The End of Trade “Spending”?

Two New Approaches Can Recoup This Investment

Although the end of trade spending may be

on the horizon, its demise is not occurring

fast enough for most consumer packaged

goods (CPG) executives: Manufacturers

sink a significant amount of cash into trade

spending in combination with other customer

spend––as much as 28 percent of gross

sales (see Exhibit 1). But thanks to two

specific changes in the way manufacturers

are approaching their retail partners, the days

of trade “spending” as a losing investment

may be giving way to an era in which trade

investment is a win-win.

Historically, retailers have treated trade spending as

a well-deserved entitlement. CPG manufacturers have

largely turned their funds into accruals, which has had a

positive impact on linking investments to performance,

but at the same time has been challenging in terms of

providing the right investment to the right customer––

especially in this era of “shelf-centered collaboration,”

in which leading retailers and manufacturers must work

closely together to optimize every aspect of the value

chain, including trade spending.¹ A truly collaborative

relationship between retailer and manufacturer must

address the underlying issue of how to see (and,

more important, how to spend) the money as a true

investment in the joint business.

There is good reason to be optimistic. Two concepts

that have been incubating for some time offer the

potential to bring tremendous freedom from the

historical challenges of trade spending by reducing

complexity and introducing simple, fair, measurable

metrics (see Exhibit 2, page 2). These ideas are now

taking hold in the market, and several companies have

already begun to execute elements of both. In fact,

a recent benchmarking study that Booz & Company

conducted in this area showed that nearly half of the

companies surveyed are considering implementing one

or both of these new ideas.

Exhibit 1: Impact of Trade Programs on Realized

Revenue (Typical CPG Company*)

1

Rich Kauffeld, Johann Sauer, and Sara Bergson, “An Emerging ‘Moment of Truth’: The Case for Shelf-Centered Collaboration,” GMA Forum, June 2007.