Trade Promotions: Analysis of the Key Determinants of Market Share

Trade Promotions: Analysis of the Key Determinants of Market Share

A proposal submitted in partial fulfillment of the requirements for the Degree of Master’s

Problem Statement

Trade Promotion can be defined as a campaign directed at channel partners like wholesalers & retailers and not at final customers. The incentives to channel partners are offered to encourage them to increase product sales by providing them with a better margin than competitors. The intention is also to have a drip down effect & pass on the margins to end customers in terms of lower retail prices. This retail pass through of margin to end consumers has been a concern for manufacturers for long. The trade promotion spending as a part of marketing budget has increased significantly over the years but the inefficiency in ‘retail pass through’ has been a big concern.

The purpose of this research to study key determinants that affect a retailer’s motivation to pass on the benefits to end consumer and help the manufacturer devise a promotion strategy to maximize its sales & help them translate it into high profits. We take manufacturers as test subjects & will make an attempt to understand the trade promotion strategy adopted by the company & determinants affecting the retail pass through. We will compare the practices of these companies & trade promotion activities to study the company’s performance & compare with industry average. We will analyze the company’s promotion strategy against market leader’s & give our recommendation to maximize the sales.

INTRODUCTION

Trade promotions are inducements offered by manufacturers to retailers to encourage them to reduce retail prices. Armstrong in a study in 1991 found that manufacturers more oft...

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...d nearly as much on trade promotion as advertising – which is more than $2 billion annually. Yet they go with the assumption that more than a quarter of trade spending goes directly to retailers' bottom lines rather than to cover promotion costs or reduce prices to consumers. They employed the services of Accenture in introducing analytics in TPM. Currently, retailers accrue funds from P&G based on the number of cases they buy. But while the funds are earmarked for specific promotion programs, retailers don't need to prove they executed the programs to collect. Better retailer performance could mean much better display or other in-store marketing for P&G brands at the same or lower cost as before-though even a $70 billion behemoth like P&G could have trouble taking money away from key retailers without getting punished by competitors.