The rise of e-commerce is impacting a wide range of marketing practices. Now, according to a new report, it is causing marketers to call for the combining of brand marketing budgets and trade marketing budgets. Well – about time! We’d argue that this need and demand has been there for a very long time – perhaps now e-commerce is doing the consumer goods world a favor and making this an imperative. But while there are many benefits to combining brand marketing and trade marketing budgets, there are dangers too. Read on to understand how to get the massive benefits and avoid the pitfalls from such a move.
Bringing brand marketing budgets and trade marketing budgets together is a good thing
First off, this is a good thing. To win, a consumer goods brand needs to win with ‘the three customers’ – the consumer, the shopper, and the retailer. This is true online and offline (except if the brand is selling through its own website), and has been true forever. Any initiative or strategy, therefore, potentially needs investment against each of these customers. A brand needs to convince consumers that it is right for whatever they are looking for from the consumption experience. The brand also needs to win with the shopper at the shelf (be it physical or virtual). The shopper may or may not be the same person as the consumer, but they certainly think and behave differently when in ‘shopping mode’. And of course, unless the brand gets the support of the retailer, the shopper may never even see the brand.
And each is connected. Shoppers buy things because they believe they meet consumer’s needs. Retailers stock items to hopefully satisfy shoppers, and so on. Consumers are often the same people as shoppers and are exposed to much of the consumer messaging. In a way its amazing that the budgets were separate at all!
The benefits of bringing brand marketing budgets and trade marketing budgets together
There are many benefits. With separate budgets, spend is allocated based on where the budget sits, rather than where the investment is needed. If ‘trade’ gets allocated 50% of the budget, then 50% will be spent on trade, regardless of whether it is needed. This has two risks. First, that we might spend more on a particular type of spend than is required. Second that an initiative might fail because insufficient investment was available in the right ‘bucket’. Worse, by not looking at the whole picture of investment requirements, the business might make poor decisions. If the decision to launch a product only fully considers the brand investment required, but not trade investment, then how does the business know that the launch will deliver an acceptable ROI?
The danger of pooling brand marketing and trade marketing budgets
While there are many benefits of pooling, there is a big danger, and that is that the money will slide towards the budget holder that shouts louder, or has the most urgent needs (as opposed to the most important ones). One of the reasons for keeping budgets separately is to ring-fence and control trade investment. Yet even with separate budgets, trade spend is growing much faster than total marketing spend in virtually all the companies we come across. Before a business can introduce a more holistic approach to budgeting, therefore, we see four critical precursive steps (all of which are high value in their own right).
Develop integrated strategies
There is little value to pooling brand marketing and trade marketing budgets, unless the organization is able to develop integrated strategies which cover consumer, shopper and retail. These integrated strategies will guide the decisions about which consumers are important, which shoppers are important in which channels: and which retailer’s are key to delivering brand growth. Without these, the pooling of consumer and trade budgets is unlikely to lead to success. It will likely lead to more infighting, and a growth in trade spend (without necessarily, delivering an ROI).
Take a new approach to budgeting
Pooling brand budgets and trade budgets won’t, on its own, fix what is often a flawed approach to budgeting. To ensure budgets flow to where they will deliver the best returns, we would advocate a move towards zero based budgeting for marketing, and the same for trade spend. While many organizations have now begun to heed the advice for marketing budgets, few are taking the same approach for trade spend. Without a more critical approach to trade investment planning, we would be concerned that trade spend would continue to grow, and with a pooled budget, there is a high risk that this would be at the expense of brand investment.
Re-assess KPIs for everyone
This is another thing that should be done anyway, but become imperative if you’re going to change the way you manage budgets. In our experience KPIs can be one of the most powerful tools to change performance, but they are rarely reviewed. We woudl advocate reviewing and realigning KPIs for marketing and sales to ensure that there is alignment, and that they support the strategy. Sounds obvious, but you’d be surprised!
Implement a common and consistent approach to evaluation
Better budgeting will go nowhere without effective evaluation. Zero-based budgeting is pointless without meaningful evaluation. ‘Rules’ need to be in place that make it clear to all stakeholders across the consumer/shopper/trade spectrum that explain what is a good, and bad, investment. Otherwise the entire process descends into in-fighting.
Changing the way your business invests in its brands and its customers is complex, but the returns on such a shift are enormous. Monies flow to where they are most needed. Funds are only spent when justified. Return on Investment rises. Rapidly diversifying shopper behavior and retail channels make these shifts even more valuable than ever before. If you are a budget holder in a consumer goods company, and you’d like to know more about how we’ve helped clients develop better ways of managing their brand and trade investments, please get in touch.
If you’d like to learn more about ‘the three customers’ and shopper marketing in general, check out Shopper Marketing Experts
Image: Flickr