P&G wants retailers to earn their money

Procter & Gamble is borrowing a page from Gillette’s playbook – requiring that retailers actually execute a promotion in order to be paid for it.

According to Advertising Age, P&G will tie promotional payments to store performance:

Both P&G and Gillette traditionally dubbed their trade-marketing programs "pay for performance," but Gillette's appears to more closely tie retail payouts to specific in-store execution. Currently, retailers accrue funds from P&G based on the number of cases they buy. But while the funds are earmarked for specific promotion programs, retailers don't need to prove they executed the programs to collect.

"What we're talking about is ... being a little more specific with how we spend that money, how we evaluate the payout for it," said Chris Petersen, VP-investor relations for P&G …

It isn’t clear how P&G will monitor compliance, particularly since the article also notes that they are cutting back on full-time retail merchandising staff.

Since anything P&G does generally ripples through the CPG world, however, this move could have serious effects. When coupled with recent talk we are hearting about CPG manufacturers having a renewed interest in basing more allowances on accruals rather than on discretionary funding, it appears we may be seeing a trend toward bringing the Wild West days of trade promotion to a close, and restoring some long-overdue control.

An amusing sidelight: The AdAge article says that “Household and personal-care marketers typically spend nearly as much on trade promotion as advertising …” Right. Nearly as much. Try several times as much. Later, it estimates that P&G ($70 billion in sales) spends about $2 billion in trade promo. Only off by $10 billion or so.