Download the trade marketing boxes - Toulon Verona Conference

CONFERENCE PROCEEDINGS
13th Toulon-Verona Conference “Organizational Excellence in Services”
University of Coimbra (Portugal) – September 2-4, 2010
pp. 1103-1109 – ISBN: 978-972-9344-04-6
THE TRADE MARKETING BOXES:
A NEW PERSPECTIVE IN THE DISTRIBUTION SERVICES
INDUSTRY
Alberto Marino, University of Bergamo, [email protected]
Abstract
In the distribution-services industry, the evolution of the relations between producers and
distributors has been marked by a shift of the power in favor of the distributors. This implies
the need for the producers to update their trade marketing activities. The purpose of this
article is to support the introduction of new multidimensional “trade marketing boxes” instead
of the traditional and one-dimensional “trade marketing mix”, in order to enlarge the
collaborative area between the producer and the distributor and reduce the adversarial issues.
Keywords
Trade marketing; trade marketing boxes; collaboration-conflicts; FMCG.
1
Full Professor of Marketing, Università degli Studi di Bergamo (Italy), Facoltà di Economia, Dipartimento di
Economia Aziendale, Via dei Caniana, 2, 24127 Bergamo, Tel.: +39 035-2052509, E-Mail:
[email protected].
1. From the Trade Marketing mix to the Trade Marketing boxes
The scenario in which the producers of fast moving consumer goods are operating has been
characterized by significant changes, with clear implications for the firm’s marketing
activities.
In FMCG industries there has been a gradual transfer of power from producers to
distributors, which have a control through the retail outlets over the final steps of consumers’
buying process. In particular this phenomenon is also due to the diffusion of retail chains,
which apply solid consumer marketing activities targeting their customers.
Facing these deep changes, the producer cannot only continue to develop its own consumer
marketing activities, but should also refine its trade marketing efforts, i.e. marketing activities
targeting the client-distributor. Given these premises the purpose of this article is to show the
contents of the new trade marketing, through the introduction of the “trade marketing boxes”,
which substitute the traditional “trade marketing mix” (Marino, 2004).
The launch of the “trade marketing boxes”, rooted in the systemic marketing approach
(Marino, 2006), brings about the concept of polyhedral figures containing several
multifaceted key elements related to trade marketing.
This conceptual innovation is also motivated by the effort to substitute the traditional
adversarial view of the producer-distributor relations with a new (at least partially)
cooperative or collaborative perspective of the interactions between these two key supply
chain members. As a matter of fact, the management of each of the boxes’ multifaceted
contents –which will be presented in the following paragraphs- requires the direct
intervention of the distributors, as well.
2. The trade marketing boxes
In this paragraph, the contents of the seven most relevant trade marketing boxes are
introduced even if, as it will be stressed in the next pages, there could be room for further
boxes. It should be also remarked that retail chains are mostly considered as producers’
customers in the following pages.
2.1 Box n. 1: brand
The first trade marketing box includes the decisions about the creation and the management
of brand(s), since a clear distinction can be made between trade marketing supported by a
brand and trade marketing without a brand. The latter determines obstacles (which sometimes
cannot be overcome) to the producer who loses contractual power.
More in detail, the firm can decide to simultaneously rely on more than one brand, starting
multiple negotiations with the distributors. These negotiations can be conducted separately
for each of the brands or it is possible, on the other hand, to cultivate a unique negotiation
involving all brands at the same time (the so-called multi-brand approach). The latter
hypothesis is sometimes rejected by multinational companies, which believe to lose a part of
the contractual power of each single brand.
2.2 Box n. 2: private labels
A second important box is about private labels, i.e. brands of the distributors, which try to
improve the efficacy of their consumer marketing and their power in the supply chain through
these tools. This second trade marketing box contains several alternatives available for the
distributor: for example, using (or avoiding using) their corporate brand, creating fantasy
brands, etc..
In this situation the distributor asks the producer of a well-known brand to supply a product
of the same quality, to be labeled with the distributor’s brand. As a consequence the producer
should decide whether to participate actively to the phenomenon of private labels or not. In
the latter hypothesis, a competing producer may choose to supply products for the
distributor’s brand.
Obviously there decisions depend on the players’ subjective conditions: for example,
fantasy brands are mostly supplied to the distributors by small producers, which saturate their
production capacity by manufacturing products for the private labels. In order to reduce their
level of risk, these small producers should then try to enter supply agreements with more than
just one distributor.
2.3 Box n. 3: assortment or grid
The third box is about the assortment or grid, since the producer usually intends to sell to
the distributor a set of products and brands (and not just one single product or brand). The
producer should than arrange a grid, i.e. a specific assortment for the single distributor. This
decision is not unilateral, because the producer has to negotiate with the distributor, giving
him motivation and incentives.
The purpose of this activity is to reduce the adversarial issues with the distributors, which
tend to reduce the depth of the assortment, removing those product with a low level of
rotation, given the limited shelf space.
The negotiation on these issue can be complicated, since the professional buyers of the
large scale organized distribution base their choices on some judgment variables such as
margins, rotation and revenues. Moreover it is not possible to introduce in the assortment all
new products yearly suggested by the producer.
2.4 Box n. 4: category management
The forth box is about category management, which should again be viewed in the
perspective of a reduction of conflicts. Several distributors divide categories depending on
consumption occasions, on the time of consumption during the day, and not on the type of
commodity involved. In the categorization the role attributed to the category by the sales
outlet plays a role, as well: a distinction between categories improving the image of the sales
outlet and “traffic builder” categories, which generates volumes and revenues, can be made.
The producer, supported by research institutes, should cleverly help the distributor to avoid
mistakes, e.g. demonstrating that a categorization based on the breakfast consumption
occasion provides better or worse results in that specific retail outlet, as compared to an
alternative categorization.
The actual organization of a category can require several weeks to be completed and it is
performed by a team including: a practitioner with a deep knowledge of both the distribution
and the production worlds, a firm supplying updated market data, some producer’s employee
and some distributor’s employee.
As a matter of fact, categories can be created through the collaboration between some of the
most important producers and the distributor, thus reducing some potential adversarial issues.
In this way the view of a certain part of the literature giving to the distributor the whole
responsibility of category management is rejected.
2.5 Box n. 5: space allocation
The fifth box contains the choices about space allocations, i.e. giving a certain portion of
the shelf space to categories, brands and formats. According to the traditional view, the
distributor assigns a certain shelf space to each category. On the contrary in the perspective of
the trade marketing boxes it is needed that the producer supports the distributor in this
activity, elaborating (with the intervention of an adequate software) data about product
rotations, margins and revenues. As a matter of fact several software applications are
available to optimize revenues through the efficient space allocation in terms of categories,
brands and formats. In particular, the space allocated to a specific category is “multi-brand”.
The producer and the distributor should then enter a negotiation on the space given to the
producer’s brands and sub-brands, taking into considerations that the distributor usually tends
to assign the best positions on the shelf (which are also desired by the producer) to its private
labels.
2.6 Box n. 6: planning of promotions
Another complex issue is about the planning of promotions and the related agreements,
which are included in the sixth trade marketing box. The massive distribution suffers from
the distributor’s tendency to rely heavily on price promotions, instead of on a differentiation
of the assortment, which is more difficult to pursue.
Starting from this consideration, all major producers of branded products and distributors
define together at the beginning of the year the weekly planning of promotions for the
following 12 months. The distributor can choose between two alternative behaviors:
introducing biweekly promotions (every second week the producer distributes a leaflet with
promotions with different levels of complexity) or pursuing an “every day low price” policy,
with the aim of setting a low price during the whole year, instead of launching promotions for
a limited period of time.
It is therefore necessary to start collaboration also on the promotions and on their planning.
Moreover the producer should find an overall equilibrium taking into consideration all of its
distributors, avoiding to give an advantage to only one of them, thus creating conflicts with
the others.
2.7 Box n. 7: price
The box of price includes other decisions to be taken in coordination with the distributor.
We first of all refer to the price suggested by the producer to the distributor, i.e. the price
without discounts. From this price the final price for the consumer is then derived. It should
be noted that the competition on price is largely symbolic because, if we isolate the
temporary effects of price promotions, we find that most of competitors present similar price
levels, but the consumer’s perception of price convenience may differ. Moreover the issue of
discounts and allowances should be considered, i.e. price reductions offered by the producer
to the distributor: this is one of the most critical variables of trade marketing. If the producer
is able to start collaboration with the distributor on the previous six boxes, it may be
nonetheless able to mitigate the adversarial relations on this final box, as well.
As mentioned before, these seven boxes do not include all the trade marketing activities. As
a matter of fact further boxes can be detected, for example, about the following:
- merchandising;
- logistics, which has a fundamental role in FMCG industries;
- layout.
3. The management of the trade marketing boxes
The integrated and systemic management in the perspective of the whole supply chain of
the boxes described above appears to be difficult, considering also the multiplicity of objects
to be pursued. Sometimes distributors themselves do not have an updated marketing culture.
Moreover the producer’s trade marketing boxes are influenced by the distributors’ bad
current conditions, particularly in Italy.
Despite these difficulties, the management of the trade marketing boxes should pursue two
fundamental objectives: on the one side, keeping “listing fee” (i.e. fee requested by the
distributor to introduce new brands or products in the assortment) down and on the other side,
expanding the opportunities for “co-marketing”. Reaching these goals may be complicated
for producers without a brand and a contractual power strong enough to balance the
increasing distributors’ supremacy. The presence of a brand -together with the availability of
data and research able to “objectively” demonstrate the potential of the producer’s goods- is
one of the tools, on which the producer can rely to obtain better conditions from the
negotiation.
At the same time, it should be remarked that the producer must be able to keep cultivating
the contact with the final consumer, by carrying out its consumer marketing plan, in parallel
with the consumer marketing activities performed by the distributor.
It is now possible to summarize the key points of the new approach and of the management
of the trade marketing boxes:
- Systemic approach to the governance and management of the firm (Golinelli, 2008) which,
already applied to marketing in general, should be extended to the trade marketing
specifically, in order to control consistently all the fundamental elements;
- Integration among the components included in the trade marketing boxes, creating synergies
to reach positive equilibrium points for both the producer and the distributor;
- Polyhedral perspective, i.e. an approach able to take into consideration the multidimensional
key elements summarized in the boxes, going beyond the one-dimensional approach of the
trade marketing;
- Cooperative-collaborative view of the relations between the producer and the distributor on
all the issues of the trade marketing boxes, thus overcoming the adversarial approach to
create a greater value for the supply chain members.
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