How can we get the best return on the money suppliers give us to run promotions?

Promotions are very big business, especially in the grocery and health and beauty sectors where branded goods dominate. 

Anthony Lucas, senior director at consultancy Alvarez & Marsal, says that suppliers have managed to pass on the increases in prices of raw materials. Now those materials prices are coming down and they are still supplying finished goods at the same price, suppliers have been pumping more trade promotions money into retailers in the past six months.

Lucas believes that the best retailers are pretty good at knowing what to do with the money, and use about half of the money they receive from suppliers for things other than directly funding discounts. However, though they have a lot of power over how the money is spent, they need to be careful that they account for the benefit promotions really provide.

He adds that what is crucial is that retailers have a handle on the varying return on investment they will get from different type of promotions, such as simple money-off or buy-one-get-one-free deals.

Lucas adds that retailers must also think about the secondary costs to running promotions. “Too many promotions complicate forecasting and there are extra logistics and order management costs.”

Promotions can also lead customers to stockpile goods, so sales are displaced rather than increased. You must consider sales of a product after it has been on promotion, not just before when analysing its overall impact.