08: Marketing
Retail Promotion, Demos, and Tradespend
Running grocery store promotions is essential for scaling a CPG brand, but the associated trade spend can make or break your profitability. Trade spend includes funds allocated to discounts, promotions, slotting fees, and retailer marketing programs. If managed effectively, these investments can significantly boost sales, but they can also quickly erode margins if not handled strategically. Let’s explore the key elements of grocery store promotions, how trade spend works, and what you can do to maximize your ROI.
What is Trade Spend?
Trade spend refers to the amount of money a brand spends to promote its products within retail environments. This can include:
- Temporary Price Reductions (TPRs)
- Off-Invoice Discounts (OI)
- Slotting Fees
- Retailer Marketing Programs
- In-Store Demos and Sampling
These investments can drive consumer trial, increase shelf visibility, and ultimately boost sales, but they come at a cost that needs to be carefully monitored and managed.
Types of Grocery Store Promotions
- Temporary Price Reductions (TPRs): TPRs involve discounting the price of your product for a scheduled promotional period. Retailers highlight these discounts on-shelf with sale tags drawing attention to your brand and increasing sales volume. There are three main ways that brands can structure these discounts, and they each come with some watchouts:
- MCB (Manufacturer Charge Back): The brand negotiates a discounted price with a retailer and the distributor charges a manufacturer for selling products to a retailer at that pre-negotiated discounted price. The distributor then claims the difference in price back from the manufacturer, ensuring they are compensated for selling the product to the retailer at a lower rate. Retailers can purchase extra stock at the discounted rate, sell it at the regular price later, and pocket the difference.
- Scan Promotions: A Scan Promotion Discount is a type of discount applied at the point of sale (POS) when the product is scanned at the register, giving consumers an immediate price reduction. The manufacturer only pays for the discounts applied to products that are actually purchased, making this a performance-based promotional method.
- Off-Invoice Discounts (OI): A type of promotion where a discount is deducted directly from the invoice at the time the product is shipped from the manufacturer to the distributor. This allows the distributor to buy products at a lower price upfront, often leading to increased orders during the promotional period. Beware as distributors will over-purchase to resell later at full price.
- Slotting Fees: These are fees paid by brands to retailers to secure shelf space for their products. Slotting fees vary by retailer and location, but they can be quite expensive, especially for national chains. While slotting fees provide access to prime shelf real estate, they should be weighed carefully against your overall budget.
- Retailer Marketing Programs: Many grocery stores offer marketing programs that allow you to promote your product in-store, on their website, or via digital coupons. These programs help increase visibility, but like slotting fees, they can be costly. Make sure to negotiate the terms and evaluate the potential ROI before committing to these programs.
- End-Cap Displays: End-caps are prime real estate in grocery stores, located at the end of aisles where products get maximum visibility. Brands can pay to secure this space during key promotional periods, which often leads to a significant increase in sales.
- In-Store Demos and Sampling: Offering in-store demos or sampling allows potential customers to taste or experience your product firsthand. This tactic can lead to immediate purchases, but it’s also important to track whether those sales translate into repeat purchases after the promotion ends.
- Coupons and Digital Offers: Many retailers now have apps or loyalty programs that allow you to offer digital coupons directly to shoppers. This can be a great way to encourage trial among price-sensitive consumers. Just make sure your digital promotions align with your overall sales goals.
The Challenges of Trade Spend
While promotions can increase sales and visibility, the costs add up quickly. Managing trade spend effectively is crucial, as poor management can result in shrinking margins and unprofitable promotions. The following are some key challenges to watch out for:
- Slotting Fees: These upfront fees can be substantial and often don’t guarantee increased sales. Always weigh the cost of slotting fees against the potential for sustained sales growth before committing.
- Deductions: Retailers and distributors may take deductions for spoilage, damaged goods, or expired products. These can significantly reduce your net revenue. Tracking deductions and disputing them when necessary is essential for managing your bottom line.
- MCBs and Bridge Buying: Manufacturer Charge Backs can incentivize retailers to over-purchase products during a promotional period, only to sell them at full price later. This bridge buying benefits the retailer but can leave the brand with the burden of excess inventory, returns, or spoilage.
When to Run Promotions
Most retailers will have set promotional calendars or expectations for your brand. You may be expected to run quarterly promotions at a minimum of 20% off to the customer, or participate in seasonal discount programs.
Many emerging brands feel pressured to invest in promotions to secure shelf space and stay relevant. However, it’s crucial to know when to promote. Jumping into promotions too early can waste valuable resources if you haven’t built enough consumer awareness or demand.
The best time to invest in promotions is when you’ve proven that your product has consistent velocity and is resonating with your target market. If you’re still figuring out product-market fit, focusing on building consumer awareness through smaller-scale initiatives or targeted digital marketing might be a better use of resources.
Optimizing Promotions
Here are some practical tips for maximizing your trade spend:
- Track Results Carefully: Use software tools like Promomash or internal tracking to measure the ROI of each promotion. Are TPRs driving incremental sales? Are your demo dollars translating into repeat customers? Gathering this data will help you refine your promotional strategy over time.
- Work with Retailers: Coordinate your promotions with retailer-specific events or holidays to get more exposure for your brand. Building strong relationships with category managers can also help secure better placement or reduced slotting fees.
- Limit Deductions: To avoid excessive deductions, ensure you’re sending the right amount of product and that it arrives in good condition. Keep in close communication with your retailers to address any issues before they become deductions.
- Be Strategic About Slotting Fees: Most slotting fees are negotiable for emerging brands. Instead of paying, offer to run that value in TPRs or demo spend.
In Store Demos
Building an in-store demo program is one of the most direct ways to engage consumers and drive trial for your CPG brand, but it’s not as simple as just showing up and handing out samples. A well-executed demo strategy includes planning where and when to demo, how to hook shoppers, and what kind of follow-up you’ll need to turn tasters into loyal customers. Here’s the playbook for setting up a successful demo program.
Hook: Grabbing Attention in Seconds
First impressions matter, and at a busy store, you only have about two seconds to grab a shopper’s attention. The key here is simplicity—clear signage, a clean table, and an eye-catching setup. Make sure your demo station is approachable and visually communicates what your product is all about. Use signage that hammers home your biggest selling points—whether it’s “Organic Energy Snacks” or “Locally Made Plant-Based Meals.” The goal is to get them interested enough to ask, “What’s this?”
Story: Deliver a Compelling 10-Second Pitch
Once you’ve got their attention, you need to sell them on the spot with a concise, compelling 10-second pitch. Focus on what makes your product unique, such as, “We make delicious protein bars with only 5 ingredients,” or, “Our kombucha is brewed locally using traditional methods.” If they’re interested, be ready to extend your pitch to 20 seconds by diving into more details like your mission or sourcing practices. Keep it authentic—your story should resonate with the values of your target shopper.
Offer: Make a Clear Call to Action
Demos aren’t just about giving out free samples—your goal is to get them to buy the product that day. Offer a one-time, demo-only discount, like 50% off or a BOGO (buy-one-get-one) deal, that motivates shoppers to make a purchase right there on the spot. You can do this through a TPR at the store level or a digital rebate. You can make digital rebates as simple as having them text a photo of their receipt to a phone number, and then Venmo them the rebate amount. You can also use a tool like Sampoll to automate this. This allows you to follow up with SMS promotions or product information that can drive repeat purchases.
After-Event Automation: Keep Building Relationships
Once you’ve captured their phone number or email address, the demo’s real work begins. Set up an email automation campaign to follow up with the shopper. Start with a welcome email or video that introduces your brand and follows up with value-added content, such as tips on how to use your product, recipes, or additional discount codes. The goal is to nurture the relationship and drive them back to your website or store.
How Often to Run Demos: Consistency Matters
Demos aren’t a one-and-done tactic. To make a real impact, you need to be running demos consistently. Ideally, run demos in your top-performing stores every 4-6 weeks to maintain momentum. For mid-performing stores, once every quarter can help boost visibility and sales. Pay attention to when stores are busiest—weekends, particularly Saturdays, tend to see the most foot traffic, so plan your demos accordingly.
Where to Run Demos: Focus on Your Best Opportunities
Not all stores are created equal. Focus on your top-performing stores, where customers are already buying your product. These stores are most likely to have a receptive audience and can help you generate solid ROI from your demo investment. For mid-performing stores, demos can help drive awareness and growth, but be sure to prioritize your resources.
Who Should Run the Demo? Founder vs. Hiring Help
The person running the demo is crucial. Early on, founders often handle demos themselves—and this can be incredibly effective. When the founder is at the table, they can deliver a passionate, authentic story that resonates with shoppers. But as your brand grows, it becomes less feasible to do every demo yourself. At that point, hiring brand ambassadors or a demo agency can make sense. Just make sure they are well-trained and know your brand story inside and out.
Founder: Best for authentic storytelling and passionate pitch.
Brand Ambassadors: Good for regional demos or when scaling up.
Demo Agency: Great for larger campaigns, but ensure they’re well-versed in your brand message.
A Smarter Approach to Trade Spend
Rather than blindly throwing money at promotions and trade spend, it’s essential to analyze the data and determine which methods work best for your brand. You can use a TPR, MCB, or OI depending on your goals, but remember that every dollar spent should have a measurable return. The cards may feel stacked against emerging brands, but by tracking and optimizing trade spend, you can navigate the challenges and grow sustainably.