For most stakeholders in the CPG industry, scan-down promotions have become the preferred type of trade promotion. The following table shows the pros and cons for two types of trade promotions:
|Type of Trade Promotion||Pros||Cons|
|Traditional “push” trade promotions, with allowances based on what is purchased||Easy to measure and administrate for direct accounts.||Retailer can just load the warehouse to qualify for the discounts.|
|Scan-down promotions||The allowance is tied to consumer sell-through, which gets more of the trade spend to the end consumer||The manufacturer can’t validate the final cost of the retailer’s claim without using IRI, Nielsen or the retailer’s POS data.|
Scan-down promotions reward retailers for selling product to consumers instead of just buying product. Focusing on the sell-through is better for all CPG stakeholders than just incentives on the sell-in. For traditional 'push' promotions, retailers purchase more than what they will sell during the promotion. This extra volume is extra inventory that is called the forward-buy, and it ends up as short-term excess inventory in the retailer's warehouses. The retailers do this because they 'earn' allowances on what they purchase, not what they sell.
This old traditional channel-loading clearly increases trade promotion spending, but this approach has other hidden costs. Because product can sit in the retailer's DC warehouse longer when the retailer forward buys, even more allowances may be needed to sell-off excess inventory before product expiration dates. Other hidden costs include the manufacturing inefficiencies to make and ship large quantities of product to meet the orders for the promotion, only to be followed by below-average or no shipments after the promotion. This costly post-promotion drop-off effect is generally not associated with scan-down promotions. In a future blog we'll explore the pros and cons of consumer pantry loading.
So if scan-down promotions are good, why don’t we see more display-up promotions?
The concept is simple. The manufacturer pays a fee that is tied to every display that is built in each store. Retail display activity has been documented to dramatically increase promotional sell-through at retail. What’s holding us back?
The answer is accurate data. There is no nation-wide retail audit data that measures all the displays in every store every day of the year. What about syndicated data? IRI and Nielsen syndicated have measures that report the percent ACV that built the displays.
There are several challenges with using syndicated data to validate a retailer's claim for a 'display-up' event. First, syndicated data is expensive and not every CPG manufacturer can afford to purchase the data.
Second, syndicated measurement of displays is based on a sampling of stores. No vendor audits of every store, every day. Using a few stores as samples, IRI and Nielsen apply mathematical techniques to each store's movement data to estimate which stores had a display and which one's didn't. I've heard many manufacturers complain about the accuracy of these estimates.
What about using a Retail Execution solution to collect this data? Software exists to to collect this data, but it requires people to be in the store to collect the data. The cost of the labor to collect display data in every store for every promotion would wipe out any profit from the display promotion.
So do we give up on display-up promotions? No, I see future technology providing the solution. It is not far fetched to think about automated robots that slowly roam every store, collecting data while they perform basic shelf clean-up and restocking.
I look forward to the day when we can offer and accurately measure 'display-up' trade promotions.
CG Squared, Inc.