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Childs Davidson conducts regular trade spend productivity studies for manufacturers in several markets

The challenge of effectivelyChilds Davidson conducts regular trade spend productivity studies for manufacturers in several markets

The challenge of effectively managing trade funds has never been more acute nor threatening to manufacturers’ overall business performance. This is a multi-dimensional challenge that senior management is increasingly factoring into wider strategic considerations.

Many suppliers have strategies that aim to track and evaluate the effectiveness of individual promotions, but such metrics risk missing the bigger picture.

Our benchmarking studies provide an authoritative frame of reference for understanding macro-level performance compared with other major FMCG companies. Key metrics we use include our Sales Versus Spend Index, quantitative comparisons and our proprietary Trade Spend Quality scorecard.

Trade Spend Indices

The most telling metric we use is the sales versus spend index, tracking the rate of change in sales versus spend. An index of one (1.00) means that sales and spend are changing at the same rate and an index of, say, 0.95 means that spend is growing faster and is therefore less effective.

Knowing your own index and setting targets in a vacuum is almost useless. As shown in the chart below, a sales-to-spend index of 0.94 in Retailer A might suggest a poor result, unless you also knew that the average for all suppliers was 0.91.

Quantitative comparisons

The chart below shows the relative cost of doing business with chosen retailers. It provides a basis for evaluating value for money and consequent relativity issues.

Trade Spend Quality scorecard

Perhaps the most complex issue in assessing trade spend productivity is defining how effectively spend is directed towards business building with shoppers.

Childs Davidson has developed a scorecard that benchmarks against three key principles:

  • do we control the spend?
  • can the outcomes be measured?
  • does it have an impact with shoppers?

The scorecard assesses the degree to which trade spend is being allocated to higher order forms of spend. By this we mean fixed gate fees and the like at one end of the scale, and high impact on shoppers at the other end. It allows comparisons within and between markets, between customers and through time.

Background image by Baycrest - Wikipedia user. License CC-BY-SA-2.5

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