Trade promotions between manufacturers and retailers aim to increase product demand but often result in distrust. Retailers may purchase more than needed during promotions and divert products to other retailers for profit. The document proposes alternative promotion models called "scan backs" that reward retailers based on actual sales performance rather than purchases. This eliminates issues like forward buying and diverting. While challenges exist in implementing new models, strategies like involving auditors, changing compensation structures, and experimentation could help transition to more collaborative and profitable promotions for both parties. Solutions must also account for India's large unorganized retail sector.

1. Changing the Channel:
A better way to do Trade Promotions
GROUP 2

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. • Retailers abuse
trade promotions
by purchasing
more at
discounted price.
• They also engage
in ‘Diverting’
by selling it to
other retailers

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

6. Redesigning
the
Trade Deal

7. What
are the
options
?

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

9.  Eliminates Forward- buying
 Eliminates diverting
 Limit the duration of
promotion
 Helps predict real consumer
demand
 Retailers are reluctant due to
the low pay-off
Scan Back / Pay-for-Performance

10. • 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.

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

12. The 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

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.  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
 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. Changing
Organizationa
l Culture
Auditors
Cant Solve
All the
problems

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

19. Retailer
Problems
 Built in infrastructure for
efficient buying
 Company rewards for
profitable buys
 Large investment in
warehousing
 Resistance to change
compensation structures
and operations

20. Steps Ahead
 Performance metrics based
on product movement &
profitability
 Collaborative partnerships
 Experimentation
 Targets/ goals of each party
to be established
 Cooperate to analyze the
results

21. Support with tangible marketing activities
 Retailer manager compensation
linked to Brand/ Category
performance than profits from
smart buys
 Inclusion of customer
satisfaction metrics
 Software Solutions
 Software Solutions are important ! NOT AS MUCH AS Organizational and
attitudinal changes ! ! !

22. Manufactur
er
Retailer
Seeking Peace & Profits

23. The Case of Vodafone UP East
Vodafone UP East
• Covers 95.67% of population ( 12.65 r)
• Total of 2500+ Channel partners –
Distributors and Retailers
Pay-outs
Acquisition
Distribution
RevenueHygiene
Infra
 Retailers payout on basis of:
 No. of new subscribers
 Quality of Users (Churn )
 Revenue (Tertiary)

24. The Indian Context: A difficult experience
 Difficult to implement
trade promotions
 High instances of benefit
not passing to consumer
 90% unorganized retail
 Implementation easier in
organized retail
 Pay for performance a
partial solution
 No billings for many items

25. The Indian Context: A difficult experience
Cracking the Indian Code

26. Cracking the Indian Code#1
 Barcode scanner apps;
Information encrypted
barcodes
 Empowers consumers
and make them more
aware
 Companies should push
consumers using these
apps, especially for high
value items

27. Cracking the Indian Code#2
 Targeting association of
retailers in areas/districts
of particular trades
 Like Labour unions, there
are unions of retailers in a
market/district/area
 Behaviors can be
governed by putting
pressure on these groups
which inturn would prompt
retailers for rightful action

28. Cracking the Indian Code#3
 Regular audits difficult
to manage
 Empower distributors
 Infrequent audits by
distributors
 Easier for
manufacturers to control
behaviors of distributors

29. Submitted to:
Prof. Sameer Mathur
Ph.D. Carnegie Mellon
WWW.mbaskills.in
Group 2
Akshat Goenka | Piyush Soneja
Rohit Sharma | Sushmita Kraleti