There’s a lot of confusion around trade spending 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.
When gaining distribution or through the annual planning process, a brand must decide whom to promote with, how much promotion is “required” to merely stay on the shelf, and where best to spend any additional promotion dollars to deliver maximum growth and profitability.
So which TPR 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! They can purchase more than they need (bridge buy) from the distributor and sell the excess at the non-discounted price.
- Scan – Brand Wins! 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 - in the form of Spoils, Expired Products, Product Loss Claims (PLC), etc.
So 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. I believe that to get the most out of your trade spend, you have to measure the things you’re using it for, and then be able to analyze that data. And you need to do it efficiently so you don’t end up adding even more to your spending.
If you need help finding that better way, we can help. We work with so many brands each day to help them gain more visibility into their trade spend and the details on where it's coming from so they can make better decisions moving forward...and before it's too late. Contact us and let's talk about your specific challenges with trade spend.
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