P&G wants retailers to earn their money

Procter & Gamble is borrowing a page from Gillette’s playbook – requiring that retailers actually execute a promotion in order to be paid for it.

According to Advertising Age, P&G will tie promotional payments to store performance:

Both P&G and Gillette traditionally dubbed their trade-marketing programs "pay for performance," but Gillette's appears to more closely tie retail payouts to specific in-store execution. Currently, retailers accrue funds from P&G based on the number of cases they buy. But while the funds are earmarked for specific promotion programs, 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," said Chris Petersen, VP-investor relations for P&G …

It isn’t clear how P&G will monitor compliance, particularly since the article also notes that they are cutting back on full-time retail merchandising staff.

Since anything P&G does generally ripples through the CPG world, however, this move could have serious effects. When coupled with recent talk we are hearting about CPG manufacturers having a renewed interest in basing more allowances on accruals rather than on discretionary funding, it appears we may be seeing a trend toward bringing the Wild West days of trade promotion to a close, and restoring some long-overdue control.

An amusing sidelight: The AdAge article says that “Household and personal-care marketers typically spend nearly as much on trade promotion as advertising …” Right. Nearly as much. Try several times as much. Later, it estimates that P&G ($70 billion in sales) spends about $2 billion in trade promo. Only off by $10 billion or so.

Trade promo acquisitions

There were two significant acquisitions in trade promo in the past week: Oracle bought Demantra, and Pitney Bowes bought AAS. Each seems to say something about the way the business is heading.

Oracle’s purchase of Demantra demonstrates the increasing role of analytics in trade promotion – it is going to become very difficult to sell a trade promotion management system unless it includes an integrated analytics package. Anybody providing trade promotion systems or management services will need to build or buy their own package – Oracle, true to form, bought.

The sale of AAS and its sister company, PMH Caramanning, on the other hand, indicates the decline of outsourced trade promotion management as a stand-alone service. There was a time when no one in the business would have identified AAS as anything other than a trade promotion outsourcing company. In recent years, however, they have diversified their offerings wisely, and the press release announcing the transaction described the company thus: “AAS offers a variety of web-based tools for the customization of promotional mail and marketing collateral.” Two paragraphs later, among a listing of other services, is a mention of “co-op advertising management.” Where does Pitney Bowes see the company’s future? They’re making it part of their Mail Services division.