The relationship between a consumer and a promotion is purely mercenary – the consumer looks for the best deal around. What the consumer does not know, and probably does not care about, is who the source is of the largesse – was it the retailer, distributor or manufacturer.
The consumer does not know what is being given to whom to buy their loyalty or who is receiving the benefit of that payment: the customer or the retailer.
The trade incentives industry is a tricky one, mainly because different rules apply to different sectors. Supermarket multiples are unequivocal, they will not accept any form of incentive on the part of the manufacturer to push their particular products. But even this tightly regulated sector, has its loopholes.
Mark Beasley, managing director of sales promotion agency Perspectives, says: “Most UK consumer markets have distribution channels dominated by highly sophisticated multiple retailers which are unlikely to be swayed by a trade promotion even if they were allowed to participate in it. They are more likely to be swayed by category management strategies, such as how the brand, product or marketing activity will increase their overall category profitability. This is seen as the manufacturer adding value in the eyes of the retailer.”
The loopholes, such as they are, have been found by manufacturers which have been forced to become more creative in their attempts to influence retailers. “Most incentivisation is linked to education,” says chairman of Clarke Cooper Consultancy Barry Clarke. “You can incentivise staff managers and staff in the supermarket by organising corporate work, such as helping stores arrange their wine or health and beauty departments.”
Thus, manufacturers put themselves into an advisory role, giving tips on how to arrange particular departments.
The hope is that a feelgood factor will kick in at some point and make retailers look more kindly on particular products. Given the battle for shelf space in multiples, this oblique incentive probably pays off quite well.
In this grocery sector, trade incentives fare better in the independent trade such as cash & carry, wholesalers, and owner-managed shops, according to Beasley. These outlets are not as rigorous in rejecting overt incentives from manufacturers.
Nevertheless, Beasley warns: “Motivating retailers has to be approached very carefully and rewards which have some sort of business relevance will always be preferable.”
But if manufacturers have found a way of softening up the major multiples, promotions aimed at the flexible grocery trade are even more open to abuse.
Tony Wightman, managing director of direct marketing agency TSM, says coupons presented by manufacturers to independent retailers to redeem at cash & carrys and wholesalers often result in malredemption – in much the same way as consumer-targeted coupons have been.
According to Wightman, the coupon holder (in this case the retailer) will often redeem the coupon for cash rather than as a discount for the manufacturer’s particular product. where the coupon is not used as intended. Although this is considered unethical, it is rarely policed unless the manufacturer adds barcodes to the coupons which identify the specific products that can be redeemed.
The pharmaceuticals sector is a particularly sensitive one when it comes to trade promotions, given the nature of the products and the intended consumer base. Not surprisingly this sector has already been criticised for pushing the boundaries too far.
Health Minister Baroness Jay launched a clampdown in July on pharmaceutical companies and wholesalers which offer health professionals gifts and inducements to prescribe medicines.
It is a criminal offence for any person to offer gifts, pecuniary ad-vantage or benefits in kind as an inducement to prescribe or supply their medicines for human use. Only inexpensive items relevant to the practice of pharmacy or medicine are allowed.
Baroness Jay singled out unlawful promotions such as bonus points, air miles, holiday discounts, mountain bikes, electrical and photographic goods and prize draws.
According to pharmaceutical promotions agency Forth Dimension, drugs companies involved in these unlawful promotions know the rules but continue to break them when they can.
“Pharmaceutical companies must comply with the Association of British Pharmaceutical Industry’s (ABPI) mandatory code of practice,” says Forth Dimension chairman Derek Hussey. “Products must be approved by the ABPI and must be relevant to the activities of the recipient within the framework of the business and may not be worth more than 5.”
Incentives that are deemed acceptable relate mainly to office stationery but other items which aid diagnosis and treatment, and minor surgical equipment, are also deemed acceptable.
For example, Forth Dimension produced a 3D poster for SmithKline Beecham aimed at doctors in hospitals. The poster highlighted a specific part of the body, giving details of its functions but also providing, at the bottom of the poster, names of SB products which might be useful for treating that particular part of the body.
This, in effect, is a trade promotion. However, it is largely educational (for the patient, hopefully and not the doctor) and also acts as an advisory tool. SB hopes the brand association will prompt the doctor to prescribe its products in similar circumstances.
Another pharmaceutical company, Novartis, developed medical devices to help detect nail fungus. A kit was created which included nail clippers, a scalpel, various wipes and a sterile carrier system to transport the clippings for testing. These were distributed to doctors and fell within the guidelines of being minor surgical equipment. Obviously the equipment was strongly branded and it was hoped the association would rub off on the practitioners.
In general, trade promotions can be categorised into three areas – traditional trade promotions, indirect sales promotions and trade promotions which benefit employees.
With traditional trade promotions, competition is fierce. IT group marketing communications manager at Sony Debbie Arnold says: “Distributors, particularly in the PC market, are constantly being given incentives by manufacturers and the pressure is increasing to come up with bigger and better deals. It has got to the point where cash is being demanded.”
Arnold stresses that Sony has a corporate policy of not providing cash incentives but says some manufacturers do so. Sony IT recently ran a campaign called “Shift a Sony” with four distributors, Frontline, Westcoast, MicroP and CHF. Points were awarded to distributors for the number of products sold. Points could be exchanged for Virgin Vouchers.
Sales promotion agency Black Cat developed the “Get Your Kicks on Route 66” promotion for the computer software package Lotus SmartSuite, the alternative to Microsoft Office aimed at the business-to-business and home office market. Resellers could win prizes against volume sold.
Indirect trade promotions motivate the trade as well as the consumer.
Promotions agency IMP handles Umbro’s trade promotions, and worked on the Euro 96 business. As a sponsor of Euro 96, it was important for Umbro to encourage retailers to get as involved in the event as the consumers were likely to be and be prepared to support retailers in their efforts to make as much money as they could out of the extravaganza.
As a result, sports chain Foot Locker, with the help of Umbro, turned its store entrances into soccer stadium tunnels. Customers walked through to the sound of cheering crowds, creating the sense of emerging onto the pitch. The incentive in this case was getting behind the retailer and helping fulfil its own vision of how Euro 96 could be exploited.
Apart from this type of indirect trade promotion, Umbro also gets involved in staff education and motivation as a means of getting employees interested in Umbro products.
IMP new business director of Ian Millner says: “You can never force consumers to buy the product, but we can make sure that everyone, including retail staff, knows about Umbro’s brand position, its products and features and makes sure they maximise the display. If the consumer is wavering, it is easier to explain the proposition to them.”
In Umbro’s case, it sends out mystery shoppers to participating retail outlets who award points based on the effectiveness of point-of-sale material and employee performance. Staff could be in line to win vouchers for Sony PlayStations and TVs.
“There is a need for education and motivation. Without a doubt, it has improved sales. It helps retailers to boost their own performance and to recognise good staff,” says Millner.