Manufacturers offer all kinds of incentives to retailers to help sell their products. Watch this video to learn more about trade promotion and its goals, including persuading retailers, encouraging promotion, and maintaining stock.
While consumer sales promotions help pull a product through a marketing channel by increasing the consumer's demand for a product, trade sales promotions have the opposite effect. They work to push a product through the channel by increasing a retailer or other intermediary's demand. Trade sales promotion is a promotional incentive directed at retailers, wholesalers, or other business buyers to stimulate immediate sales.
Marketers spend two times as much on trade sales promotion compared to consumer sales promotion.
You might remember that marketers spend twice as much on sales promotions as they do on advertising. Of that piece of the pie, spending on trade sales promotion is two times what is spent on consumer sales promotion. Though consumer sales promotions might be the most visible, since they're designed to jump out and grab your attention, trade sales promotions are all around us. They're just not as easily detected by consumers.
Manufacturers use trade sales promotions to meet a handful of objectives, all geared toward encouraging retailers or other resellers to sell more of their product. For one, if a product is new to the market, a manufacturer may need to offer a trade promotion to encourage a retailer to carry the item. To do so, a manufacturer might offer a free point-of-purchase display along with a trade allowance to attract shoppers to the item. This type of deal might happen at a trade show where a new product is being presented for the first time.
Here's an example: Let's say the Romano Brothers from New Jersey have developed a special type of bottled water. The water is naturally green because it comes from a special algae-covered source with newly discovered health benefits. Their water, GRN, is being debuted at the annual Fancy Food trade show.
To influence retailers to carry their product, the Romano Brothers are offering a couple of incentives. First, they're offering a trade allowance, or a special discount for orders placed during the Fancy Foods show. Second, each order comes with a point-of-purchase display since the product is new and the Romano Brothers want to make sure it's set apart from other bottled waters. A point-of-purchase display helps draw attention to a product by serving as some kind of specialized display for that one particular product. You can often find them at the end of an aisle or near the checkout to stimulate an impulse purchase.
Besides these two incentives, the brothers are handing out full-sized samples to thirsty trade show attendees to generate goodwill and allow potential retailers to get familiar with their water. Once a retailer picks up a product, it does no good to the manufacturer for it to just sit there and not sell. Another objective of trade promotion is to encourage the retailer to promote the product.
A point-of-purchase display sets products apart from the competition.
Let's say after six months the Romano Brothers start to see a slump in sales of GRN. The initial hype has worn off and customers aren't seeking it out as readily as they did when it first launched. The Romano Brothers might use a few different trade promotion incentives to jump-start sales again. For one, they can offer push money, also known as a spiff, to the sales people at retail outlets to encourage them to promote GRN over other bottled water. Spiffs are short for 'special promotional products incentive funds' and can be cash bonuses, gift cards, or other incentives.
They also might work with the retailer on cooperative advertising and help the store pay to run an ad featuring GRN. In this case, the Romano brothers pay a local specialty foods store to include GRN on the front page of their Wednesday newspaper insert.
At other times, the product is so hot that a manufacturer must make sure the retailer has enough to keep it in stock. After a huge surge in sales, the Romano Brothers offer a special trade allowance on the first reorder, a buying allowance that offers a $150 credit with any order of $500 or more. This helps encourage the retailer to place larger orders, ensuring each store has plenty of GRN on the shelf and green in their pocket.
There are other objectives that can be met by trade promotion. Along with spiffs, special training for salespeople or sales contests can help defend against sales of competing products. These trade promotions focus on educating the salesperson and motivating him or her to meet sales goals for your company's products rather than those of a competitor.
As you can see, manufacturers use all kinds of incentives to help meet their goals. Trade sales promotion is a promotional incentive directed at retailers, wholesalers, or other business buyers to stimulate immediate sales.
The objectives of trade promotions can be to influence retailers to carry a new product, rejuvenate stagnant sales, and keep products well-stocked. These objectives can be met through several trade promotions, from trade shows and point-of-purchase displays to bonuses and discounts.
At the conclusion of this video, you should be able to explain the types of and purpose behind trade sales promotion.