Trade spend by manufacturers/brands effectively reduces pricing to retailer or foodservice customers and the consumers who purchase the promoted products. Its goals are to enhance brand awareness, stimulate sales, switch consumers from competitive brands, and increase market share.
Brands understand that consumers often make decisions at the point-of-sale. For this reason, trade spend is an effective means of influencing consumer behavior.
Trade spend has increased since the mid-2000’s, and is now the second highest expense behind COGS. Price promotions are the largest portion of trade spend. Other examples of trade spend are end caps, displays, buy one get one free, sampling, enhanced payment terms for the customer, slotting allowances (cash payments in exchange for more shelf space), and retailer-specific flyers.
Typically the more a brand spends with a retailer, the more shelf space that brand receives. Retailers expect a brand will pay @ 13% of revenue generated in store on trade spend.
Today the average consumer packaged goods manufacturer spends about 33% on trade spend, 30% on consumer advertising such as TV, radio, Social Media and print, and 37% blended (both trade and consumer).
For brands to effectively compete both in the U.S. market and globally, the effective use of trade spend is critical to their success.