What is trade promotion? Trade promotion is a B2B marketing activity. Consumer goods manufacturers offer price discounts and incentives to distributors, retailers, and operators to execute promotions that stimulate demand for a product.
Food is a big part of consumer spending; Americans spend $627 billion on groceries.
Habit is the strongest motivator for most grocery shoppers’ behavior – buying what they usually buy, where they’ve always bought it.
Roughly 75% of grocery shoppers know what they’re going to buy before even getting to the store. Most consumers – 90% – say their favorite store is their favorite because it’s convenient to get to, has good prices, and is where they’ve always shopped.
How do you make your product stand out? It’s all about positioning. Blend traditional in-store promotions with the digital needs of the modern shopper. Adopt digital promotion strategies to differentiate your product.
Both manufacturers and retailers spend significant resources on trade promotion activity, but challenges remain.
Promotions aren’t limited to an aisle’s end cap or an over-the-top display in the store. Now, people choose products based on a wanted-association to the brand; social proof, company values and mobile stimulus.
Let’s figure out how you can mix traditional in-store trade promotions with the digital needs of today’s shoppers.
Manufacturers and retailers have different approaches to digital promotion, creating misalignment.
Only 13% of manufacturers have separate brick-and-mortar and e-commerce budgets and 24% have no e-commerce budget at all.
Manufacturers want to promote products through a retailer website, but retailers deemphasize their website in favor of social media posts and mobile couponing. Kelly Cole, senior project manager for Blacksmith Applications explains, “The physical store may be the destination, but there’s been an explosion of paths that shoppers use to get there.”
Kantar Retail found that trade spending as a percent of gross sales has remained flat for years.
The challenge is for manufacturers to find the best combination of pricing strategies, channels and customers to invest in. At the end of the day, the goal for you is to have shoppers repeatedly buy your product(s); the shopper is the boss of trade success.
To create a winning in-store promotional strategy, think about promotions from a shopper’s perspective.
💬 As a customer, what grabs your attention?
We recommend these 3 digital promotion strategies for food and beverage manufacturers promotional plans:
- Get Social |A digital meeting place where brands can instantly connect with customer ideas, questions, product-use, reviews, customer-generated content, and more.
“Start with understanding your consumers and why they share. Then use content to turn your customers into advocates.” -Jonah Berger, professor at University of Pennsylvania.
- Promote the Company Mission | Defining corporate values instantly differentiates companies from one another and can help align themselves with a specific shopper.
“Younger generations expect to identify with not only the product they’re consuming, but what the brand actually stands for.” -Russell Zack, vice president of platforms and strategies, HelloWorld.
- Reach Out to Mobile | There’s always competition for display space, so finding customers through beacons and creating a memorable mobile experience promotes top of mind marketing.
“Digital is a key component to support sales, along with in-store marketing efforts such as in-store display and POS.” -Lori Castillo, brand manager, NatureSweet LTD.
Even as new trade spend tactics are tested and grow in popularity, manufacturers can’t believe that you’ll “save money by avoiding the investment in retail promotions. You won’t save money, you will lose shelf placement,” says Pretzel Crisps VP of Marketing, Perry Abbenante.
Abbenante continues, “It’s all about the price-point. Most retailers have accepted the multiple price point mantra. A 2-for-$5 is more effective than $2.49 each. If you have a 2-for, you will almost guarantee that every customer will buy multiple.” Shoppers are less likely to purchase expensive items on display. Products less than $5 enjoy significantly more lift from promotions.
Don’t forget about the retail buyers…
Support the merchandising programs that are important to your retailer buyers. Abbenante adds, “Too many brands fail to ask the retailer what’s important to them. If a certain promotion is important to the retailer, support it! The retailer may then be more inclined to support you in the future. Don’t be all about you.”
So, Is the End Cap Dead?
The Amazon Effect
America’s retailers are closing stores faster than ever. An abundance of options, the prevalence of e-commerce and the increase of small and local competitors, have changed the way we shop. When Amazon purchased Whole Foods in June 2017, it forced food and consumer goods manufacturers to rethink their sales and marketing strategy.
Challenges for Retail Trade Management
“The challenge is consumer values and interests around food are changing rapidly,” Ken Powell, CEO of General Mills said. PwC forecasts that the grocery channel share of all packaged goods sales will fall from about 45% today to about 37% in 2025.
Supermarket chains Bi-Lo and Tops Friendly Markets are edging toward bankruptcy. Will grocery retailers follow the strategy of apparel companies like Zappos and Asos – who don’t have a physical location, and use an online-only approach?
Since the pandemic, more and more consumers have adopted online grocery shopping. Since 2019, the percentage of consumers saying they do almost none of their grocery shopping online– once or twice in the past year – has nearly halved, shrinking from 31.4% to 21.5% in 2020 and to 16.9% in 2021.
- Premium Products | Consumers vary in their spending, but 2/3 of all US consumers are cutting back on cost and looking for value in the items they buy. Outside of product categories like coffee and baked goods, there’s less interest in paying a premium.
- Population | In the last 50 years, per capita spending on grocery store products in the US really hasn’t budged, and any growth that manufactures have seen has mostly been a result of a larger population. Population growth will continue to slow, creating less chances for bottom line increases.
- Demographic | “Life stage dictates spending, putting Gen X on top for now, but Millennials will likely take that spot within the next decade,” said Colin Stewart of Acosta. Gen X spends the month per month on groceries, $380, and they’ve adopted digital grocery tools. Millennials are spending about $298 per month on groceries, and 48% say they don’t care which brand they buy (switching loyalty to get a better deal). Boomers (ages 53-71) are loyal to both products and grocery stores; spending an average of $314 a month on groceries.
- Small Brands | Legacy brands are losing market share to smaller, trendy companies, scale no longer wins the market. Shoppers want new and healthy choices, and analysts believe that’s where upstarts are finding success. Take KIND Snacks – it has captured 10% of the snack bar market in just five years.
- Local | Shoppers are looking for local vendors and most prefer local brands for vegetables, meat, fruit and seafood. 59% have said they buy local to support local economy.
- Technology | For those still shopping in-store, technology makes life easier: Apple Pay, self-scan check-out options and mobile coupons. And there are shoppers looking for retailers who offer home delivery, or the chance to buy online and pickup in store. Online grocery spending is projected to grow to 20% of the market (or $100 billion) by 2025.
Trade Promotions Still Matter
The efficiency of trade promotions is trending down. Margins are tight, growth is slow and costs are increasing. CPGs over-promote products without knowing what is working and what isn’t.
Only 22% of CPG companies can measure trade spending at the individual event level.
Finding the right mix of promotional activity – focus on social media, promote your company’s values, create bigger in-store displays, sample new products, build a great mobile experience, or offer a coupon – will help your product stand out.
Appealing to customers through trade spending could also mean establishing new products, offering your products in an assortment of sizes, or focusing your dollars on your best customers.
- As consumers remain sensitive to price, it’s important for brands to extend value throughout the market; which could mean a manufacturer creates new but similar products, at a lower price point.
- Today’s manufacturers need an array of products to sell in various retail formats, whether its club stores, dollar stores or supermarkets. CPG companies need a more flexible supply chain.
- Manufacturers should shift attention to the retail channels that matter to its business. Not to throw away legacy relationships, but find a strategy for those channels that are showing promise to the profitability of your product.
- Product innovations are increasingly important; the idea is sell solutions and ideas; figure out a way to become a part of an occasion – whether that’s a yearly event like Thanksgiving or something that happens every day, like breakfast.
As manufacturers adjust to the new challenges and an ever-changing environment, creating a strategy for trade agreements is essential to see profitability.
Business users are shifting their focus to analyze a deal’s effectiveness. Finding visibility from trade promotion management (TPM) systems into activity, it’s easier to measure and report on profitability. To reduce ineffective promotions, spend some time in your data, then build an agile trade strategy that can be adjusted as quickly as shoppers’ expectations.