The Cost of Collaboration

The Cost of Collaboration
Fees between FMCG brands and retailers enable promotions to happen but are far too often detached from the big-picture view and not included in profitability calculations.

None of those striking end caps or impressive mass displays are free of charge. While retailers understandably want to provide visually appealing experiences that urge shoppers to test out new products, or make it impossible to ignore such a great promotional offer, they also have lofty expectations towards their brand partners. Retailers want to ensure that those well-exposed placements and media displays in their stores generate an additional revenue stream, and that the cost of promotions are covered jointly with the brands.  

On the other hand, FMCG companies want to ensure that their products are being listed, and overall that they are a part of the most appealing retailer campaigns. On top of that, even with a hefty fee, being featured on secondary placements is essential.  

No partnership between a retailer and an FMCG company is complete without fees, fees, and more fees. Some are annual and more considered fixed costs, some are incentives that reward the retailer for exceeding certain sales targets. However, to gain a full picture view of trade promotions, variable fees and promotion-specific fees must be considered when evaluating past and future promotions.  

Some fees are certainly more favorable for FMCG brands. On the other hand, there are different methods for contributing to costs which retailers might make use of, potentially leading to less normal priced sales in the near future.

Direct discounts for the sell-in period are an opportunity for retailers to get great deals for a promotion, and furthermore would allow them to stock products at a discounted price. Even with the risk of stockpiling, this allows FMCG brands to sell goods in larger lot sizes.  

Reimbursements that are based on sell-in during a specific period shift the risk of poor promotion performance from the retailer to the FMCG company. This also allows a retailer to hoard products and sell those after the promotion period at a normal price, which means this is not a preferred option for FMCG companies.

Reimbursements based on sell-out during the promotion period allow retailers to get the best possible discounts for the agreed promotions as fees that are tied to sales during the promotion time. Anything sold with normal pricing after the promotion period is not compensated.  

Discounts for certain lot sizes or thresholds provided by FMCG brands allow them to push bigger inventory to the retailer which in turn can enable greater visibility in stores.

On top of the variable fees, there are costs that can easily be allocated to a specific promotion. These kinds of fees are, for example, fixed promotions fees that are related to store-level activities and media fees that an FMCG company pays for visibility in digital or traditional media. To ensure an impactful product launch with good visibility and store coverage, FMCG companies usually pay a certain launch fee.

Comparing the impact and disadvantages of different fees creates an opportunity to use fees in a more advantageous way. However, one key element cannot be ignored. The importance of using a powerful system for planning and analyzing promotions that also considers these fixed fees and variable costs is clear. Not including these in the planning and analysis stages means that the potential, profitability, and true impact of past and future promotions are lost, and the whole picture remains incomplete.  

A² Trade Promotion allows you to consider all these different fees in planning and analyzing promotions. This added strength in planning, running, and analyzing trade promotions creates a full picture view of the promotion cycle and allows promotions to drive growth.

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