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price competition in retail
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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.
Kotler and Keller (2014) develop on what product represents in the marketing mix, as the idea centers around its design, quality and packaging. Continuing with the Four P model, price should be considered when marketing a product. The price component asks one to determine the list price, discounts, allowances, and payment period of a product (Kotler & Keller, 2014). Finally, Kotler and Keller (2014) list promotion and place as the final two variables associated with the older Four Ps. Promotion deals with how a product is advertised and what type of sales force will be utilized, while place is associated with the channels and locations for which your product will be featured (Kotler & Keller,
The large retailers have many options when it comes to selecting suppliers. The scale of operations of Walmart, for example, give it tremendous bargaining power, and this has enabled its cost leadership in the industry. As will be discussed further in the next question, Trader Joe’s has an extensive supply of private labels; it is argued that private labels enable strategic bargaining power of supermarkets. The retailers are able to imitate the national brands under a lower-priced private label, thus the national brand manufacturers must provide better negotiation terms with the retailers (Meza and Sudhir, 2009). Technology may also strengthen the supermarkets purchasing power, as their point-of sale data provides information on what is not selling, or what is selling. They are able to purchase the popular items in larger amounts, possibly strategically negotiating prices and obtain the low-selling items at reduced
Persuasion has always played an intricate role, in many ways, when it comes to promotion of a Fortune 500 companies like C.V.S. corporation. With the largest pharmacy chain of over 7400 stores in United States; no wonder they are at the top five largest pharmacies in the United States based on revenue generated from prescription only. However it's not only prescription is sold in stores; there are assortment of general merchandise including food, sundries, beauty products as well as health products sold there. In one of the stores I visited for this paper, located at 39th and Main street, I noticed that the products were sold in minute quantities so as to reduce the price of the merchandise.
Retail today is part of the American spirit. Nothing excites an American consumer more when they are convinced that they are saving money and getting a great deal. Consumers today are familiar with popular mass-market discount retailers such as Walmart and Target. Both of these discount retailers undeniably offer great value on their products that convinced the American public that shopping experience will lower their cost of living, which just can’t get shoppers off their fix. Additionally, Walmart and Target competitively sell the same goods such as apparel, home goods, and grocery to offer a more convenient way to shop for their consumers. However, what makes these companies have their own niche, is that they both offer attractive ways to entice the customer to
Current trade deal promotions are destroying our margins, retailers take advantage of these promotions because is profitable for them. For example, every year during the 6 week “back to school season”, if we launch a trade promotion for two weeks, retailers will buy inventory that covers all 6 weeks of the seasons, and they will extend the discounts to the client to increase their volume but eroding our brand equity, they will get a 5% increase in their margin and we’ll get a 15% reduction (Exhibit A, trade promotion). In a “best case” scenario, the retailer and the client are benefitted, but more often than not, only they retailer gets the benefit as they don’t pass the savings to the consumer.
Consumers may not understand why retailers offer buy-one-get-one free promotions even though it’s no better for the consumers. Economist Alex Tabarrok has argued that “the success of this promotion lies in the fact that the price actually takes into account the fact that two items are being sold.” This strategy ...
The main retailing communications strategies are used by retailers such as Sephora to link their sustainability in this market places nowadays. Traditionally, the emphasis of promotions has been on winning new customers but todays, there is more focus on adopting techniques to retain existing customers and placing greater efforts on relationship marketing. Communication is the exchange of ideas, information and knowledge between senders and receivers through an accepted code of symbols.
Kotler P., Armstrong G., Saunders J., Wong V. (2002) Principles of Marketing, Pearson Ed.Ltd, pp.185-188
It is apparent that penetration pricing works on the assumption that price sensitive customers, also referred to as ‘cherry pickers’ (Kalish, 1985), switch brands when prices for substitutable products are lower. If a firm adopts a price penetration strategy when entering a new market, or when entering a new product into a market they are already working within, they will set a low price in order to try to undercut competitors. Such a strategy has the overall aim of escalating market share rather than achieving short term profits.
Offline retailers can conduct various engaging activities with the customers to stimulate product interest, trial or purchase. Activities like contests regarding product features, benefits and technology. They can also improve point of purchase displays by using digital signage to inform customers about the product on a flat-panel screen. Store promotions should be targeted to the customer in order to increase the conversion ratio and thus, improve sales of the company. Discounts impact the way customers think and behave towards the
It is important to ensure that the products are always well received in the market. Effective promotion can ensure customers to try and keep the interest of users of products produced or regular users on being satisfied with the quality of the product. The success of promotion can be judge from the quantity of sales.
Since the mid ‘80s, the proportion of marketers’ promotional budgets allocated to both consumer and trade promotion has increased, while the proportion allocated to media advertising has declined. From our lecture slides [1], some reasons for this increased spending on sales promotion include:
Promotion. Finally comes promotion - informing the customer on the qualities and advantages of the product so that the potential buyer learns about the product, prefers it to those of the competitors, and has an opportunity to buy it at some place.
Two recommendations for promoting direct-sales through consumer and the business; One is to offer incentives to its customers and second is to motivate the business to promoting its products by advertisements, establishing sales competition for employees, participating in conventions, and by endorsing franchise of its products to retail stores.
The nature of the business of retailing puts retailers at a assumed risk of incurring costs because products are bought with the assumption that consumers will purchase. Additionally there are external factors that may also pose risks such as natural disasters, theft, spoilage and fire. In other circumstances retailers also extends financial credit to customers in the form of credit sales which facilitates the smooth transition from retailers to the marketplace. Retailers are in constant contact with customers which gives them the opportunity to research and study buyer’s behaviour. This involves collecting information about changes in customer preferences, perception and shifts in the demand curve. Through advertising within their stores retailers are able to exhibit and introduce existing and new products to the marketplace. Ultimately retailers are in the business of selling products to customers to achieve their goals of generating