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The Growth of Trade Expenditure

Retailers and Manufacturers Differ

Category Management was the first step toward realizing that the needs and behaviors of the shopper played a key role in sales growth. The problem is that Category Management presumes that the manufacturer’s goals could align with the retailer’s. But real alignment is often elusive: retailers just want to sell more products and don’t really care which brand. Manufacturers have a diametrically opposed goal: they want to sell more of their brand and don’t care where it is sold. Category Management was founded on the belief that these fundamental differences could be overcome by focusing on growth of the overall category, but most in-store promotion is designed to serve the retailer’s needs rather than those of the manufacturer. Rather than solving the problem, Category Management has provided only a partial solution. And implementing Category Management has proven to be difficult for a number of reasons. Even Dr. Brian Harris recognizes that the way the process of Category Management has been used has made it “too complex.” Streamlining the process has become essential. Globally, trade marketing and sales teams have been challenged by the amount of time and effort required to collect and analyze the necessary information. Retailers have had similar challenges and, as a result, many have delegated too much of the effort required to develop category business plans to manufacturers.

Manufacturers’ other strategy, trade marketing, remains poorly understood, and we suspect many CEOs view it as something of a fad. When we surveyed trade marketers in 2006, we found at least four different ways of managing trade marketing. Further, across 40 interviews, we found not one consistent definition of trade marketing.

Yet it is the escalation of trade expenditure that marks the advent of the age of the shopper. Clearly, it’s not surprising that traditional communication vehicles have become less effective, nor will it surprise anyone in the industry that retail is consolidating. What may surprise some, though, is the exponential rate at which trade expenditure has grown. Accenture CAS estimates that in 1980, trade promotions, the largest element of trade expenditure, accounted for less than 8 percent of leading consumer goods companies’ sales in the United Kingdom, By 2005, they estimate that this figure had reached 25 percent. A threefold increase–the fastest-growing cost within a consumer goods company’s balance sheet in that time and now the largest cost after cost of goods for many manufacturers.

This blog found in Course 03: The $200 Billion Crime.

May 16, 2018

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