Promotion Methods in Trade Sales
Trade Allowances
Trade allowances are price reductions given to middlemen, such as retailers, to encourage them to stock an organization’s products.
LEARNING OBJECTIVES
Describe the role of trade discounts and allowances in promotion
KEY TAKEAWAYS
Key Points
- Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked with the product.
- Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel.
- Some challenges include channel stuffing, which is when manufacturers induce channel members to buy far more products than the can sell in a reasonable period, and diverting, which is when companies sell to channel members at a cheaper rate rather than pass on savings to consumers.
Key Terms
- Channel stuffing: The business practice where a company, or a sales force within a company, inflates its sales figures by forcing more products through a distribution channel than the channel is capable of selling to the world at large.
Trade discounts and allowances are price reductions given to middlemen (e.g. wholesalers, industrial distributors, retailers) to encourage them to stock and give preferential treatment to an organization’s products. For example, a consumer goods company may give a retailer a 20% discount to place a larger order for soap. Such a discount might also be used to gain shelf space or a preferred position in the store. Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked with the product.
Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel (referred to as channel captains). Trade discounts are given to try to increase the volume of sales being made by the supplier. The larger the purchase, the larger the discount. It is important that these discounts are fair and offered to all channel members equally to avoid channel conflict. Some challenges include channel stuffing, where manufacturers induce channel members to buy far more products than they can sell in a reasonable period. Another challenge is diverting, which is when companies sell to channel members at a cheaper rate rather than pass on savings to consumers.
Hair Salons and Trade Allowances: Hairdressers can go to the manufacturer to get a discount for buying in bulk. They can get shampoos and other hair products at a cheaper rate and sell them to consumers at full prices.
A trade rate discount is offered by a seller to a buyer for purposes of trade or reselling, rather than to an end user. For example, a pharmacist might offer a discount for over-the-counter drugs to physicians who are purchasing them for dispensing to the physicians’ own patients. A seller supplying both trade or resellers and the general public will have a general list price for anybody, and will offer a trade discount to bona fide trade customers.
Other trade sales promotion methods include trade contests, which are contests that reward retailers that sell the most products, and point-of-purchase displays, which are used to create the urge of “impulse” buying.
Training Programs
Effective training and coaching of a firm’s sales force can help it outperform competitors.
LEARNING OBJECTIVES
Explain how training programs are used to measure the impacts of personal selling
KEY TAKEAWAYS
Key Points
- One of the best ways to get people to practice is to provide encouragement and acceptance for achievement and allow them to develop their strengths.
- Effective training programs includes group role-playing. Employees should take turns pretending to be salespeople and customers to practice various sales tactics.
- Management should take time to train all employees in their product offerings. This includes benefits to using the product, product specs, and competitor information.
Key Terms
- personal selling: the act of using people to sell products to consumers face-to-face
Training Programs
Personal selling is a form of oral communication with potential buyers of a product with the intention of making a sale. The personal selling may focus initially on developing a relationship with the potential buyer, but it will always ultimately end with an attempt to “close the sale. ” It is one of the oldest forms of promotion. Unlike advertising, personal selling has always been task and goal orientated.
Measures other than sales have been integrated to retain highly qualified staff. Training and development is now a key factor used to measure personal selling. Superior sales managers learn that effective training and coaching help their companies outperform their competitors. Training and coaching involve sharing ones knowledge on selling products as well as motivating salespeople to practice what you tell them with customers on the sales floor.
One of the best ways to get people to practice is to provide encouragement and acceptance for achievement and allow them to develop their strengths. It’s much less effective to focus and emphasize a person’s weaknesses because that only acts to help discourage and reduce self-esteem.
Effective training programs includes group role-playing. Employees should take turns pretending to be salespeople and customers to practice various sales tactics. Management should also take time to train all employees in their product offerings. This includes benefits to using the product, product specs, and competitor information. This can easily be done through weekly meetings, which would be necessary to give employees updates on new products, sales, and promotions.
Apple Products: Employees at an Apple store would ideally have been trained in what differentiates the iPod from competing products.