Trade Spending, Trade Promotions, Promotional Trade – within the CPG (Consumer Packaged Goods) Industry, it’s the same general concept that refers to: expenditures paid directly by a manufacturer to the retailer or distributor.
The basic purpose of making deals & accounting for trade spending is to encourage promotion via discount, secure additional distribution, add shelf space & facings & ultimately drive volume. It’s part of ‘the cost of doing business’ that most brands leverage in order to have their product placed, stand out & be supported at-shelf. And while some of this can be coordinated through e-mail & handshake agreements, they’re ALL contracts & part of your accounting.
Frequently when starting out in distribution, your Category Manager or Supplier Relationship Managers often require an OI, or OFF-Invoice discount calendar* to participate in their basic programming, initial POs, publications, trade-shows & virtual events that typically drive the most volume with their targeted, primary clients. Generally, there aren’t any additional fees when offering an OI since you’re offering the discount on your POs for a select period to the distributor, however once you & your broker teams begin layering MCBs & offering placement deals or free fills, each of those wins or ‘agreements’ have a fee associated to process the deal & come back around as individual transaction items coded in your AP. It’s a lot to juggle & keep absolutely clear on when you’ve got great sales momentum, and Adesso’s TPM is an exceptional tool built for this very purpose.
There may be some cost savings of offering a discount that likely doesn’t fully make its way to the end consumer against the challenging fee structure billing back for placements secured within a given launch month, but those extra promotions & doors can be your volume driving brand ambassadors & best to strategize on in partnership. When planning in advance with your best retail partners, ask what layering an MCB% or SCAN on top of a scheduled OI% can potentiate on volume, get clear on expectations on unit sales and collaborate with all logistic players accordingly for the best ROI.
Examples of common Trade Promotions include:
*(industry standard is 12-25%, three to five times a year)