Exhibit 2: Two New Approaches to Trade Spending

The first concept is based on eradicating “spending”

and instead adopting an integrated Customer

Development Fund (CDF). This may sound like a mere

semantic distinction. The difference, however, is that

in spending, the amount invested is determined by a

narrow view of either demand or supply drivers, whereas

a CDF encompasses both demand and supply drivers,

and the customer and the manufacturer’s account team

jointly make the call on what is the best investment.

Having the people on the ground decide how to stretch

the investment makes more sense than leaving that

decision to a one-size-fits-all approach devised by

headquarters, which was the case in traditional models.

The second idea involves a tiered CDF with full

disclosure of the criteria for incentives. Companies

(and their lawyers, no doubt) have long debated the

Robinson-Patman Act addressing price discrimination––

and how, ideally, they would offer different incentives to

customers who actually invested in the business. The

idea of a fund that varies incentives but does so on an

equitable basis is a breakthrough in terms of both the

dialogue and the investment.

#1: Bring Partnership to Funding: The Integrated CDF

The days of a fund for every bell and whistle of

manufacturers’ go-to-market programs have tired out

customers, the teams that manage the myriad of funds,

and the finance staff who make valiant efforts to keep

track of the mayhem. Many companies have more than

five types of funding vehicles and countless other cost

“buckets” that essentially are used to provide unique

solutions to customers (see Exhibit 3, page 3).

Worse, most of the decisions for what a customer

“earns” are made by marketing and sales departments

at headquarters, far from the customer––and with no

sense of what works best for the retailer’s bottom

line. In fact, a recent Booz & Company study on

customization showed that more than half of retailers

reported that most product customization efforts on the

part of manufacturers are a waste of time. ²

The integrated CDF approach is simple: Bring the

various funding and cost buckets together and, more

important, leave it up to the customer team and the

customer how that money should be invested (see

Exhibit 4, page 3).

An additional benefit is that this approach virtually

eliminates the “free goods” that result from customers’

and customer teams’ requests for customer-specific

spending, including unique SKUs, packaging, shippers,

and displays––requests that create a troublesome

number of ad hoc processes and approvals. Under

the integrated CDF, if those requests are indeed

good investments, they will continue to be part of the

customer plan––but prioritized along with other choices.

2

Rich Kauffeld and Matt Egol, “Creating Value through Customization: Winning Through Shelf-Centered Collaboration.”