to off-invoice deal

• Avoids forward buying and diverting

Slide-Back Variations• Retailer revenue

and profit is as high as off-invoice deal

• Manufacturer numbers improve as well

• The manufacturer can tweak any of the 3 variables, the regular wholesale pricelength of deal and depth of the discount

Statistical Analysis demonstrates efficacy of scan back

Greater pass on of deals to customers (75% v/s 20-30% in off-invoice deals)

Higher sales generated in an experiment with beverage company

Eliminates purchase distortions inherent in off-invoice deals

Implementation ChallengesHigher

retailer allegiance to off-invoice method

Distrust between retailers and manufacturers

Prima facie higher incentive to retailer in this setup

Can an auditor help?High instances of retailer manipulation

Scam DownAuditor can verify

sales with stocks to bring down ‘scam down’

Well established auditors can pay retailers for discount and collect from manufacturer later

Over see implementation of scan backs

Changing Organization

al Culture

Auditors Cant

Solve All the

problems

Manufacturer Problems

Tied up in Admin tasks

Complicated negotiations

Prisoner’s dilemma

Uncertainty over pass through rates

Retailer ProblemsBuilt in

infrastructure for efficient buying

Company rewards for profitable buys

Large investment in warehousing

Resistance to change compensation structures and operations

Steps AheadPerformance metrics based on product movement & profitability

Collaborative partnerships

ExperimentationTargets/ goals of each

party to be establishedCooperate to analyze

the results

Support with tangible marketing activities

Retailer manager compensation linked to Brand/ Category performance than profits from smart buys

Inclusion of customer satisfaction metrics

Software Solutions

Software Solutions are important ! NOT AS MUCH AS Organizational and attitudinal changes ! ! !

Manufacturer Retailer

Dramatically Cut Costs

Re orient activitiesAssurance that dollars reached customers

Seeking Peace & Profits

The Case of Vodafone UP EastVodafone UP East• Covers 95.67% of population

( 12.65 r)• Total of 2500+ Channel partners –

Distributors and Retailers

Pay-outs

Acquisition

Distribution

RevenueHygiene

Infra

Retailers payout on basis of: No. of new subscribers Quality of Users (Churn

) Revenue (Tertiary)

Customer Acquisition & retention are

inherent parameters of performance

analysis along with Revenue

The Indian Context: A difficult experienceDifficult to implement trade

promotionsHigh instances of benefit

not passing to consumer90% unorganized retailImplementation easier in

organized retailPay for performance a

partial solutionNo billings for many items

The Indian Context: A difficult experience

Cracking the Indian Code

Cracking the Indian Code#1

Barcode scanner apps; Information encrypted barcodes

Empowers consumers and make them more aware

Companies should push consumers using these apps, especially for high value items

Cracking the Indian Code#2

Targeting association of retailers in areas/districts of particular trades

Like Labour unions, there are unions of retailers in a market/district/area

Behaviors can be governed by putting pressure on these groups which inturn would prompt retailers for rightful action

Cracking the Indian Code#3

Regular audits difficult to manage

Empower distributorsInfrequent audits by

distributorsEasier for

manufacturers to control behaviors of distributors

Submitted to:Prof. Sameer

MathurPh.D. Carnegie

MellonWWW.mbaskills.in

Group 2Akshat Goenka | Piyush Soneja Rohit Sharma | Sushmita Kraleti