P&G Emulates Gillette, Tightens Trade Promo Controls

06 June 2006

Trade promotions - a euphemism all too often synonymous with bribing retailers to maximise brand display and shelf space - are thought to cost Procter & Gamble in the region of $2 billion (€1.55bn; £1.06bn) annually in the USA alone.

Yet, according to marketing and sales management consultancy Cannondale Associates, around a quarter of US trade spending goes directly to retailers' bottom lines rather than covering promotion costs or reducing prices to consumers.

Nonetheless, properly applied, trade promotions can be a highly effective (if short term) sales booster.

Says an insider: "Whenever you can get the retailer to actually apply 80% to 90% of those [promotional] funds to actual instore merchandising, temporary price reductions, end-aisle displays, what have you, it's very good for [the promoting company]."

Gillette, acquired last year by P&G, reputedly has a harder-nosed attitude towards trade promotions - an approach the globe's largest advertiser has decided to emulate.

Although the Cincinnati giant's current trade scheme lays down certain promotional program criteria, retailers don't need to prove they executed the programs to collect.

"What we're talking about is ... being a little more specific with how we spend that money, how we evaluate the payout for it," P&G's vp-investor relations Chris Petersen told investors recently.

P&G is keeping the specifics of its new policy under the wraps but it will reportedly resemble that of Gillette, paying only for predetermined instore performance - for example the merchandising of products in front-end displays.

Promo and merchandizing insiders predict that P&G will apply its new system to fund fewer, bigger promotions, encouraging multiple purchases across its brand portfolio.

Data sourced from AdAge (USA); additional content by WARC staff