MCB. SCAN. OI. OH MY!

For consumer brands selling on store shelves, trade promotions are a must to keep product moving and retailers happy. Using in-store promotions effectively can put your limited trade spend to work for you - and increase sales.  

Whether your brand is growing distribution or going through the annual planning process, you must decide which customers to promote with, how much promotion is required to maintain shelf space, and where best to spend any additional promotion dollars to deliver maximum growth and profitability.  

This is where pricing-driven promotional tactics like MCBs and OIs come in. There’s a lot of confusion around these tactics. What are they? And which one is the best one that NO ONE is talking about?

First, let’s define each.

• Temporary Price Reduction (TPR):  A tactic that represents spending for the brand during a pre-scheduled duration called a “promotional period.”
   
• MCB (Manufacturer Charge Back):  The amount charged by a distributor for shipments to a retailer (an indirect customer) who has been authorized by the brand to purchase products from the distributor at a discount.
  
  
• Scan:  Discount is applied at the point of sale (POS) to the consumer every time a product is “scanned” through the register.
  
  
• OI (Off-Invoice):  A discount amount taken off the sales invoice when a product is shipped to the distributor.
  
  

So which promotional tactic is BEST?

It depends on how you look at it. I find it helpful to ask: At the end of the day, who benefits?

• MCB – Retailer wins! 
  The retailer can purchase more than they need (bridge buy) from the distributor and sell the excess at the non-discounted price.
  
  
• TPR or Scan – Brand Wins!
  The brand only pays on actual shopper purchases. No more, no less.
  
  
• OI (Off-Invoice) – Distributor wins!
  Again, that bridge buy! Distributors will purchase more than they need to get that discount off the sales invoice.
  
  

Now, here is what NO ONE is talking about…

The distributor and retailer have zero downsides when purchasing more than they need. Why? Because of something called deductions.

Distributors and retailers are compensated by brands via deductions off of their invoices for shipped product. The reasons for deductions beyond normal trade spend are various – spoiled or expired products, PLCs or Product Loss Claims, to name a few.  

Bridge buys can amount to higher discounts and higher deductions, sometimes significantly higher amounts than planned (if the retailer or distributor claims spoilage, for example). 

After 16 years in CPG, I know one thing: retail is a difficult journey. The cards are stacked against you as an emerging brand. It feels like Vegas...the House always wins. And the emerging brands feel like they only have two choices:

1.  Pay to Play and stay on the shelf (Big flashing ATM sign on your forehead)
2.  Say no and get discontinued

There’s got to be a better way.

Arm yourself with knowledge. Know what to expect and have a good understanding of distributor and retailer contract terms when it comes to promotions, deductions and reasons for charges. It’s also helpful to leverage the experience of others in the CPG industry who have been there before. 

And finally, to get the most out of your trade spend, you have to measure results quickly and often in order to assess performance and make decisions. And you need to do it efficiently so you don’t end up adding even more to your spending. Keep a close eye on those deductions by planning for them and tracking against actuals to avoid any unwelcome surprises.