For decades, trade promotion has been at best the guilty pleasure of marketing. Everyone did it, but no one was proud of it, and they often justified it because competitors did it first.
So when Colgate-Palmolive Co. Chairman-CEO Ian Cook twice in recent weeks not only admitted to hiking trade promotion spending but also touted the practice as healthy, he raised eyebrows. "The old adage that trade spending is bad is no longer true in this day and age," thanks to improved analytics that allow more targeted and effective spending, Mr. Cook told the Consumer Analyst Group of New York on Feb. 20.
The conventional wisdom is that trade spending--money directed at retailers to pay for temporary price reductions, off-shelf display, signage, ads in circulars, and more -- delivers only short-term gains and erodes brand equity by increasing consumer price sensitivity.
Procter & Gamble Co. Chairman-CEO A.G. Lafley has likened trade promotion to a snake swallowing a frog - the big bulge at the front end dissipates down the line.
But the conventional wisdom isn't supported by data, said Kurt Jetta, CEO of promotion-analytics firm TABSGroup, who's found mostly supposition and contradictions in prior academic research. His own analysis, some embodied in his Fordham doctoral dissertation, finds no support for the theory that promotions steal from sales that would occur anyway in subsequent weeks or makes consumers more price sensitive. In fact, he finds it can expand brands and categories long term.
Consumer Edge Research analyst Javier Escalante finds some value in Colgate's theory, given that when beauty marketers pulled back on promotion in recent quarters, they lost display space to other categories.
"There is still a strong bias among investors against trade spend vs. ad spend," said Bernstein Research analyst Ali Dibadj. "When somebody with as great a track record as Colgate says trade spend isn't so bad, people listen, but the proof needs to be in the pudding."