Page 267 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes Trade Allowances
The purpose of trade allowances is to offer financial incentives to resellers in order to motivate
them to make a purchase. A trade allowance can be offered in a variety of ways:
1. Buying Allowances: A producer pays a reseller some fixed amount or money or discount for
purchasing a certain minimum quantity of product within the specified period of time. The
payment may be given in the form of a cheque from the producer or a discounted invoice.
2. Free Goods: Reseller is required to buy a certain number of product cases and for each case
purchased, a certain amount of free quantity of the same product is offered.

Example: The offer might be, “One pack containing one dozen of product free on purchase
of 12 packs”.
3. Slotting Allowances (also called stocking, or introductory allowance): This is the money
paid to retailers to stock new products. William L. Wilkie, Debra M. Desrochers, and
Gregory T. Gundlach found that retailers justify this by pointing out the costs they incur
by stocking so many new products every year and to cover risks associated with new
products. Many firms are uncomfortable with this type of allowance.
4. Buy-back Allowance: Producers sometime offer retailers the opportunity to re-stock. This
promotion immediately follows another type of deal and offers incentives for new
purchases. After the first promotion if the inventory levels with retailers are very low or
almost depleted, producers may offer this second incentive to build inventory level to
normal with retailers.
5. Advertising Allowances: The manufacturer pays the dealer or retailer a certain amount of
agreed upon money to advertise the producer’s product. This amount can be a fixed rupee
amount or a percentage of gross purchase during a specified time period.
6. Display Allowance: This is a direct payment of money or free goods to the retailer for each
item purchased if the party agrees to set up a POP display, or running in-store promotional
programme as specified by the marketer. The marketer requires the retailer to sign an
agreement specifying the activity to be performed before the allowance is given.
7. Contests and Incentives: Manufacturers sometimes use trade contests and special incentives
to stimulate greater support and selling effort from dealers and salespeople and achieve
sales targets, and other objectives. The prizes might include items such as TV, stereo, and
trip to exotic places etc. Sometimes these contests and incentives are offered to sales
people of the distributors, dealers, wholesalers, or retailers. These rewards involve cash
payment to sales people to specially sell the producer’s product. This type of cash payment
is called push money or SPIFF.
8. Cooperative Advertising: The manufacturer agrees to share a certain amount of media
costs with the dealer for advertising his products. This deal is usually based on product
quantity purchased. The dealer must show proof that the ads were released then only the
payment is made. Most of these ads appear in newspapers.
9. Dealer Loader: A dealer loader is a premium that a marketer gives to retailers for buying
a specified quantity of a product. A dealer loader may be a premium to retailers for just
buying the specified product quantity or the condition may be to display it for the duration
of promotion and afterwards the item is given to retailers as premium.
10. Training Programme: Manufacturers impart training about their own brands to the sales
staff of wholesaler or retailer at their (wholesaler’s or retailer’s) location. Michele Marchetti
and Andy Cohen reported that Microsoft launched a training programme “Helping Clients
Succeed” aimed at value-added resellers. The three-day workshop was designed to help
resellers, better understand Microsoft Software.

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