10% of Sales
Globally, companies spend 10% of their sales. This is the budget for all types of advertising & promotions. There is no precise science behind this number. It's more like an accepted industry practice. Anything above this usually attracts the boards attention.
How much to spend on Trade marketing?
There are several variables at play though when looking at how much Trade Marketing / Marketing budget to allocate.
1. The Type of distribution channel - how structured / how do those channels behave
2. The Face of the Competition - How crowded is that market ? many players or few ?
3. The Consumer Target Segments - What is the positioning of the product (Product mix)
The % of spend on trade marketing vs other tactics varies depending on the above.
Trade marketing spend is mainly targeted at growing Numeric distribution (market penetration), at growing Turnover (sell-through), to some extent at driving Customers into stores and at building positive Brand perception (in-store experience). Whereas other tactics are aimed at building your brand awareness (or new product awareness), at engaging with customers (loyalty and after sales service).
It's worth noting that sometimes Trade marketing is also used as a mean of regulation for logistical or sales forecast adjustments (ie. too much stock in channel - need a promo to sell out).
Structured Distribution will push manufacturers to allocate 3 to 5% of turnover on Trade marketing at key calendar times in the year (Christmas, Back to School, Father's day, Mother's day etc...). Once again it really is industry and market dependent. Trading terms are negotiated on a per product / per market basis with each channel.
https://www.quora.com/What-is-the-average-budget-a-FMCG-company-has-to-spend-on-trade-marketing
***
Marketing budget, not sales budget, typically runs between 3-15% depending on industry, company size, and management strategy.
In a large company with >$1billion in sales, a 3% advertising budget is fairly nice size.
https://www.quora.com/What-are-the-average-marketing-budgets-for-a-BtoB-industrial-company-in-percentage-of-the-turnover
***
Indian FMCG companies, typically advertising spend is 13% of sales
Hindustan Unilever - 13%
Colgate - 13%
Dabur - 13% (70% on advertising; 30% on promotions)
Godrej Consumer - 10% (65% on advertising; 35% on promotions)
Amul - 1% (yes, just one percent, may be because margins are low in milk business) (85% on advertising; 15% on promotions)
In high clutter categories like soaps, hair oil, companies have to spend more to stand out from their competition.
Pricing
Reducing pricing is a catch-22 situation. Because on one hand, it increase volume, but reduces margins. Reduction in margins leaves little for investing in brands. When there is no investment, then volumes suffer.
http://www.financialexpress.com/archive/fmcg-cos-raise-ad-spend-slash-budget-for-promotions/1250512/
http://economictimes.indiatimes.com/industry/cons-products/fmcg/despite-high-spend-on-advertisements-fmcg-companies-such-as-hul-dabur-colgate-palmolive-others-see-low-volume-growth/articleshow/18341938.cms
Globally, companies spend 10% of their sales. This is the budget for all types of advertising & promotions. There is no precise science behind this number. It's more like an accepted industry practice. Anything above this usually attracts the boards attention.
How much to spend on Trade marketing?
There are several variables at play though when looking at how much Trade Marketing / Marketing budget to allocate.
1. The Type of distribution channel - how structured / how do those channels behave
2. The Face of the Competition - How crowded is that market ? many players or few ?
3. The Consumer Target Segments - What is the positioning of the product (Product mix)
The % of spend on trade marketing vs other tactics varies depending on the above.
Trade marketing spend is mainly targeted at growing Numeric distribution (market penetration), at growing Turnover (sell-through), to some extent at driving Customers into stores and at building positive Brand perception (in-store experience). Whereas other tactics are aimed at building your brand awareness (or new product awareness), at engaging with customers (loyalty and after sales service).
It's worth noting that sometimes Trade marketing is also used as a mean of regulation for logistical or sales forecast adjustments (ie. too much stock in channel - need a promo to sell out).
Structured Distribution will push manufacturers to allocate 3 to 5% of turnover on Trade marketing at key calendar times in the year (Christmas, Back to School, Father's day, Mother's day etc...). Once again it really is industry and market dependent. Trading terms are negotiated on a per product / per market basis with each channel.
https://www.quora.com/What-is-the-average-budget-a-FMCG-company-has-to-spend-on-trade-marketing
***
Marketing budget, not sales budget, typically runs between 3-15% depending on industry, company size, and management strategy.
In a large company with >$1billion in sales, a 3% advertising budget is fairly nice size.
https://www.quora.com/What-are-the-average-marketing-budgets-for-a-BtoB-industrial-company-in-percentage-of-the-turnover
***
Indian FMCG companies, typically advertising spend is 13% of sales
Hindustan Unilever - 13%
Colgate - 13%
Dabur - 13% (70% on advertising; 30% on promotions)
Godrej Consumer - 10% (65% on advertising; 35% on promotions)
Amul - 1% (yes, just one percent, may be because margins are low in milk business) (85% on advertising; 15% on promotions)
In high clutter categories like soaps, hair oil, companies have to spend more to stand out from their competition.
Pricing
Reducing pricing is a catch-22 situation. Because on one hand, it increase volume, but reduces margins. Reduction in margins leaves little for investing in brands. When there is no investment, then volumes suffer.
http://www.financialexpress.com/archive/fmcg-cos-raise-ad-spend-slash-budget-for-promotions/1250512/
http://economictimes.indiatimes.com/industry/cons-products/fmcg/despite-high-spend-on-advertisements-fmcg-companies-such-as-hul-dabur-colgate-palmolive-others-see-low-volume-growth/articleshow/18341938.cms
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