Changing the channel : A better way to do trade promotions HBR Article Review

1. Changing the Channel:
A better way to do Trade Promotions
Presented by : Group 2
Akshat| Piyush| Rohit| Susmita

2. What is Trade Promotions ?
Trade Promotions are marketing activities executed between
manufacturers and retailers aimed at increasing demand for
products in retail stores.
• Special Pricing • In store Displays • Coupons

3. • Trade
promotions are
viewed with
great suspicion.
• Each party
believes that the
other party in
trying to get an
upper hand.

4. • Trade promotions
should be based
on a transparent
system that
generates
mutual trust.
• There should be
Win-Win for
both retailers &
manufacturers.

5. • Retailers abuse
trade promotions
by purchasing
more at discounted
price and sell even
after the discount
period or sell at
regular prices.
• They also engage in
‘Diverting’ by
selling it to other
retailers

6. • To counter
retailers, tactics,
manufacturers
use ‘Pay for
Performance’
trade promotion
– to reward on
the basis of how
much they sell
rather than how
much they buy.

7. • Pay for Performance
benefits all
• Manufacturers –
Boost Bottom line
• Retailers – Increased
concentration on
marketing than
buying
• Consumers – Lower
prices of Trusted
brands

8. Redesigning
the
Trade Deal

9. What are
the
options?

10. • Scan Back
• Identical Deals
• The Mimic Scan Back
• Scan-Back variations

11. Scan Back, a.k.a Pay-for-
Performance
• Eliminates Forward-
buying
• Eliminates diverting
• Limit the duration of
promotion
• Helps predict real
consumer demand
• Retailers are reluctant
due to the low pay-off

12. Mimic- scan back
• Average cost of promoted
and non-promoted goods
are identical to off-
invoice trade deal
• Retailer makes profits
similar to off-invoice
deal
• Avoids forward buying and
diverting
• 3 main variables: the
regular wholesale price,
length of deal and depth
of the discount

13. Slide-Back Variations
• Retailer revenue and
profit is as high as off-
invoice deal
• Manufacturer numbers
improve as well
• The manufacturer can
tweak any of the 3
variables
• the regular wholesale price
• length of deal and
• depth of the discount

14. Does Scan-Back really work?
• Statistical Analysis
demonstrates efficacy of
scan back
• Greater pass on of deals to
customers (75% v/s 20-30% in
off-invoice deals)
• Higher sales generated in an
experiment with beverage
company
• Simplified judgement of pay-
for0performance
• Eliminates purchase
distortions inherent in off-
invoice deals

15. Implementation Challenges
• Higher retailer
allegiance to off-invoice
method
• Distrust between
retailers and
manufacturers
• Prima facie higher
incentive to retailer in
this setup

16. Can an auditor help?
• High instances of
retailer manipulation
• Scam Down
• Auditor can verify sales
with stocks to bring down
‘scam down’
• Well established auditors
can pay retailers for
discount and collect from
manufacturer later
• Over see implementation
of scan backs

17. Manufacturer Problems
•Tied up in Admin tasks
•Complicated negotiations
•Prisoner’s dilemma
•Uncertainty over pass
through rates

18. Changing Organizational Culture
• Performance metrics based
on product movement &
profitability
• Collaborative partnerships
• Experimentation
• Targets/ goals of each party
to be established
• Cooperate to analyze the
results

19. Seeking Peace & Profits
• Changes In culture to be
supported by tangible
marketing initiatives
• Software solutions are
important for merchandising
response analysis 
attitudinal & organizational
changes are even more
important
• Manufacturer & retailer
should develop close relations
to better understand the roles
in channel

20. Results achieved
• Pay for performance
• Assurance that dollars
reach customers
• Cut costs for retailers
• Experiment, Collect Data,
Cooperate