What is Trade Scheme?

Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. A system or network that allows trade is called a market. An early form of trade, barter, saw the direct exchange of goods and services for other goods and services. Barter involves trading things without the use of money.

Later, one bartering party started to involve precious metals, which gained symbolic as well as practical importance. Modern traders generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning.

The invention of money (and later credit, paper money, and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade involving more than two traders is called multilateral trade.

Some of the Trade Schemes:

  • Buy Cadbury’s products worth Rs.3000/- and get 30 any chocolates worth Rs.5 free.
  • Buy a box of Munch and get 1 Munch free.
  • Point-of-purchase displays i.e. product displays and information sheets are useful in reaching the consumer at the point of purchase and often encourage retailers to support one’s brand.
  • POP promotions can help win precious shelf space and exposure in a retail setting. From a retailer’s perspective, a POP display should be designed to draw attention to a brand, increase turnover, and possibly distribute coupons and sweepstake entry forms.
  • Companies do P-O-P displays as and when they have sales promotion schemes going on. Some companies that do a lot of P-O-P displays regularly are Gillette, Vicks, Duracell, Pepsi, Coke.

Free goods

A free goods promotion is a deviation from a straight price cut. The promotion offer to trade is in the form of an extra quantity of purchased product “free”. Free goods deal often encourages resellers to stock more during the promotion period. For the manufacturer, it is an excellent promotion because it costs less than it otherwise appears.

Buy 24 Close Up toothpaste and get 1 free. Buy Cadbury’s products worth Rs.3000/- and get 30 any chocolates worth Rs.5 free

Trade coupons

It is a manufacturer-initiated sales promotion, however, the coupon distribution is undertaken by retailers, either through the local print medium or in some other manner. The important thing about such coupons is that they can be redeemed only at the distributing store. There is an agreement between the retailer and the manufacturer that some agreed allowance will be paid to the retailer. Generally, this is in the form of reimbursement of some amount of money to the retailer for each coupon redeemed. The distributing retailer gets the double benefit due to the increased in-store traffic and the incentive of reimbursement from the manufacturer. This is a strong incentive for the retailer to arrange displays and promote the coupon offer.

The normal terms of trade is that every trade partner in the chain(Distributor, Wholesaler, Retailer, etc) make a certain pre-defined margin on each product they make. This margin is the gross profit of the trade partner.

The trading scheme is an additional monetary benefit that is given to the trade partners. This additional margin is usually structured around a time period which can range from a few days to a year. A few forms of a trading scheme might take are as follows.

  • Flat discount – Reduction in purchase price leading to higher profit per sale
  • Progressive discount – Higher reduction for higher purchases which encourages partners to sell higher amounts of products
  • Free items – Giving additional products for the same price
  • Lucky draw – A few lucky retailers stand to earn big rewards
  • Slab based rewards – Similar to progressive discount but rewards instead of a discount

Trade schemes are tools in the hands of a brand to ensure that the trade partners are encouraged to sell more of their products. Designing a trade scheme that would attract trade partners to sell more of a brand’s products is the most important aspect of a sales manager’s job.