Page 538 - Foundations of Marketing

Personal Selling and Sales Promotion | Chapter 17 505

Trade Allowances
Many manufacturers offer trade allowances to encourage resellers to carry a product or stock
more of it. One such trade allowance is a buying allowance , a temporary price reduction
offered to resellers for purchasing specified quantities of a product. A soap producer, for
example, might give retailers $ 1 for each case of soap purchased. Such offers provide an
incentive for resellers to handle new products, achieve temporary price reductions, or stimu-
late purchase of items in larger-than-normal quantities. The buying allowance, which takes
the form of money, yields profits to resellers and is simple and straightforward. There are
no restrictions on how resellers use the money, which increases the method’s effectiveness.
One drawback of buying allowances is that customers may buy “forward”—that is, buy large
amounts that keep them supplied for many months. Another problem is that competitors may
match (or beat) the reduced price, which can lower profits for all sellers.
A buy-back allowance is a sum of money that a producer gives to a reseller for each unit
the reseller buys after an initial promotional deal is over. This method is a secondary incentive
in which the total amount of money resellers receive is proportional to their purchases during
an initial consumer promotion, such as a coupon offer. Buy-back allowances foster coopera-
tion during an initial sales promotion effort and stimulate repurchase afterward. The main
disadvantage of this method is expense.
A scan-back allowance is a manufacturer’s reward to retailers based on the number of buying allowance A tempo-
rary price reduction to resellers
pieces moved through the retailers’ scanners during a specific time period. To participate in
purchasing specified quantities
scan-back programs, retailers are usually expected to pass along savings to consumers through
of a product
special pricing. Scan-backs are becoming widely used by manufacturers because they link
buy-back allowance A sum
trade spending directly to product movement at the retail level.
of money given to a reseller for
A merchandise allowance is a manufacturer’s agreement to pay resellers certain amounts
each unit bought after an initial
of money for providing promotional efforts like advertising or point of-purchase displays.
promotion deal is over
This method is best suited to high-volume, high-profit, easily handled products. A drawback
scan-back allowance
is that some retailers perform activities at a minimally acceptable level simply to obtain allow-
A manufacturer’s reward to
ances. Before paying retailers, manufacturers usually verify their performance. Manufacturers
retailers based on the number
hope that retailers’ additional promotional efforts will yield substantial sales increases. of pieces scanned
merchandise allowance
Cooperative Advertising and Dealer Listings A manufacturer’s agreement to
pay resellers certain amounts
Cooperative advertising is an arrangement in which a manufacturer agrees to pay a certain of money for providing special
amount of a retailer’s media costs for advertising the manufacturer’s products. The amount promotional efforts, such as
allowed is usually based on the quantities purchased. As with merchandise allowances, a setting up and maintaining a
retailer must show proof that advertisements did appear before the manufacturer pays the display
agreed-upon portion of the advertising costs. These payments give retailers additional funds cooperative advertising
for advertising. Some retailers exploit cooperative-advertising agreements by crowding too An arrangement in which a
many products into one advertisement. Not all available cooperative-advertising dollars are manufacturer agrees to pay a
used. Some retailers cannot afford to advertise, while others can afford it but do not want certain amount of a retailer’s
media costs for advertising the
to advertise. A large proportion of all cooperative-advertising dollars is spent on newspaper
manufacturer’s products
advertisements.
dealer listings
Dealer listings are advertisements promoting a product and identifying participating
Advertisements that promote a
retailers that sell the product. Dealer listings can influence retailers to carry the product, build
product and identify the names
traffic at the retail level, and encourage consumers to buy the product at participating dealers.
of participating retailers that sell
the product
Free Merchandise and Gifts free merchandise
A manufacturer’s reward given
Manufacturers sometimes offer free merchandise to resellers that purchase a stated quan-
to resellers that purchase a
tity of products. Occasionally, free merchandise is used as payment for allowances provided stated quantity of products
through other sales promotion methods. To avoid handling and bookkeeping problems, the
dealer loader A gift, often
“free” merchandise usually takes the form of a reduced invoice. part of a display, given to a
A dealer loader is a gift to a retailer that purchases a specified quantity of merchan- retailer that purchases a speci-
dise. Dealer loaders are often used to obtain special display efforts from retailers by offering fied quantity of merchandise

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