We’re all consumers so we’re familiar with sales promotions in the B2C arena. Trade promotions are simply sales promotions targeted at trade customers as opposed to the general public. The concept is exactly the same; to encourage people to buy your products or services rather than those of your competitors. As Chris Bestley, education consultant to the Institute of Sales Promotion (ISP), says: The techniques are the same whether you’re talking about trade or consumer promotions. The basic philosophy is that you’re offering an incentive in return for action.
Current spend in trade promotions is very healthy; Jan-Pieter Lips, head of B2B at Loyalty Management UK, which operates Nectar for Business, says: Spend by corporate users on high street vouchers alone is £600 million per annum. The market is huge and growing, but because trade promotions operate in the B2B arena, they tend to be rather hidden.
Trade promotions do feature in the ISP awards but make up only about 10 per cent of the promotions reviewed. This may be because firms don’t realise that the ISP Awards are open to B2B as well as B2C, it may be because the consumer side appeals more to the sort of people who would enter promotions into the ISP awards, or it may be because the B2C arena is considered more glamorous. As Philip Penlington, account group director, Fotorama says: The fact remains that, for many firms, trade promotions tend to be the poor relation when it comes to budgeting, particularly for those businesses which operate in both B2B and B2C arenas.
In terms of structure there’s very little difference between trade and consumer promotions, although some work better in different arenas. ‘Instant win’ promotions, for example, which is very popular in B2C, is not really suitable for B2B, particularly as budgets are not usually large enough to allow it.
With trade promotions as with sales promotions it’s vital to understand the target. Liam Bateman, director at The Think Tank, says: The route to market and the profile of customers are vital influences on the type of promotion and the way it’s executed. Bestley of the ISP adds: You must understand the internal workings of a company and that can be very privileged information. It is, however, key to the whole promotion
Trade promotions are inappropriate for purchases which carry a very high or strategic value for the purchasing company. While such promotions can certainly be organised, they leave the promoting company open to suggestions of unfairly influencing the business practice of another firm. Some companies including most government agencies also have policies which prohibit their employees accepting gifts or rewards or at least limit the amount to a merely nominal sum.
From the personal point of view, businesses managers may object to their employees being rewarded without their knowledge. Rewarding individuals can also create problems with colleagues; an alternative solution is to set up the promotion in such a way as to reward the team.
Promotions which can be used to benefit the business as well as individuals gain the approval of managers as well as their staff. We’ve found that many companies are looking for a more strategic approach to promotions, says Lips of Loyalty Management and adds: companies are putting a lot of effort into reinventing their promotions to keep them fresh. With any promotion there’s a risk that behaviour drops back to the old levels after the promotion, so it’s important to build in a long term incentive to maintain interest.
B2B marketers have a lot on their plate and managing promotions can easily take up much valuable time. It’s often best for companies to focus on what they want to achieve with their promotion and outsource the management of the promotion itself. Graham Howarth, head of sales promotion at P&MM, says: Handling a trade promotion in-house is not usually a sensible option for most companies as they lack the in-house skills. An agency can save a lot of time, particularly in the creative process and risk assessment.
David Lebond, director, Fotorama UK adds: we’ve done some research into the accuracy of brand management team forecasts for sales promotion redemption and it shows a high level of inaccuracy. Only eight per cent of offers come within 10 per cent of expected levels. The research was largely conducted in the B2C arena where promotions are generally more common, so B2B marketers would probably be as inexperienced in accurate forecasting.
Using an agency saves time a valuable commodity in most businesses but can also stretch the budget. Agencies need to be briefed properly and managed consistently but are adept at looking at what businesses can afford to spend on a promotion and making it appear larger. Penlington at Fotorama says: Agencies can be sounding boards about what does and doesn’t work and can also offer what is almost an off-the-shelf promotion. It’s effectively a short cut to success which will save money for companies with a small budget.
Businesses unwilling to take the risk of their promotion being unpredictably popular can opt for a fixed fee approach whereby the promotions agency will take on the responsibility of assessing the risk and working out what, if any, slippage there will be.
Fixed fee is good for those with small budgets as it effectively moves the risk from the SME to the agency, eg. an agency could look at the percentage redemptions for certain types of offers and then scale up the promotion on the assumption that the take-up will follow the usual pattern. The cost to the client is the same. As Bateman at The Think Tank says: Trade promotions can run away with themselves, with a potential for being too successful, and getting the figures right can be make or break.
B2B firms might handle two or three promotions per year; agencies handle dozens and should be able to judge where to cut corners and which corners to cut to make the most of the budget. Howarth at P&MM provides an example: Depending on the mechanic used a £10 item can cost the firm pence if the promotion is set up correctly. Most firms don’t have the expertise to stretch budgets that far. This sort of saving means that you can either save money, or for the same budget do four or five promotions per year for the cost of one or two.
Businesses may be sceptical of such hype because after all they have to pay the agency’s fees on top of the promotion spend. The point is that agencies can usually predict redemption numbers to an accuracy of under one per cent. Any marketer not doing daily predictions as part of their job is almost bound to be less accurate. Howarth, P&MM again: It’s the accuracy of our predictions which enables us to offer our clients a very good rate fixed fee deal, save them money and still make money ourselves. As Penlington, Fotorama says: Fixed fee works when the financial outcome is uncertain and/or when you don’t know how many people are involved.
National and international legislation is a nightmare for any sort of promotion. Vouchers in Germany, for example, must have validity for at least three years, while in France and Belgium the ‘buy one get one free’ (BOGOF) mechanic is permitted as long as you don’t advertise it (which begs the question: why bother?). Specialist agencies know about up-to-date legislation, both UK and worldwide, and so know how to run promotions so as to stay within the law of each country.
Most mainstream promotion agencies handle trade promotions as well, although there are one or two specialists for those clients which have no direct access to consumers at all, for example pharmaceutical or engineering firms. Finding and vetting an agency is very much like sourcing any other service. Ask around, get recommendations, view other trade promotions there are several case studies on the ISP website and find out who has created promotions which might also work for you. Once you’ve got a list of possibles, give them a ring and discuss what you’re looking for; an initial chat shouldn’t cost anything.
Whether deciding to go it alone or looking for an agency to handle things for you, the ISP is very supportive of anyone running any sort of promotional exercise. It’s the guardian of good practice and staff are usually very quick to respond to a request either with advice themselves or with details about where firms can go to get advice.
Virtually every sales promotion mechanic can also be used in trade promotions and you don’t need to be an expert to do so. Trade organisations are eager to offer advice while specialist agencies can make your promotion more successful and save you money at the same time. Trade promotions are one of the hidden tools of B2B marketers. There is huge scope for their wider use.
Formica Associates used a trade loyalty scheme to increase turnover and build relationships with key customers. Created by The Think Tank, the promotion was aimed at users of laminate, was self financing and had a simple claim mechanism based on achieving set targets from incremental purchases. Those who reached the target received two places at the Formica Associates Convention in Dubai. The aspirational location was intended to be a way for industry representatives to get together socially as well as being a forum for debate and discussion. The promotion was spectacularly successful with a 40 per cent increase in attendance expected for 2005. It also gained a Highly Commended in the 2005 Institute of Sales Promotion Awards for Best Loyalty Scheme.
