Trade Promotion Management (TPM)

Trade promotion management (TPM) involves managing trade-spend activity in the retail and food service industries. Trade-spend activity is money a company spends to advertise and promote its products. The trade promotion process includes budget management, informed planning, accurate payments, deduction and claims resolution, and processing of customer short-pays. Trade promotion activity can take up to 20 percent of a company’s total net revenue, making it the second-highest cost on a profit-and-loss statement behind the cost of goods sold. However, when done properly, experts say TPM can increase a company’s bottom line by 10 percent to 15 percent. It can also increase top-line sales, market share, and net profit. Most companies today use sophisticated TPM software solutions to handle the analysis that trade promotion management requires.

Overview

Trade promotions are marketing activities and incentives offered by companies and wholesalers to their customers, which may include retailers, convenience stores, hotels, restaurants, and cafes. The intent is to increase product sales within those organizations and then onto consumers. Proper TPM planning involves budgeting, forecasting, analyzing promotion performance, and coordinating promotional contracts. These activities are often streamlined and completed with the help of artificial intelligence and data analytics software, ensuring the company reaches its revenue goals. There are different types of trade promotions that can be used to make products stand out. They include in-store displays, deals and discounts, bundles, bulk purchasing, rebates, sales contests, and field market opportunities. Looking at these a little closer:

• In-store displays can be end caps in brick-and-mortar stores or point-of-purchase placements that come at additional cost but can prompt more purchasing by the consumer. Other examples of in-store displays include floor stickers, posters and banners, life-size display stands, and in-person product demonstrations.
• With deals and discounts, the aim is to get consumers to buy more or for new consumers to try a product. Price reductions, a particular percentage off, tiered discounts, or special offers are different types of deals and discounts. It is critical that trade promotions have a sense of urgency surrounding them so sales can increase quickly.
• Another way brands boost their sales is through product bundles. Examples include bundles based on seasons, fashion, or back-to-school events. They may also include Black Friday and Cyber Monday sales. Bundles can be offered to channel partners or to customers who can create their own bundle for a discount.
• Bulk purchasing can also increase sales. A company may opt to sell in bulk to retailers rather than selling to consumers directly. Bulk purchases allow for lower costs per unit, which can encourage them to buy more.
• Rebates can provide money back to customers, such as a percentage of the purchase price being returned when a previously agreed quantity or value of goods is purchased within a specified period. Rebates differ from discounts because they are given after payment.
• Sales contests are used to promote retailers to sell more products from a certain brand. This could be within a specific store or across stores, with the incentive being a cash, gifts, or bonuses. There could also be contests to incentivize sales staff who face the customer.
• Field marketing opportunities can also enhance sales. This enables brand representatives to help retail staff improve the ways of selling the product.

There are advantages to using trade promotions, including a better bottom-line return on investment. According to research from PricewaterhouseCoopers, consumer packaged goods manufacturers that had effective trade promotions saw a return on investment of 10 percent to 20 percent. Trade promotions that result in good deals for shoppers can improve customer loyalty. Trade promotions on seasonal products can benefit manufacturers and retailers by boosting sales and getting rid of inventory ahead of the next shopping season. Another benefit of trade promotions is stronger relationships with distribution channels.

Topic Today

Businesses have several ways to improve their trade promotions. Because promotions are a huge investment—according to research from Deloitte, consumer packaged goods manufacturers spend about 7 to 10 percent of gross sales on trade promotions—trade promotions must keep the customer in mind to increase the likelihood of a sale. Experts also advise businesses to research what the competition is doing so they can ensure that their products stand out. Manufacturers should also be consistent with pricing across channels and retail locations. Failing to do so could erode customer trust. When creating trade promotions, experts advise that doing more is always better, as going above and beyond standard promotions can make a good product bundle enticing if the price is right. Artificial intelligence and machine learning algorithms offer more accurate trend predictions and can analyze large sets of consumer or industry data in seconds. This information helps guide promotional timing, optimal pricing, and budgeting. Additionally, technology can adjust in real-time as the industry changes. Businesses and the manufacturers with whom they collaborate can track metrics to gauge how trade promotions impact sales.

In one case, an unfamiliarity with the customer base resulted in Procter & Gamble making a major error with its trade promotion strategy in the 1990s. The company spent 50 percent less on coupons in 1992 and adopted an “everyday low prices” approach. Retail prices were dropped by $2 billion. In January 1996, an eighteen-month no-coupon test was initiated in part of New York state, where 90 percent of shoppers were known to use coupons. Consumers were outraged, and those in the test region started boycotts and public hearings. The local media received many complaint letters. Public officials said that Procter & Gamble was out for profit only and interested in hurting the common people. A petition that featured more than twenty-thousand signatures urged the end of the no-coupon strategy. In April 1997, Procter & Gamble stopped the no-coupon test, distributing $4.2 billion worth of coupons. While Procter & Gamble’s sales were not good, the use of coupons by its competitors rose.

The P&G experience highlighted the idea that promotions are considered a normal part of business by the customer and are an expected incentive to buy a company’s products. Procter & Gamble has since made coupons more available in different ways—in shelf dispensers at the point of sale, in frequent buyer and loyalty programs, in concert with free samples at the store, in direct mailings, or on the Internet.

Bibliography

Ellsworth, Matt. “What Are Trade Promotions and How Can You Make Yours a Success?” Wiser.com, 13 Oct. 2020, blog.wiser.com/what-are-trade-promotions-and-how-can-you-make-yours-a-success. Accessed 1 Jan. 2025.

Kitchen, Philip J., and Patrick De Pelsmacker. Integrated Marketing Communications: A Primer. Routledge, 2004.

“What Is a Trade Promotion? (With 5 Types You Can Use).” Indeed, 16 Aug. 2024, www.indeed.com/career-advice/career-development/trade-promotion. Accessed 1 Jan. 2025.