Trade promotions – An effective tool to stabilize FMCG demand

Introduction:

Trade promotions refer to marketing activities between manufacturers of products and retailers. The objective of trade promotions is to increase the demand for goods in retail settings and to increase awareness of brands among customers.

Trade promotions are of exceptional importance in the fast-moving consumer goods (FMCG) sector due to extremely high competition, short buying cycles and a need to maintain market share.

Types of trade promotions:

1. Price promotions Price promotion include tactics such as discounts, coupons and bonus packs (buy one get one free offers). This is done to attract price-sensitive buyers.
   

2. Volume-based promotions FMCG manufacturers may offer discounts and other incentives to distributors and retailers on the basis of the volume of products purchased by them. Offering a lower price per unit for large orders encourages bulk purchases.
   

3. Samples This includes giving a small sample of the product to potential customers in order for them to judge the product.
   

4. Seasonal promotions FMCG companies often use seasonal events and holidays to introduce special limited item versions of existing products as a way to differentiate themselves and gain market share.
   

5. Trade shows FMCG companies often participate in trade shows and exhibitions showing off their product line to wholesalers, distributors, retailers and customers. This helps brands to ensure that their products reach a wide market.
   

6. Trade allowances Manufacturers may provide trade allowances such as discounts to retailers for purposes such as promotional activities, advertising support and shelf space allocation.
   

That being said, trade promotions are not always successful in achieving their intended objectives. According to the Demand Metric Analysis Perspectives blog, only 30% of trade promotions in the consumer packaged goods industry were profitable in 2004 due to reasons like the inability to accurately forecast demand and high costs of promotion.

In order to ensure that trade promotions are cost viable, manufacturers need to make use of analytics and scientific methods of demand forecasting to ensure that seasonal variations in demand for FMCG products are effectively managed and that demand and sales remain consistent throughout the year.

As an example, manufacturers of food items such as Lay's have started offering 15-25% more chips at the same price in order to combat the growing popularity of competitors such as Balaji.

Name: Sumit Kaushik

Roll no: 501

Division: E

Group No. 4