In the last session we discussed

TRADE DEALS

and covered
What are trade deals
Objectives and types of trade deals and
Trade deals for consumer durables

Next topics is

TRADE DEALS FOR NONDURABLE CONSUMER GOODS

February 16, 2005

TYPES OF TRADE DEALS FOR CONSUMER NONDURABLE GOODS

Almost same as for durables but main focus of trade deals for
nondurables is on PRICE INCENTIVE.

1: Off invoice - rebate on whatever quantity retailer buys

during a specified period.
2: Bill Back : Retailer claims discount at the end of promotion
for discount and cost of any promotional activities.

3: Free Goods : 12 + 1 etc. in the form of same product (not

other items as are in case of durable goods)

4: Cooperative Advertising Allowance

5: Display allowance - fixed amount per case etc.

 6: Sales Drive – incentives to wholesalers, brokers and mobilers
to push the product.

7: Inventory Financing

8: Count – recount : payment to retailer on “actual sales” to

ultimate consumer

9: Slotting Allowance : Charges to retailers for space for new

products. For test marketing or launching.
Usually a fixed amount.

10: Street Money : Fixed/lump sums amount to retailers to run

the promotion.

To the retailer and not to wholesaler – this is

how the promotion (Street money) got its name.
MEASUREMENT OF TRADE DEAL EFFECTIVENESS
Before-after analysis

Volume of sales (1) before (2) during and (3) after the
promotion.

“Before” - baseline – what sales would have been if there was no

promotion

“During” – sales increase during promotion

“After” – sales dip after the sales promotion is completed.

 Off price promotion – for two months
Regular price Rs. 950/case

Off invoice Rs. 50.oo

Ad allowance Rs.10.oo
Total Rs. 60.00 Rs. 60

Gross margin for manufacturer Rs. 450/= per case

Average/baseline sale prior to promotion 10,000 cases

Sales during trade deal 30,000 cases
Sales after the trade deal 2,000 cases

Incremental sale
Sale during and after the promotion 30,000 x 2 + 2,000 x 2 = 64,000 cases

Sales for 4 months had there been no sales 40,000 cases

Incremental sale 24,000 cases

*
 Incremental Profit
Normal sale for 4 months 40,000 cases
Normal margin (40,000 x 450) Rs. 18,000,000

Promotion sale:
2 months 60,000 cases x Rs. 450 Rs. 27,000,000
2 months 4,000 cases x Rs. 900 Rs. 360,000

60,000 cases (Rs. 450 – Rs. 60) Rs. 23,400,000

4,000 cases (Rs. 450/case) Rs. 1,800,000
TOTAL Rs. 25,200,000

Incremental profit:

Rs. 25,200,000 minus Rs. 18,000,000 = Rs. 7,200,000

or Rs. 112.50 per case

There are certain advance statistical models like Blattberg-Levin

Model.
COORDINATING SALES PROMOTION & ADVERTISING

Sales promotion techniques usually work best in conjunction

with advertising.

Effectiveness of an ad campaign can be enhanced by

consumer-oriented sales promotion

Both complement each other - synergistic effect

Budget allocation for Sales Promotion

Depends on many factors like objective of the campaign,

competitive situation and brand’s stage in life cycle.

Introductory stage – large amount – sampling and couponing

to induce trial
Growth stage – smaller amount – for advertising and keep the
brand in customer’s mind.