For most emerging CPG brands, trade spending is an initial shock. For even the most established brands, driving trade spending excellence is a key organizational discipline staffed with experienced professionals due to it’s size & far reaching scope.
Background
To start ‘Winning Through Trade Excellence ’ it is important to have a very brief perspective on the background of trade spending within the CPG industry.
- As a simple ‘rule of thumb’, trade spending represents over 20% of gross revenue for most brands – a few are a bit lower, but most are higher. Take a second to think about the scope of that figure. To put it into perspective, a $1M brand spends probably a quarter of a million of those dollars on trade. For a $5M brand, it is well over $1M on trade. Trade is a ‘business’ all to itself & certainly justifies an investment from every organization.
- Trade spending has existed in the industry for over 40 years & the leading organizations embrace this with the core objective of making trade spending an investment vs. an expense. It is, by far, the largest element of the marketing budget.
- Trade management & deduction management are 2 totally different areas; in fact, deduction management/settlement is, or should be, a small subset of the overall trade management & excellence process. In many companies, these become the same issue.
- This area consists of everything from Off Invoice allowances to all sorts of performance based promotional activity (scan promotions, display allowances, ad fees, food shows, the list can go on and on…). Slotting, free goods & other fees associated with new distribution are also included here. Customer fees associated with these promotions are also typically included as a trade spending expense. Many companies also include incremental production costs for display shippers & other related customer specific charges within this area.
While it is a significant (typically, your second largest expense line on your P&L) expense, limited resources are typically placed against this investment. In working with numerous brands, there are tons of reasons why this is not proactively addressed. A few common ones include:
Barriers to ‘Winning with Trade Excellence’
Fear of the unknown – where do we start?
- It’s new, different & requires a completely new set of skills for a team already over-capacity with areas they need to address.
Industry perspective
- One typically hears that it is a ‘cost of doing business’. While some trade spending activities may be, retailers are constantly looking for innovative ways to increase business, and fact-based opportunities to do so.
- The right approach transitions this ‘cost’ to an investment in brand growth.
It’s expensive & requires deep industry expertise
- While it does require deep industry expertise, it need not be expensive – in fact, this investment can be extremely cost-effective with immediate payback.
‘Software’ does not fix the situation
- While some brands may benefit from a tool to assist, this is a process & organizational discipline area. As a parallel example, moving from QB to an ERP system is not going to fix your accounting issues without the proper processes…similarly, adding software to a flawed or undefined process & discipline is not going to address trade spending.
Procrastination
‘We are too small for this’!
- Trade spending is higher for smaller / emerging brands as a percent of revenue due to new distribution, initial trial of different approaches & the constant ‘surprises’ these spending issues (and deductions) create.
- No company is too small to invest in this area.
‘We will look at it in a year or two’.
- A typical response, but in a year or two, you will be in the same spot.
- No time like the present to develop a clear trade strategy.
‘It doesn’t fit into the budget’.
- It is hard to gauge this one as it pays for itself quickly & you need & deserve to have a clear picture of where this investment is going & the return (or lack of return) you are getting for it.
- An investment in a trade process & the organizational disciplines it will create pay backs quickly & for many brands, becomes a competitive advantage.
Simple put, if your team is looking to ‘Win at Trade Excellence’, any team needs a strong offense to get there. Schroeder & Associates compliments your leadership team with experienced, cost-effective team members.