ACNielsen 2002 Trade Promotion Practices Study

For the last 12 years, ACNielsen has conducted the annual Trade Promotion Practices and Emerging Issues study, which addresses major areas of trade promotion practices including spending, category management and frequent shopper programs. The study asks retailers and manufacturers for their actual practices and perceptions about these major trade promotion issues. In this year's survey, there is much manufacturer/retailer agreement on a number of issues. But as in years past, the opinions and perceptions revealed show that there is still a very wide gap between retailers and manufacturers in some key areas of trade promotion.

Trade Promotion Spending

Overall, manufacturers reported that trade promotion spending was 14% of gross dollar sales. This is up from the 11% reported in 2001. Manufacturers in the Food category reported trade promotion spending at 16% of gross sales while HBC manufacturers continue to report lower levels of trade promotion spending (9%). Over the 12 years of the Trade Promotion Practices study, overall trade promotion spending as a percentage of gross dollar sales has ranged from a high of 15% to a low of 11% [See chart 1].

About 65% of surveyed manufacturers report a measurable increase in their total advertising and promotional budgets over 2000. While the 2000 study reported that 28% of surveyed manufacturers decreased total budget spending, this year's results indicate that only 15% saw a decline. However, 58% of surveyed manufacturers report that their organization's trade spending as a percent of gross dollar sales decreased in 2001, extending the downscaling that started in 2000. Only 16% of manufacturers report an increase in trade promotion spending as a percentage of gross dollar sales versus 33% in 2000 and 49% in 1999.

There was relative concurrence in the level of trade promotion spending reported by manufacturers versus what retailers perceived that they received. Forty percent of retailers reported an increase in trade promotion dollars received in 2001 over 2000.

Trade Promotion Impac

The study asked manufacturers to rank their perception of trade promotion spending value as “excellent," “good," “fair" or “poor." Less that one-fourth of the manufacturer respondents rank trade promotion spending value as an “excellent" or “good" value. In the 2001 study, the top two values for this ranking were a combined 37%, a historical high. There was no increase in the “poor" value perception ranking (22%) from the levels reported over the last two years.
The study asked retailers to rank their perception of the share of manufacturer trade promotion dollars they are receiving as “more than enough," “sufficient" or “not enough." The majority of retail respondents (83%) reported that their share is “not enough," with less than one-fifth reporting that their amount of trade promotion dollars is sufficient. The “not enough” ranking by retailers was 70% in 2000, 84% in 2001 and 83% in the 2002 study.

Manufacturers were also asked to rank their total trade promotion/consumer-promotion/media-advertising budget allocation compared to the previous year as “increased," “remained the same" or “decreased." Overall budgets reported as “increased" were 65% in 2001 compared to 68% in 2000. Fifty-seven percent of respondents reported trade promotion spending levels as “increased" in the 2001 study, the same level as 2000. The percentage of manufacturers reporting that their consumer promotion spending had “remained the same" or “decreased” was 54% compared to 42% in 2000.

Trade Spending Allocation

Manufacturers and retailer were asked how the allocation of trade promotion dollars had changed versus the previous year. Both retailers and manufacturers reported increased spending in pay for performance and frequent shopper programs. There was disagreement on spending allocations for slotting allowances. Manufacturers reported considerably higher levels of increased spending allocation toward slotting allowances than retailers report receiving (58% of manufacturers reported slotting allowance spending had “increased,” while only 8% of retailers reported increased slotting allowance dollars received).
Manufacturer and retailer perceptions regarding the time period associated with off-invoice/trade promotion funding in 2001 were fairly aligned, with manufacturers reporting 9.6 weeks and retailers reporting 8.2 weeks. Perceptions among manufacturers on this ranking have shown a fair amount of variation in the last few years. The average number of weeks allowed for off-invoice promotion during 2001 reported by manufacturers was nearly 10 weeks, a return to 1999 levels (12 weeks) after a sharp increase seen in 2000 (20 weeks). Retailers reported receiving funds for an off-invoice/trade promotion in 2001 after eight weeks, which was similar to the 1999 figure of nine weeks, but a decline from the 2000 figure of 11 weeks.

The incidence of annual trade promotion agreements/contracts reported by retailers was 83%, while only 46% of manufacturers reported signing up for these contracts. Over the years there has been a significant disparity in “perception” on this issue between manufacturers and retailers [See chart 2].

Reasons for Trade Spending

The primary reason manufacturers site for trade promotion spending is “increase sales volume” (57%). When retailers were asked the primary reasons for trade promotion spending, the two most frequent reasons were “increase store sales” (85%) and “increase basket size” (83%).
Manufacturers and retailers agree on the impact of trade spending on brand loyalty, but differ somewhat on the extent of benefit. Twenty-one percent of retailers say trade promotion spending “definitely helps” brand loyalty versus only 12% of manufacturers. The 21% of retailers rating “establishing brand loyalty” as a benefit of trade spending was down from 40% in 2001 and 58% in 2002. Manufacturer scores on the brand loyalty benefit are fairly consistent over the last three years. HBC manufacturers' brand loyalty benefit scores were the lowest, with a “definitely helps” score of 8%.

Category Management

Manufacturers were asked their primary reasons for practicing category management. The highest ranked reasons were “influence decisions on categories” (84%), “ensuring category leadership” (82%), “creating positive relationships with retailers” (76%), and “optimizing item mix” (75%). When asked the same question, retailers responded that the most important reasons were “increase profitability” (90%), “optimize item mix” (80%), “increase revenue” (68%) and “identify new opportunities” (63%).

Frequent Shopper Programs

There was some definite disparity between retailers' and manufacturers' perceptions and opinions of frequent shopper programs. About 80% of manufacturers participate in retailer frequent shopper programs, while almost 70% of retailers report offering a program that benefits frequent shoppers. Frequent shopper program participation rates for both retailers and manufacturers fell versus the 2001 study.
Overall, manufacturers are less enthusiastic about the benefits of frequent shopper programs than are retailers. Manufacturers rated the benefits of frequent shopper programs to retailers and consumers to be about equal, while reporting that they received substantially less benefit from these programs. Retailers, on the other hand, reported that they received the least amount of benefit from frequent shopper programs versus consumers and manufacturers [See chart 3].

There was agreement on the fact that retailers do not share their frequent shopper data with manufacturers. Only 18% of manufacturers reported that retailers “frequently” share data and less than 5% of retailers reported “always” sharing their data with manufacturers. Because of the low level of data sharing, 58% of manufacturers report “never” using frequent shopper data in everyday decision making, while the balance of the respondents report “occasional” usage.

A very high percentage of retailers (93%) use frequent shopper data to develop direct marketing programs to target individual consumers based on their purchasing habits. This was consistent with scores reported in 2001. Among manufacturers and retailers currently involved in frequent shopper programs, nearly all plan to continue.

Critical Issues of Concern to Manufacturers and Retailers

The study asked both retailers and manufacturers to rate the most critical emerging issues as they relate to trade promotion spending. The top two issues for both retailers and manufacturers were “promotion efficiency and effectiveness” and “category management.”
Retailers were more concerned than manufacturers about several issues, including the following: “customer loyalty/retention,” “food safety,” “making the retailer a brand” and “private label products.” Manufacturers ranked “the ability to market at store levels” and “efficient consumer response” higher than retailers did [See chart 4].