White paper: Comprehensive Trade Management (PDF) - Oracle

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process of measuring the ROI of trade promotions is a relatively new science. Recent AMR Research surveys show that field sales teams measure ROI for just 43% of trade promotions; brand managers do only slightly better (55%). 1 These statistics are shocking, considering that leveraging these expenditures better could increase corporate profitability by 15% or more. Improving Trade Promotion Performance Can Substantially Increase Profits Manufacturer ’ Return on Trade Dollars s Return Spent on Trade Spend Profit Impact of Improving Trade Performance 0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 -0.8 -54% -29% 50% 10% - 25% ROI Improvement X 5% - 10% Net Income as % of Revenue 15% - 20% Trade as % of Revenue 15% - 100% Net Profit Improvement Min Median Max Most manufacturers lose nearly 1/3 of the money invested in trade promotions Improving trade promotion performance can increase profitability 15% or more Source: “ Trade Promotion: A Framework for Growing Profitability ” by Booz & Company The $1 Trillion Trade Spending Problem The amount of money spent today in global marketing is more than $1.4 trillion dollars (USD). According to Deloitte, nearly one third of that number is trade promotion. If you add in the amount of money manufacturers spend on direct consumer promotion – such as coupons and the exploding phenomena of Internet advertising and marketing – the so-called below-the-line spending associated with channel promotion funding approximately $1 trillion of that global market spend. This “trillion dollar problem” is not exclusively the domain of manufacturer and suppliers. It is a serious problem facing the channel as well. Drivers of Trade Spending The two real drivers of trade spending growth are 1) increasingly sophisticated consumers and 2) the massive, but resource-strapped 1 AMR Research; Trade Promotion Management in Consumer Products: Trends and Market Opportunities; February, 2008 4
etailers who must cater to them in an ever increasing number of formats and channels. The Changing Consumer Consumers are switching brands, retailers and channels more than ever before. • 68% are brand switchers. Only 5% are loyal to one brand. • 73% shop in five or more channels. Only 26% are loyal to a particular retailer. 2 A new “thrifty” behavior is emerging with the economic downturn, so that consumer perceptions of value often trump loyalty. Social networks are emerging as a “source of truth” about brands 3 , fueling even more brand switching. In essence, the consumer has matured; and with that maturity comes a more daunting task for both manufacturers and resellers alike – doing more than ever to attract, deliver and maintain a loyal consuming public. According to a February 2009 paper, AMR Research pointed out that in the beginning of 2008, 40% of the decisions the shopper made took place at the shelf. By 2009, only 24% of the shopper decisions were being made there. 4 Retailers and Manufacturers differ in their opinions that this is where the trade spend should be concentrated (See “Evolving Trade Relationships, page 7). As such, consumers are researching, planning and executing their purchases more strategically in a recessionary economy, dramatically affecting the impact of trade promotions. The Changing Retailer Retailers continue to consolidate and increase their leverage. Whole Foods/Wild Oats, SuperValu/Albertson’s, Coles, and Ahold are just a few of the most prominent recent combinations. Meanwhile, company failures are becoming more commonplace against the perfect storm of both the competition and the economy; some of the victims include Circuit City, Linens N Things, Home Expo and Smith & Hawkins. Many consumer manufacturers now 2 From Deloitte Consulting, Shopper Marketing White Paper, 2008 3 Ibid 4 AMR Research, Lora Cecere, C.J. Wehlage, and Jane Barrett; February, 2009 5
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