TRADE PROMOTION: Going for Broke

Tom Christal’s first job in retail was to throw away all the P-O-P that never got used: the stuff that came too late, or was the wrong size, or was never put up for a hundred different reasons.

“That process has been so inefficient for years, it’s been begging for a solution,” says Christal, now regional president of brokerage Advantage Sales & Marketing, San Antonio, TX. So get ready for a new stab at efficiency, courtesy of food brokers.

Brokers are parlaying the expertise they have in merchandising and trade promotion to gain more work in consumer promotion. It’s part of the ongoing evolution to get consumer bang from trade promotion bucks.

Manufacturers are spending more money than ever on trade promotion, and increasingly more of it is reaching consumers. Trade promotion spending hit an all-time high last year, reaching 16.4 percent of gross sales, up from 14 percent in 1999, according to Cannondale Associates’ 2001 Trade Promotion Spending and Merchandising Study.

A total of $16 billion has shifted to trade budgets from consumer marketing coffers since 1999. But manufacturers say 52 percent of trade funds are passed through to consumers, while retailers peg it at 62 percent, per Cannondale, Wilton, CT (see index, pg. 30).

Trade spending will get even closer scrutiny from the Financial Accounting Standards Board next year (June PROMO). With trade dollars required to be reported as a reduction in revenues rather than a marketing expense, the practice will affect the bottom and top lines, says Cannondale partner Don Stuart. “This will have a direct impact on perceived growth in the consumer packaged goods industry.”

Nearly all respondents to Cannondale’s study say execution is “a critical barrier to success.” Yet only 10 percent of manufacturers consider themselves highly effective at evaluating trade promotion.

Enter the Brokers

Since the 1998 consolidation of regional and independent brokers into three national firms, brokers have pooled their promotion muscle and beefed up creative staffs to do account-specific and regional promos for national brands.

Brokers — who prefer the phrase, “sales and marketing agencies” — are in a solid position to pick up creative work, since they’re in the middle of the supply pipeline and, therefore, in the thick of trade promotion transactions.

“The further a dollar is removed from the product it supports, the less efficient it becomes,” says Christal. “[Promotion] agencies are removed from the flow of product and have no vested interest other than their own event. Now, the in-store people are becoming promotion agencies.”

Consumer promotion spending continues to shrink as a percentage of marketing budgets (from 24 percent in 1997 to 15 percent in 2001) as money shifts to trade promotion and account-specific marketing, per Cannondale. Trade promotion now accounts for 51 percent of budgets, up from 44 percent in 1997; account-specific is up to 10 percent in 2001, from nine percent in ’97. (Editor’s note: PROMO would consider those account-specific allocations to be consumer promotion, which would mean spending levels have remained roughly equal since ‘97.)

Cannondale reports that 70 percent of manufacturers think account-specific campaigns will increase in the next five years.

That’s good news, says Cannondale. Jointly developed programs have the most effectiveness, efficiency, and equity for retailers and manufacturers. Cannondale’s study offers a mathematical formula for calculating brand equity (using frequent-shopper card data) to include it with traditional ROI measurement. Other winning strategies: pay for performance, special packs, and scan promote programs.

But Cannondale lists broker programs (along with slotting fees and in-ad coupons) as a loss for retailers and manufacturers. “The challenge with broker programs is that brokers don’t have as good an understanding of consumers as manufacturers do, or as good an understanding of retailers’ own customers as retailers do,” says Stuart. “Plus, they’re one more player taking a slice out of the finite pie” of a marketing budget.

Still, brokers are picking up business. Advantage opened its own marketing arm, The Advantage Agency, in San Antonio in spring 2000, and added a Connecticut office that June. Field staffers work in retailers’ own offices.

“We have to move away from commodity services such as manual labor and [straight] merchandising and do more value-added services” including consumer promotion creative, Christal says.

Crossmark, Plano, TX, formed a consumer marketing arm called Markatec in 1999 after years of frustration executing campaigns from promo agencies. Working for clients such as Pillsbury Gerber, Crossmark saw many a “dumpster program” in which the P-O-P never went up and communication broke down between media, collateral, and product availability.

“We’d be driving to Kroger to represent a brand and pass a billboard or hear a radio spot on the way that we didn’t know anything about,” says Markatec president Jim Norred. “We were frustrated with that disconnect between sales and marketing.”

Markatec creates promos that bundle mid-sized brands interested in account-specific marketing but “not quite big enough to entice retailers on their own,” Norred says. Its Texas-wide Sizzlin’ Summer sweeps grouped Dr Pepper, French’s mustard, Vlasic, Bush’s baked beans, and Royal Oak charcoal for an in-store sweeps giving away six trips to Walt Disney World and a hundred $100 shopping sprees. Best Food Day ads and displays supported. Thirteen retailers participated.

In March, Markatec signed as national partner for Children’s Miracle Network for a program to run later this year. Retailer donations are based on sales of participating brands. Direct-mail offers are customized by household, based on loyalty card and debit card data. Donations stay local and promos are tailored by market — a strong selling point with retailers, Norred says. Markatec works with a database marketing firm, part of its network of partners specializing in different disciplines.

The cause deal is “seminal work for brokers,” says Cannondale’s Stuart. “It’s a significant departure from spotty localized programs. Such national deals are an area of real promise for brokers, and could be a win for manufacturers and retailers.”

Markatec has its own staff analyst for managing and interpreting syndicated data, and it encourages post-promotion research. The company also sets marketing strategy for foreign brands to enter the U.S. and for small to mid-size U.S. brands to enter new channels.

Acosta Sales & Marketing Co., Jacksonville, FL, formed its in-house agency, Matchpoint Marketing, last year. “It’s a logical extension of value-added services,” says Acosta sales manager-grocery Jim Swoboda. “Manufacturers clearly have the money to spend on co-marketing and promotion, and we’re in a position to help them do that.”

In May, Acosta announced plans to pick up business from Marketing Specialist Corp., Dallas, days after the latter filed for Chapter 11 bankruptcy protection. Later that month, Marketing Specialist withdrew its motion to consolidate with Acosta, but in June, Acosta hired 1,700 former Marketing Specialist employees to handle work it already picked up.

Brokers will continue to compete with each other — and with promo shops — for business. By 2004, “we’ll see a dramatic change one way or the other,” predicts Stuart. Deals like Markatec’s Miracle Network sponsorship will “become the norm, especially for small companies, or brokers will implode under their own weight and go back to bare-bones services.”

Letting brokers handle consumer promos makes trade promotion more efficient because “it’s all working together,” Christal contends. “It’s a rational way to evolve. So much [of trade promotion and Efficient Consumer Response] has been focused on backroom efficiency, we all forgot about the selling part. The sales guys can bring that marketing money closer to consumers and retailers.”

Anything to keep campaigns from going straight into the dumpster.

At Odds

CPGs think the biggest problem in trade promotion is deductions, cited by 60 percent of respondents to Cannondale Associates’ trade promotion survey. Others cite poor ROI (58%), non pass-through (51%), and non-performance (46%). Retailers think the biggest problems are insufficient funding (68%), inadequate analysis (54%), poor planning (45%), and lack of consumer integration (42%).

IN-STORE INDEX

Highlights from Cannondale Associates’ seventh-annual trade promotion study.

Percentage of typical CPG marketing budget pegged for trade promotion: 51

Percentage allocated for account-specific marketing: 10

Manufacturer who best uses trade promo funds, as rated by retailers: Procter & Gamble (named by 43%)

Second-best: Kraft Foods (38%)

Retailer who best uses trade funds, as rated by CPGs: Wal-Mart (66%)

Second-best: Publix (26%)

Third-best: HEB (25%)

Percentage of manufacturers who think they do a good job:

• measuring incremental sales: 63
• measuring incremental profit: 40
• measuring impact of promotion on brand equity: 12

Source: Cannondale Associates