In business and marketing, “trade” refers to the relationship between manufacturers and retailers.
Trade Promotion refers to marketing activities that are executed in retail between these two partners. Trade Promotion is a marketing technique aimed at increasing demand for products in retail stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, and more.
Trade Promotions can offer several benefits to businesses. Retail stores can be an extremely competitive environment; trade promotions can help companies differentiate their products from the competition. Companies can utilize Trade Promotions to increase product visibility and brand awareness with consumers. Trade Promotions can also increase a product’s consumption rate, or the average quantity of a product used by consumers in a given time period. Furthermore, effective Trade Promotions can enlarge a product’s market segment penetration, or the product’s total sales in proportion to the category’s competition. Moreover, companies use Trade Promotions to improve distribution of their product(s) at retailers and strengthen relationships with retailers. Lastly, Trade Promotions can be leveraged to introduce new product launches into retail stores.
Trade promotion spending is one of the most important levers in achieving volume and profitability growth. Its importance has increased significantly in the past five years as a result of the global downturn and fewer consumers spending less money. Trade promotion can represent as much as 30 percent of total sales for fast moving consumer goods (FMCG) companies. But looking at trade promotion expenditures alone does not take into account the tight links between trade promotion and pricing. In fact, many FMCG marketers no longer look at trade promotion in isolation. They believe that retailers often sweet talk product managers and sales people into reducing the effective price of an offering with a promotion, persuaded by the idea that dropping a list price is advantageous.
Nature of Trade Promotion
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