This document discusses improving trade promotion practices between manufacturers and retailers. It proposes using "pay for performance" promotions where manufacturers reward retailers based on units sold rather than purchased. This avoids issues like retailers overbuying or diverting goods. The document evaluates options like "scan back" promotions and identifies challenges in implementing new approaches like retailer reluctance or distrust between parties. It emphasizes the need for collaborative partnerships, experimentation, and cultural changes to make pay for performance promotions effective.

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