For consumer packaged goods (CPG) manufacturers, serving individual retail proprietors can offer tremendous value. Interactions are frequent, within a limited geography and often occur face to face. In store decisions are often made by one or two people, minimizing bureaucracy and expediting decision-making. Further, these retailers are able to interact with their shoppers in a way that increases consumer engagement for CPG brands. While this relationship allows manufacturers and retailers the ability to flexibly meet the expectations of the consumer, it often comes as a high cost. Some common challenges include:
- Trade dollars are spent blindly to offset competition;
- Outlets make deals without a clear commercial direction, leaving the channel fragmented;
- Time spent in outlet stores is disproportional to the associated sales volumes;
- A lack of back-end administrative support around invoicing, applying trade spend and compliance, leading to manual intervention.
As such, CPG companies often struggle to effectively align their trade spend allocation with revenue to generate a more profitable relationship. CPG manufacturers should be looking for ways to redirect trade spend back to its original purpose – using trade dollars to drive value, not to react. To do this, they need to develop a strategy that ensures they do this without losing space to competitive brands or categories, customer intimacy or more time and money. Plan nationally, price locally and incentivize individually.
1. Create a national commercialization framework by gaining consensus with brand, category and sales teams on a go to market plan, annually or bi-annually. This will allow for scalability through commonality and harnesses the power of a national standard. Set national goals, agree on what needs to be done and how to accomplish and measure those goals (i.e., what do we want to do and how are we going to do it?).
Retail outlets should be surveyed annually. Survey questions should align with the national framework, giving insights and direction to the national commercialization teams.
2. Individually-owned retail outlets have a limited geographic span, allowing manufacturers to apply standard pricing to geographic zones. Manufacturers can start with zone-based pricing and apply incremental trade spend based an attribute of choice (e.g., zip code, licensing agreements, sub-trade channel). Attribute-based pricing can be used to group common exceptions.
Trade spend rates should be easily applied and measurable (i.e., rate per unit of measure or rate per case purchased). These outlets typically do not have the volume to justify a complex reward system. The level of standardization must be appropriate for the transaction volume.
3. With a framework and pricing established, manufacturers can offer varied or tiered enrollment options to customers to secure valued space within their store’s walls. This provides the ability for field sales to make a fair offer, negotiate and establish a mutually beneficial agreement.
While this is a proactive and thoughtful approach to how trade dollars are being spent, this can’t be accomplished without a compelling story to establish credibility and a valuable offering. Survey insights and the national plan should be incorporated into fact-based selling actions and recommendations to ensure appropriate investments in the right outlets. Sales must be able to interact directly with a store proprietors and have the ability to act directly on their behalf, within defined boundaries. With this strategy in place, you can leverage the collaboration and consumer engagement that serving this channel provides.