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How To Think Strategically About Trade - MCBs

by
Julie Sautter

In part 2 of our series, we break down another type of trade spend: MCBs (Manufacturer Chargebacks), particularly in the retail space.

Manufacturer Chargebacks (MCBs)

A type of trade where the retailer buys your product at a discounted price during a buy-in window (most commonly from distributors). The retailer then (hopefully!) passes along the discount to the consumer during a predetermined promotional period at their retailer. This type of trade is deducted off a future payment.

Pros:

  1. Retailer Level Promotion - MCBs allow brands to promote directly with top retailers who currently buy through a distributor. This also benefits retailers, as all promotion-related administrative tasks are handled at the distributor level.
  2. Increase Product Velocity - Retailers are more likely to pass along the discount to the consumer with an MCB than with an OI, thus increasing the probability of seeing a lift on shelf, driving consumer trial and brand awareness.
  3. Prevent Retailer Load-In - MCBs do not entice the retailer or distributor to load up or “forward buy” to the same extent as an OI.
  4. New Item Launches - MCBs are a great tool to entice retailers to buy new items recently launched at the distributor level. They will help to promote the new item in store and drive consumer awareness and trial (at a discounted price).
  5. Promotional Flexibility - MCBs are easily planned and submitted with flexibility to line drive (across all accounts or to a specific account). This helps build out promotional calendars for the brand.
  6. Cast a Wide Net - Providing an MCB at the distributor level can be an efficient way to provide an MCB across several retailers at once.

Cons:

  1. Retailer Price Reflection - Without Point of Sale Data (POS), it is impossible to verify that the retailer did in fact pass along the discount to the consumer during that promotional period.
  2. Deal Overlap - Distributor-level deals may overlap with MCBs. These overlaps can result in “double dipping” if not planned accordingly. It is important to verify promotional calendars before agreeing to the MCB. Some retailers may even mandate that you promote via MCBs.
  3. Wholesale Pricing - The cost to run the MCB at the distributor is based on the product’s “wholesale” price or what is listed by the distributor. This price may vary from the price the retailer currently pays the distributor. This means is that if your company sells product A for $10/case and offers a 10% MCB, the deduction won’t be $1. It will be 10% off the max price that the distributor sells the product for. Let’s say $13 after a 30% markup… So now you are really giving a 13% discount on your list price. As you can see, this makes estimating MCBs challenging for brands.
  4. Retailer Promotion Windows - At some retailers, promotion windows are short (i.e. just a week long). This may be significantly shorter than the MCB buy-in window. Thus allowing retailers to buy at a discounted price outside of the on-shelf performance window.
  5. Post Promotion Analysis - Distributors do not make it easy for the brand to validate deductions after the MCB runs. Usually the brand will receive lengthy PDFs that include multiple promotions (including slotting) months after the promotion ran. Utilize Cresicor’s free trial of our Deduction Scanning Module to mitigate this frustration!

In conclusion, MCBs can be a great option to run a retailer specific promotion or to cast a wide net over several retailers. If it’s successful, it will likely drive product velocity, consumer trial, and brand awareness. MCBs can be challenging to estimate as it can be based on wholesale pricing and deductions usually come in several weeks or months down the road. It is critical to understand volumes and any other promotions that may also be running. Both can result in a negative ROI on your trade spend.

Before agreeing to a MCB, always thoroughly consider the various pros and cons of the investment!

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