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Retailers and manufacturers agree that trade promotion spending levels are decreasing, they just don't agree on how much. How far apart are they? Ever since the inception of slotting, grocery industry suppliers have groused they pay out too much of these placement fees, and retailers have complained they receive too little. But their distance on the issue is even greater than could have been imagined. More than half of manufacturers claimed they increased slotting in 2001, yet only 8 percent of retailers said they noticed the additional dollars.
That's one of the more glaring examples of retailer-manufacturer divergence in ACNielsen's recently released Trade Promotion Practices and Emerging Issues Study. The 12th annual poll was conducted among 79 senior sales and marketing executives from manufacturer companies and 40 retailers in October and November 2002. The results are based on answers to questions about trade promotion spending practices in 2001, plus current and future promotional activities.
Total dollars poured into trade promotion activities such as slotting, pay-for-performance, display allowances, and market development funds rose in 2001. Trade promotion spending, on average, equaled 14 percent of gross dollar sales, compared to 11 percent the previous year. In fact, the level of trade dollars as a percentage of sales has remained fairly consistent throughout the 12 years of the study.
Food and general merchandise brands paid the lion's share (in the 15- to 16-percent range), while health and beauty care products tagged along at only 9 percent in 2001. This marks the ninth consecutive year HBC brands reported spending less on trade promotion than their food and nonfoods counterparts.
A commanding 65 percent of manufacturers surveyed reported increases in their total marketing budgets for trade promotion, consumer promotion, and media advertising. Yet 58 percent of manufacturers said that their organizations' total trade spending as a percentage of sales decreased in 2001. Indeed, only 16 percent reported that they had upped the percentage that year versus one-third of the manufacturers polled in 2000 and one-half in 1999.
For the first time in the history of the ACNielsen study, retailers saw total spending in a markedly different manner. Only 44 percent of them reported noticing an increase in total promotional spending. Compared to previous polls, that's a considerably smaller proportion of retailers corroborating the claimed allocation of manufacturers.
If manufacturers are pumping fewer dollars into retail to help move their products, it's most likely because they are disappointed in results returned by trade promotion. Only 24 percent of those polled in 2002 said they received excellent or good value from their investments as opposed to 37 percent in 2001.
The perpetual rift between retailers and manufacturers on the topic of trade promotion is borne out by the retailers' assertion that trade dollars are simply too sparse. More than 80 percent of storekeepers said the funds they received were not enough. Fourteen percent said their trade promotion monies were sufficient, but that number represents a severe drop from the 30 percent who were happy with their promo funds only two years ago. (Word has it that manufacturers were desperately hunting down the 3 percent who said their funds were "more than enough," with the purpose of naming them Retailers of the Decade.)
Areas of agreement
When it comes to evaluating spending on specific trade promotion practices, retailers and manufacturers fall fairly close in line—except for the touchy issue of slotting, of course. Retailers do report being a little light in the pocket in the areas of market development funds and bill-back display allowances, in opposition to manufacturer claims of increases. Here's one anomaly: 33 percent of retailers said they saw rises in bill-back ad allowances, while only 25 percent of manufacturers reported increases.
Promotion practices that received increased attention from manufacturers in 2001 were pay-for-performance (69 percent increased spending), frequent shopper programs (56 percent), and slotting allowances (51 percent). Taking the most cuts were bill-back ad allowances (28 percent), off-invoice allowances (27 percent), and bill-back display allowances (21 percent).
ACNielsen also polled respondents on frequent shopper programs. Nearly 70 percent of retailers report offering programs that benefit regular customers, and some 80 percent of manufacturers take part in frequent shopper programs at retail. Retailers perceive the programs to be more beneficial than their manufacturer partners, however, and that could be because few supermarket chains share frequent shopper data with suppliers. Only 18 percent of manufacturers indicate that retailers "frequently" share data with them. That's not surprising, considering that about one-third of retailers report that they are not currently sharing frequent shopper data with any manufacturer. There is also a decline in the number of retailers who say they share data with most manufacturers. A higher percentage than last year now reports giving data to just a few select supplier partners.
Nearly half of retailers said they use frequent shopper data frequently in everyday decision-making. The most prevalent beneficiaries of the information were targeted direct marketing programs pegged to purchasing behavior, a method employed by 93 percent of retailers with loyalty programs.