How to reinvest trade spend for revenue growth in CPG?

The level of trade spending in consumer-packaged goods (CPG) remains substantial, with manufacturers making significant investments in trade promotions. Savvy allocation of trade spend, therefore, doesn’t just create a competitive advantage for CPG firms. It has become a vital necessity for those steering the ship. CPG companies are increasingly recognizing that to drive revenue and build robust partnerships with retailers, they need to think beyond traditional trade spend tactics. 

The old retail playbook of on-invoice discounts and broad-brush trade spend—often including a fair amount of non-working or goodwill payments—is being rewritten. Leaders in the field are now deploying more creative, impactful strategies that deliver tangible results. They’re reallocating resources to secure prime shelf space, execute promotions with precision, broaden distribution, and invest in product innovation that captures consumer interest. 

Data is the compass that guides these decisions. Accurate, actionable insights ensure that trade funds are placed where they’ll generate real growth. It’s about making every promotional dollar work overtime to contribute to the bottom line. 

Collaboration is also key. When manufacturers and retailers align their efforts, they create a synergy that transcends traditional buyer-seller dynamics. Joint initiatives become a shared journey towards greater success for both parties. 

This article will discuss the strategic reinvestment of trade spend in CPG, offering insights and tactics for those directly involved. It aims to share knowledge that empowers CPG manufacturers to invest wisely, cultivate prosperous retail partnerships, and foster reciprocal growth. 

Reinvesting trade spend in CPG: 5 key considerations

1. Collaborative investment with retailers 

Collaborative investment with retailers is essential for achieving mutual growth in the CPG industry. It’s about manufacturers and retailers coming together to identify and execute joint growth initiatives that deliver benefits for both sides. 

Key insight: Manufacturers should engage in open dialogues with retailers to pinpoint and agree on collaborative investments that are pivotal for the retailer’s success. This could include investing in marketing events, in-store promotions, or product launches that align with the retailer’s strategic goals. 

Example: By investing in a retailer’s key promotional event, manufacturers can drive significant sales uplift while simultaneously cementing the partnership. This collaborative approach ensures that trade funds are not just an expense but an investment in a shared future. 

Such strategic cooperation goes beyond mere transactions; it’s about creating a symbiotic relationship where both manufacturer and retailer thrive. By focusing on shared objectives and leveraging each other’s strengths, they can unlock new levels of efficiency and market penetration that would be challenging to achieve independently. 

2. Reallocating non-working trade spend 

Reallocating non-working trade spend, also known as goodwill payments, is a strategic move that can significantly enhance a CPG manufacturer’s profitability. These are funds traditionally spent without an expectation of a direct, tangible return. However, the evolving CPG landscape calls for a more calculated approach. 

Key insight: Redirecting non-working trade spend toward investments with quantifiable returns can optimize the use of trade funds. A prime example of such a strategic investment is securing prime shelf space, which ensures product visibility and accessibility, thereby driving sales. 

Example: Utilizing non-working funds to obtain more shelf facings or second placements allows manufacturers to secure a return on investment through heightened product visibility and increased sales. This strategic positioning also fortifies the manufacturer’s negotiation stance with retailers, supported by data on expected sales volumes, recommended selling prices, and projected retailer sales. 

In summary, the reallocation of non-working trade spends to strategic investments is not about taking money away from retailers. It ensures funds are used effectively, leading to a tangible return on investment and ultimately stronger retailer relationships.  

3. Moving away from on-invoice promotional discounts 

On-invoice promotional discounts are often an inefficient use of trade funds, as retailers can order excess discounted volume to stock up and sell at regular prices after the promotion period 

Key insight: Instead of letting retailers save on these discounts, it’s more strategic to reinvest the funds into mutual growth efforts. 

Example: For example, manufacturers can stop giving direct discounts and use those funds for joint marketing campaigns, benefiting both the manufacturer and the retailer. This move from direct discounts to reinvestment signifies a deeper understanding of creating value in the CPG industry, aiming for long-term profit and market growth. 

4. Restricting volumes sold with on-invoice discounts 

By selling less volume with on-invoice discounts, manufacturers can save money and reinvest. 

Key insight: Transitioning to settlements based on sell-out, such as scan promotions, can mitigate excessive forward buying. This method aligns promotional costs more closely with actual consumer sales, ensuring a more consistent sales flow. 

Example: Implementing scan promotions allows manufacturers to synchronize promotional spending with real-time sales, preventing retailers from overstocking. This strategy ensures that promotions drive immediate sales without future market fluctuations. 

By adopting this approach, manufacturers can foster a more predictable and stable sales environment. 

5. Making data-driven decisions 

Effective trade spend reinvestment in CPG is contingent upon the utilization of accurate data. 

Key insight: Access to detailed data enables CPG businesses to make informed decisions regarding the allocation of trade spend. This insight is crucial for ensuring that investments are targeted and effective. 

Example:  Utilizing data analytics, manufacturers can ensure that promotional investments are driving incremental growth and aligning promotional costs with actual consumer sales.  

In essence, data-driven decisions are the backbone of strategic trade spend allocation. They provide a clear understanding of market dynamics and consumer behavior, allowing manufacturers to invest in areas that yield the highest returns. This approach not only optimizes trade spend but also enhances the overall effectiveness of promotional strategies. 

Trade spend reinvestment: takeaways for CPG manufacturers 

The shift towards strategic reinvestment of non-working trade spend marks a significant evolution in CPG. By focusing on data-driven decisions, manufacturers can ensure that their investments are not only efficient but also effective in driving mutual growth with retailers. 

These are the key focus areas: 

• Collaborative investment with retailers is essential for achieving growth 

• Reallocating non-working trade spend can have a significant impact on the bottom line 

• Limiting on-invoice discounts allows for a more strategic use of trade funds. 

• Avoiding excessive forward buying ensures a consistent sales flow and prevents market disruptions. 

• Data-driven decision-making enables manufacturers to allocate trade spend where it will have the greatest impact. 

For a broader perspective, we invite you to download Visualfabriq’s Guide to effective Trade Spend Management in CPG.  

If you’d like to learn more about software capabilities, booking a personalized demo is a great next step. It’s an opportunity to see Visualfabriq in action and understand how it can transform your trade spend management.