Three Major Distortions in Trade Promotion Policies and Countermeasures

From manufacturer to consumer, all policies related to management, regulation, incentives, penalties, payment collection, and other profit-driven measures—such as advertising, promotions, and systems—can be categorized under "channel policies." Given the broad nature of channel policies, the author focuses on the distortions in trade promotion policies for weak brands and their prevention.

For weak brands, on one hand, increasing product distribution reach and depth has become a key focus in marketing work, with relatively generous trade margins and additional promotional benefits serving as important tools to counter the competitive pressure from strong brands and direct competitors. On the other hand, some damaging issues that cause trade promotion policies to deviate from their intended purpose persistently accompany us.

Once these issues are defined based on price and material incentives, in my view, the main problems appear in three aspects: first, trade promotion policies are too broad and generalized; second, there are excessive regional differences in trade promotion policies; third, process supervision of trade promotions is difficult to enforce strictly.

Let us analyze and solve these three problems one by one.

Trade Promotion Policies Are Too Broad and Generalized

For many enterprises, even today, trade promotions still typically involve gifts with goods, purchase bonuses, rebates, and similar measures. Because they overestimate the recognition and cooperation capabilities of channel members, they overlook many details that should not be ignored. Let us first look at a small case.

Tianqing Company, a new player in fruit wine, to increase merchants' enthusiasm for stocking, in addition to a 5%-10% tiered rebate, also offered a 10% physical gift with purchases. However, later, due to the inability to fulfill necessary publicity and promotional support, the market did not form pull, which also affected push. A large amount of product either piled up at the terminal or in distributors' warehouses, or was dumped at low prices by some distributors eager to cash out.

In fact, Tianqing's original promise was that returns and exchanges could be made after a certain period, but what to do with the returned products? If they did not fulfill the promise, they could only delay and avoid handling it. This ultimately damaged Tianqing's reputation severely, leading some distributors to sue them, and others to ask Tianqing's sales staff, "Have you changed bosses?" Under such circumstances, Tianqing's survival pressure increased, gradually falling into a fate of opening new merchants only to lose them, and the market situation became increasingly severe.

I. Main Problems

A detailed study of the above case shows that the main reason for Tianqing and similar enterprises facing such situations is: to seize distributors' warehouse space and funds, they used gifts with goods, purchase bonuses, and purchase rebates to induce distributors to stock large quantities, transferring a large amount of inventory. However, because terminal promotional measures did not keep up and consumer pull was not cultivated, distributors faced pressure from products approaching their shelf life. This naturally increased the occurrence of low-price dumping and cross-region selling for cash, putting excessive sales pressure on the channel, making promotions counterproductive.

In addition to the above, many weak brands also exhibit other problems in the aspect of trade promotion policies being too broad and generalized, such as:

Lack of specific incentives for shelf display indicators and advantageous store displays, resulting in insufficient enthusiasm from distributors for advantageous displays;
Failure to specifically target sales competitions among intermediaries to form a reward system, making it difficult to enhance distributors' identification with their brand, further causing weak brands to be undervalued;
Failure to consider exclusive incentives, leading to competition from competing products at the same distributor, further reducing their importance to merchants;
Failure to set new product promotion awards, causing some new products to receive insufficient attention from merchants due to longer market cultivation periods and greater effort required, increasing marketing uncertainties for new product launches.

II. Solutions

Generally, the main purpose of manufacturer trade promotions is to achieve broad and deep distribution of their products in a regional market and ultimately present them to consumers. To achieve this, it is essential to gain recognition and attention from merchants, reflected through higher shelf placement rates and better shelf placement quality.

Based on this, you should change your previous overly simplistic trade promotion policies such as purchase bonuses, gifts with goods, and volume-based rebates, and genuinely implement promotional methods that focus on details and processes, such as display awards, exclusive awards, new product promotion awards, and sales competition awards.

Adopt a holistic perspective and replace point-and-line thinking in trade promotions.

The most important function of trade promotion is to promote the "flow" of the channel. To truly promote "flow," when considering trade promotion policies and activities, you should combine the following issues and plan before acting:

Not only stimulate distributors to stock, but also increase their recognition and attention to your products, stimulate them to distribute, maintain the channel, and actively cooperate with consumer promotions and publicity;
How to align wholesalers with upstream distributors or yourself, not only actively stocking but also actively displaying in wholesale markets, proactively and even preferentially recommending to downstream merchants, to effectively digest upstream shipment pressure;
At the retail terminal, how to use trade promotions to encourage them to accept goods, ensuring shelf placement rates, and how to encourage them to maintain displays with competitive shelf space and high-quality displays;
When goods circulate through various channel links, can the consumer market digest them within a reasonable period? If not, what measures should you take to cultivate and increase consumption?

For weak brands, their consumer appeal and attractiveness to merchants close to consumers (usually diminishing, with weaker product appeal at channel links closer to consumers) are limited. If you cannot integrate and solve the above issues with a holistic, systematic approach in trade promotions, your attempt to use trade promotions to complete the marketing chain cycle from product to commodity to currency across all channel links will be difficult to achieve.

Excessive Regional Differences in Trade Promotion Policies

Due to significant differences in economic levels, competitive conditions, consumption habits, and sales barriers among regional markets, as well as differences in distributor capabilities and personal connections, promotional policies may sometimes be inconsistent.

For example, Renyuan Wine's 500ml product had a first-tier wholesale price of 240 yuan per case. In a purchase bonus promotion, considering that Region A was a newly opened market with high competitive barriers, the promotional policy for local merchants was "buy 50 cases, get 5 free," which was better than the neighboring Region B's "buy 50 cases, get 3 free." The result was that goods from Region A flowed into Region B, which had already achieved a certain sales scale, at prices below 230 yuan per case. In this situation, Renyuan's attempt to build a sales network in Region A not only failed but also disrupted the market order in Region B, leading to the loss of control and defection of merchants in Region B.

I. Main Problems

Combining the Renyuan case, it is very clear that when there are differences in promotional policies between two regional markets, and transportation and loss costs cannot offset the profit margin from cross-region purchasing (of course, products may directly flow to regions with smaller promotional policies and better market foundations), channel promotion problems such as cross-region selling are inevitable.

In fact, this is not a problem unique to a few enterprises. Among many weak brands, the occurrence of this problem is further increased due to reasons such as careless consideration by policy makers, the "capability" of sales personnel requesting policies, and managers' accommodation and special treatment of certain merchants.

If we only consider the formulation of regional channel policies, how can we avoid the destructiveness and lethality of differentiated promotional policies from the start?

II. Solutions

The key is to rationalize trade promotion policies that were previously highly differentiated and arbitrary. This is specifically reflected in the following aspects:

Give less promotional benefits upfront and more afterward, using restrictive measures to deter merchants and gain more control.
Convert explicit concessions into hidden rebates, and break down broad physical concessions and point-based rebates into finer categories, rather than giving merchants additional benefits solely based on purchase volume, sales volume, or payment collection.
Estimate sales scale.

Taking Renyuan as an example, when formulating promotional policies for Region A, it should comprehensively evaluate the startup and cultivation of the consumer market, competitive difficulty, the number and quality of distributor networks, and the sales volume that can be digested at that stage to determine the approximate sales scale. When merchants purchase beyond the normal sales scale, vigilance should be raised to add a warning line against the toxic side effects of trade promotions.

Balance promotional policy differences as much as possible.

Again, taking Renyuan as an example, if it fully considered the transportation and loss costs of shipping goods from Region A to Region B, and converted these costs into the per-case cost borne by second- and third-tier merchants in Region B, then when formulating trade promotion policies for the two regions, if Renyuan could balance the benefit difference between them with these costs, the effectiveness of its trade promotions might be much better.

Difficulty in Strictly Supervising Trade Promotion Processes

This is mainly due to underestimating the initiative of channel members, sales personnel, and other related stakeholders.

For example, QR Foods, to increase shipment volume and stimulate broad and deep product flow, launched an activity of "buy 50 cases, get 10% physical rebate." Once the activity was launched, the original first-tier wholesale price of 60 yuan per case (with a first-tier profit of 5 yuan per case) became 57, 56, or 55 yuan per case, disrupting the normal price order.

After the promotion ended, the aftereffects inevitably appeared. Because restoring the previous wholesale price of 60 yuan per case for first-tier merchants meant a price increase. Could downstream channel members accept it? If not, wouldn't they switch to competitors? If they did not raise prices, could they afford to give merchants extra rebates and profits?

I. Main Problems

Rewards are based only on the results of meeting targets, without paying attention to how channel members achieved them. Additionally, many enterprises' sales departments, market supervision departments, and personnel fail to supervise or weakly supervise the sales implementation process of merchants during trade promotions, further increasing the occurrence of policy distortions like QR Foods'.
Inadequate punishment, "hesitation leads to chaos."

When merchants violate rules to earn promotional benefits during trade promotions, frontline sales personnel, regional managers, and even higher-level sales managers are not unaware of the hidden dangers. Nevertheless, many still knowingly violate rules, and some even encourage merchants to operate illegally due to vested interests.

Why? Because:

Sales targets are ruthless, making sales personnel and merchants who want to easily obtain promotional benefits very close, forming a community of interests. Sales personnel and merchants collude, such as asking the company for better promotional incentive policies, or finding a large wholesaler with strong penetration to dump goods and generate volume, which happens from time to time.
Because people are emotional beings, sales personnel, sales managers, and some merchants have close personal relationships. This not only triggers favoritism in trade promotion policies, upsetting the balance of the broader market order, but also during trade promotion and channel management rectification, some merchants escape timely and effective handling due to intricate relationships.
Because weak brands lack a strong backbone, they fear that strict measures will drive away distributors who were hard to win over, affecting the sales network and consumer market they have painstakingly cultivated. So they turn a blind eye and speak softly. Little do they know that their products may soon become unprofitable, and the product lifecycle may be drastically shortened before the market is even established, ultimately leading to abandonment by the market.

II. Solutions

In any trade promotion, you should sort out the problems that may arise from the activity and equip corresponding preventive measures and problem-handling measures.

For example, any purchase bonus, gift with goods, volume-based rebate, and other concession promotions may disrupt the normal price order and create the possibility of cross-region selling (of course, for some weak brand products where the consumer market has not been cultivated, since there is no profit or place to dump, cross-region selling may not occur). In such cases, you should prepare preventive and punitive measures.

For example, withhold part of the physical gifts for purchase bonuses or gifts with goods, or increase the use of sales-based bonuses and gifts to gain higher initiative;
For example, increase hidden rebate measures;
For example, set minimum wholesale prices and sign product price protection agreements.

These are all trade promotion measures to strengthen process management and minimize risks. In actual implementation, whoever sells below the minimum wholesale price or engages in cross-region dumping will have their rebates deducted or even face stricter measures.

Change mindset, enforce rules strictly; otherwise, you will ultimately harm yourself.

This requires not only:

Strengthening management by walking around
Establishing market early warning information feedback networks and mechanisms
Establishing checks and balances between the parties involved

But also involves the enterprise's execution capability. Practices of strong brands are worth learning from. For example, Pepsi-Cola, to prevent merchants from violating rules and sales departments from falsifying during trade promotion implementation, specifically stipulates that a joint team composed of personnel from the marketing department and planning department will conduct irregular spot checks and evaluations to ensure accurate and truthful results, truly rewarding distributors who jointly maintain and expand the market with the manufacturer. Obviously, behind establishing this checks-and-balances mechanism, it may also involve improving the organizational structure.

We know that if policy distortions occur during the implementation of trade promotion policies due to lax control and inadequate punishment, the symptoms of local merchant and market loss of control may spread like a plague, ultimately leading to broader market loss of control. There are many enterprises around us that have experienced this situation, and the author will not elaborate further here.

[This article is excerpted from Mr. Li Zhengquan's book "Weak Brand Marketing—The First Domestic Reading Material Systematically Solving Weak Brand Marketing Problems," in the promotional interaction strategy section. Some modifications have been made.]

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