As a customer manager we may inherit a historical customer category support spend level which includes a set of trade spend buckets considered the ‘price of doing business’ or simply what is considered ‘normal’ in the customer or category.
We can optimise our trade spend by introducing and executing a new set of trade spend principles which focus as much as possible on conditional investment rather than unconditional investment and can fundamentally change why we invest and how we invest. It should also be highly advantageous for our customer if the right sell out strategies are in place; and, together we profitably grow the category.
When a historical precedent has been set it can be hard to negotiate new criteria for trade spend. Intense competition in most categories means that we are under pressure to offer what we are told our competitors are offering. Intense pressure on retail selling prices between retailers means we are under pressure to invest in discounts and other promotional allowances to achieve competitive pricing for our customers.
We can reduce and optimise trade spend if we strive to link all trade spend payments to performance so we get “something for something”.
This always means that we endeavour to agree new (or move existing agreements) that are conditional rather than unconditional. An unconditional payment is one we make irrespective of performance. A conditional payment is made only based on actual performance.
Establishing fair, clear and strict pay for performance criteria as a business helps us optimise discounts and trade spend and reduce our overall gross to net. Importantly, it jointly incentivises our business and our customer’s business to focus on sell out performance and efficient supply. This in turn focuses our joint strategic planning on shopper growth in our categories and brands.
Think about your last negotiation – did you get ‘something for something’? Does your conditional trade spend have stringent pay for performance criteria?
Next in our ‘Top 10 Tips to Reduce Trade Spend’ series we think about the positive impact on trade spend investment when we improve our speed to market for new initiatives and launches. If you have any questions or comments please get in touch.