For 14 years, ACNielsen has conducted an annual Survey of Trade Promotion Practices among manufacturers and retailers.* The results of the 2004 survey show some trends in trade promotion spending and satisfaction continuing while other traditional practices are changing in the face of manufacturers and retailers applying traditional business-building tools in new ways.

Continued Upward Momentum in Spending and Satisfaction
ACNielsen’s most recent survey of trade promotion spending and practices notes ongoing growth in certain areas. One of these is trade promotion spending. In 2004, 53% of both the manufacturers and retailers surveyed reported a measurable increase in total trade promotion spending, which includes advertising and promotional dollars allocated across trade promotion, consumer promotion and media advertising.

Other growth was seen in the satisfaction levels of both retailers and manufacturers with their trade promotion investment. Thirty-five percent of manufacturers said they received “excellent or good” value in 2004, up from 31% in 2003 [See chart 1]. Retailers showed an even steeper rise in satisfaction, with the percentage of those who claim to be satisfied with their share of manufacturer trade promotion dollars climbing from 22% to 36% [See chart 2].

An Uptick in Spending Levels
The survey results suggest quiet confidence in current trade promotion strategies.

Manufacturers reported that their trade promotion spending in 2004 continued to average about 14% of gross dollar sales, a finding in keeping with recent years. (Since 1991, spending levels have only varied within a three-point range, from 11% to 14%.) Of those, food manufacturers were most likely to increase their investment.

These overall results stand in contrast to the response of the general merchandise (GM)/nonfood product manufacturers, about half of whom reported spending less in 2004 on trade promotion. For the eleventh consecutive year, health and beauty care (HBC) organizations said they spent less on trade promotion (10%) than their food (15%) and GM/nonfood (15%) counterparts.

Manufacturers report that the lion’s share of their advertising and promotion budgets went toward trade promotions, while about 20% went to consumer promotions. There were further differences by market segment in promotional buys. Where HBC manufacturers were more likely to spend on media, food and GM/nonfood manufacturers tended to put their budgets into trade promotions.

Retailers Still Want More
Even with spending and satisfaction levels up, retailers indicated that they want a bigger portion of manufacturer trade promotion dollars. Only about one-third (36%) thought that the share they received in 2004 was sufficient. Still, this result marks an improvement over 2003, when just 19% of retailers felt they received a sufficient share [See chart 3].

For retailers, the sources of these promotional dollars were split evenly among Internal Retailer, Manufacturer and Co-op funds.

Agreement on Where the Money Goes
The 2004 survey showed that manufacturers and retailers continue to agree—for the most part—on how different components of trade spending have shifted. The only difference is that more retailers see an increase in bill-back allowances (display and ad) than do manufacturers.

Manufacturers and retailers further agree that:

• The amount of time spent on trade promotion is
  10 to 11 weeks.
• The number of new products introduced is increasing.
• The incidence of failure fees is low.
• The main reason for spending on trade promotion is to increase sales.

That is where the agreement ends. Far more retailers (73%) than manufacturers (44%) report an incidence of annual trade promotions agreements/contracts. Retailers also manifest more enthusiasm about the impact of trade promotion on loyalty: 91% of retailers believe it keeps customers returning, while only 73% of manufacturers think it has a positive impact.

Category Management Practices Are Changing
The survey took a close look at category management practices. Long a key business tool in the consumer packaged goods industry, the discipline of category management appears to be in transition. Survey findings suggest that, while manufacturers and retailers still consider category management critically important, they are less likely to use its traditional tools.

The survey uncovered this trend by asking participants to rank various category management tools such as “shelf management,”“assortment planning” and “everyday pricing.” Compared to 2003, the survey found that some practices—such as shelf management—had dropped significantly, with just 81% of retailers and 82% of manufacturers using it in 2004, versus 94% and 95%, respectively, in 2003. Other category management tools dropped less precipitously. Only “micro- merchandising” became more popular among retailers (going from 41% to 43%), and only “everyday pricing” gained favor among manufacturers (increasing from 74% to 76%) [See chart 4].

Among the survey’s other findings:

• Assortment planning replaced shelf management in 2004 as the most popular category management tool among manufacturers.
• Manufacturers are more likely to use category management to influence consumer buying while retailers use it to optimize their mix.
• All three types of manufacturers surveyed gave different reasons as being “most important” for practicing category management (ranging from “Influence Decisions on Our Categories” to “Optimize Item Mix” to “Create Positive Relationships with Retailers”).
• While both manufacturers and retailers say they will continue using micro-marketing and micro-merchandising in the future, they aren’t increasing efforts in this area.
• In 2004, the customer/trade marketing department was as likely as the senior sales management group to be responsible for implementing category management.

Frequent Shopper Programs Get Mixed Reviews
Another trend delineated by survey results was differences in the way manufacturers and retailers feel about frequent shopper programs (FSPs).

In 2004, 84% of manufacturers participated in frequent shopper programs, showing a clear step up after three years of declining participation. By contrast, retailer interest in FSPs appears headed in the opposite direction. From a high of 74% participation in 2001, retailer
participation in FSPs has been trending downward, to the 63% noted in the 2004 survey. Retailers who forgo FSP activities are likely do so because they have alternative promotions they deem better [See chart 5].

Paradoxically, while using FSPs less often as a group, participating retailers reported feeling more positive than manufacturers about the returns such programs produce and the benefit to everyone involved. Also, retailers who rely on frequent shopper programs use the information with far greater frequency than do manufacturers for all the reasons the survey measured—including inducing customer loyalty, targeting key customers and increasing basket size, among others.

In 2004, retailers continued their trend of not often sharing their FSP information. Manufacturers said 23% of retailers “frequently” shared FSP data with them in 2003; that number dropped to 17% in 2004. More retailers did share “occasionally” [See chart 6]. They are, however, still willing to share the information with information partners such as ACNielsen. Fifty-nine percent said that they do so, almost exactly the same amount—60%—as in 2003.

Direct marketing as a result of FSP learnings has decreased. Now almost one in four retailers claims not to be developing direct marketing based on individual purchase habits—a steep increase since last year, from 6% to 23%.

Also, many more manufacturers are funding their FSPs from both trade and consumer budgets compared to last year. Both manufacturers and retailers agree that FSP monies are more likely to be incremental to those provided for traditional trade programs.

Critical Issues of Concern
Both manufacturers and retailers agreed that four issues were most critical to their business in 2004:

• New product introduction/implementation.
• Category management.
• Promotion efficiency/effectiveness.
• Variety and assortment.

The weight that retailers and manufacturers gave to these issues differed, however. Not surprisingly, retailers diverged most noticeably from manufacturers on issues they deemed more relevant to their business, such as space management, making the retailer a brand and changing store formats.

Manufacturers indicated that next year they will be concentrating more on promotion efficiency and effectiveness as well as understanding the consumer, while most retailers will be placing an increased emphasis on private-label issues.

The 2004 Trade Promotion Practices report was recently distributed to ACNielsen clients and is available for purchase. Please visit our web site at http://acnielsen.com/store to obtain ordering information.

* The 2004 survey marks the fourteenth time ACNielsen has polled manufacturers on trade promotion practices, and it is the eighth annual survey of retailers. The results of this study should be viewed qualitatively, since responses are from a variety of manufacturers and retailers and are unweighted.