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For the last 12
years, ACNielsen has conducted the annual Trade Promotion
Practices and Emerging Issues study, which addresses major
areas of trade promotion practices including spending, category
management and frequent shopper programs. The study asks retailers
and manufacturers for their actual practices and perceptions
about these major trade promotion issues. In this year's survey,
there is much manufacturer/retailer agreement on a number
of issues. But as in years past, the opinions and perceptions
revealed show that there is still a very wide gap between
retailers and manufacturers in some key areas of trade promotion.
Trade Promotion Spending
Overall, manufacturers reported that trade promotion spending
was 14% of gross dollar sales. This is up from the 11% reported
in 2001. Manufacturers in the Food category reported trade
promotion spending at 16% of gross sales while HBC manufacturers
continue to report lower levels of trade promotion spending
(9%). Over the 12 years of the Trade Promotion Practices study,
overall trade promotion spending as a percentage of gross
dollar sales has ranged from a high of 15% to a low of 11%
[See chart 1].
About 65% of surveyed
manufacturers report a measurable increase in their total
advertising and promotional budgets over 2000. While the 2000
study reported that 28% of surveyed manufacturers decreased
total budget spending, this year's results indicate that only
15% saw a decline. However, 58% of surveyed manufacturers
report that their organization's trade spending as a percent
of gross dollar sales decreased in 2001, extending the downscaling
that started in 2000. Only 16% of manufacturers report an
increase in trade promotion spending as a percentage of gross
dollar sales versus 33% in 2000 and 49% in 1999.
There was relative concurrence in the level of trade promotion
spending reported by manufacturers versus what retailers perceived
that they received. Forty percent of retailers reported an
increase in trade promotion dollars received in 2001 over
2000.
Trade Promotion Impact
The study asked manufacturers to rank their perception of
trade promotion spending value as “excellent,"
“good," “fair" or “poor."
Less that one-fourth of the manufacturer respondents rank
trade promotion spending value as an “excellent"
or “good" value. In the 2001 study, the top two
values for this ranking were a combined 37%, a historical
high. There was no increase in the “poor" value
perception ranking (22%) from the levels reported over the
last two years.
The study asked retailers to rank their perception of the
share of manufacturer trade promotion dollars they are receiving
as “more than enough," “sufficient"
or “not enough." The majority of retail respondents
(83%) reported that their share is “not enough,"
with less than one-fifth reporting that their amount of trade
promotion dollars is sufficient. The “not enough”
ranking by retailers was 70% in 2000, 84% in 2001 and 83%
in the 2002 study.
Manufacturers were also asked to rank their total trade promotion/consumer-promotion/media-advertising
budget allocation compared to the previous year as “increased,"
“remained the same" or “decreased."
Overall budgets reported as “increased" were 65%
in 2001 compared to 68% in 2000. Fifty-seven percent of respondents
reported trade promotion spending levels as “increased"
in the 2001 study, the same level as 2000. The percentage
of manufacturers reporting that their consumer promotion spending
had “remained the same" or “decreased”
was 54% compared to 42% in 2000.
Trade Spending Allocation
Manufacturers and retailer were asked how the allocation of
trade promotion dollars had changed versus the previous year.
Both retailers and manufacturers reported increased spending
in pay for performance and frequent shopper programs. There
was disagreement on spending allocations for slotting allowances.
Manufacturers reported considerably higher levels of increased
spending allocation toward slotting allowances than retailers
report receiving (58% of manufacturers reported slotting allowance
spending had “increased,” while only 8% of retailers
reported increased slotting allowance dollars received).
Manufacturer and retailer perceptions regarding the time period
associated with off-invoice/trade promotion funding in 2001
were fairly aligned, with manufacturers reporting 9.6 weeks
and retailers reporting 8.2 weeks. Perceptions among manufacturers
on this ranking have shown a fair amount of variation in the
last few years. The average number of weeks allowed for off-invoice
promotion during 2001 reported by manufacturers was nearly
10 weeks, a return to 1999 levels (12 weeks) after a sharp
increase seen in 2000 (20 weeks). Retailers reported receiving
funds for an off-invoice/trade promotion in 2001 after eight
weeks, which was similar to the 1999 figure of nine weeks,
but a decline from the 2000 figure of 11 weeks.
The incidence of annual trade promotion agreements/contracts
reported by retailers was 83%, while only 46% of manufacturers
reported signing up for these contracts. Over the years there
has been a significant disparity in “perception”
on this issue between manufacturers and retailers [See chart
2].
Reasons for Trade Spending
The primary reason manufacturers site for trade promotion
spending is “increase sales volume” (57%). When
retailers were asked the primary reasons for trade promotion
spending, the two most frequent reasons were “increase
store sales” (85%) and “increase basket size”
(83%).
Manufacturers and retailers agree on the impact of trade spending
on brand loyalty, but differ somewhat on the extent of benefit.
Twenty-one percent of retailers say trade promotion spending
“definitely helps” brand loyalty versus only 12%
of manufacturers. The 21% of retailers rating “establishing
brand loyalty” as a benefit of trade spending was down
from 40% in 2001 and 58% in 2002. Manufacturer scores on the
brand loyalty benefit are fairly consistent over the last
three years. HBC manufacturers' brand loyalty benefit scores
were the lowest, with a “definitely helps” score
of 8%.
Category Management
Manufacturers were asked their primary reasons for practicing
category management. The highest ranked reasons were “influence
decisions on categories” (84%), “ensuring category
leadership” (82%), “creating positive relationships
with retailers” (76%), and “optimizing item mix”
(75%). When asked the same question, retailers responded that
the most important reasons were “increase profitability”
(90%), “optimize item mix” (80%), “increase
revenue” (68%) and “identify new opportunities”
(63%).
Frequent Shopper Programs
There was some definite disparity between retailers' and manufacturers'
perceptions and opinions of frequent shopper programs. About
80% of manufacturers participate in retailer frequent shopper
programs, while almost 70% of retailers report offering a
program that benefits frequent shoppers. Frequent shopper
program participation rates for both retailers and manufacturers
fell versus the 2001 study.
Overall, manufacturers are less enthusiastic about the benefits
of frequent shopper programs than are retailers. Manufacturers
rated the benefits of frequent shopper programs to retailers
and consumers to be about equal, while reporting that they
received substantially less benefit from these programs. Retailers,
on the other hand, reported that they received the least amount
of benefit from frequent shopper programs versus consumers
and manufacturers [See chart 3].
There was agreement
on the fact that retailers do not share their frequent shopper
data with manufacturers. Only 18% of manufacturers reported
that retailers “frequently” share data and less
than 5% of retailers reported “always” sharing
their data with manufacturers. Because of the low level of
data sharing, 58% of manufacturers report “never”
using frequent shopper data in everyday decision making, while
the balance of the respondents report “occasional”
usage.
A very high percentage of retailers (93%) use frequent shopper
data to develop direct marketing programs to target individual
consumers based on their purchasing habits. This was consistent
with scores reported in 2001.
Among manufacturers and retailers currently involved in frequent
shopper programs, nearly all plan to continue.
Critical Issues of Concern to Manufacturers
and Retailers
The study asked both retailers and manufacturers to rate the
most critical emerging issues as they relate to trade promotion
spending. The top two issues for both retailers and manufacturers
were “promotion efficiency and effectiveness”
and “category management.”
Retailers were more concerned than manufacturers about several
issues, including the following: “customer loyalty/retention,”
“food safety,” “making the retailer a brand”
and “private label products.” Manufacturers ranked
“the ability to market at store levels” and “efficient
consumer response” higher than retailers did [See chart
4].
More than 80% of
manufacturers ranked promotion efficiency and effectiveness
as the issues that will increase in importance over the next
12 months. A high percentage of retailers feel that understanding
the consumer will increase in importance over the next 12
months.
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