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How To Think Strategically About Trade - Scans

by
David Gronwall

In part 3 of our series, we break down another type of trade spend: Scans

Scans

A type of trade where the retailer sells a product to the consumer at a discounted price during a predetermined promotional period. The retailer then bills the manufacturer back for the number of units scanned through the register x the predetermined promotional allowance. Like MCBs, this type of trade is taken as a deduction from a future payment.

Pros:

  1. Execution - Scans allow brands to take the discount straight to the consumer. The only units that receive the discount will be the ones scanned through the register during the deal dates.
  2. No Retailer Load-in - Since only units that are scanned through receive the discount, there is no incentive for retailers to buy in more inventory than they need. This helps reduce potential supply chain issues and prevents retailers from profiting from load in at a lower price.
  3. Post Promotional Analysis (PPA) - Scans are the easiest and most informational promotion type to analyze. Weekly Point of Sale Data (POS) allows you to quickly calculate expected vs. actual and understand the ROI of the promotion.
  4. Specific Contracts - Binding contracts with specific dates are created for most accounts running scans. With that and the availability of POS data, there is no ambiguity to the deal.
  5. Deduction Processing - This is the simplest form of deduction to validate since it’s based on scans at the register. You can utilize POS data to review likelihood of performance and expected deduction amount.

Cons:

  1. Processing Fees - Some retailers may charge processing fees. This can be a percentage of the deduction, a flat fee, or a flat amount per unit.
  2. Revenue Impact - Scans may not impact manufacturer revenue directly if the warehouse or retailer already has enough inventory to cover the event. In other words, a scan does not incentivize a retailer or distributor to purchase more product during the deal.
  3. Retailer Margin - Some retailers may take a higher margin on scan promotions. For example, they may require a scan of $1.20 and only pass through $1.00 to the consumer. Another way retailers accomplish this is that they will maintain or compress margin on OIs or MCBs while requiring penny for penny for scan discounts.
  4. Demand Volatility - Since the discount is taken directly to the consumer and often tied to some of the deepest discounts, Scan promotions can see higher and less predictable lifts than other types of trade. Be extra careful forecasting scan promotions to ensure proper supply and reduce the risk of overspend.
  5. Short lead time - Of all types of trade, scans can be set up and executed the fastest. This can be good or bad depending on the circumstance, but it can lead to quick changes in demand. It’s important to coordinate with your supply team when setting up scans in the near future.

In conclusion, Scans can be a great option for retailer specific promotions. They allow manufacturers to take the trade funding directly to the consumer by only applying to units sold through the register during the deal window. They also provide the best visibility to performance, and deductions are easy to validate and clear using POS data. It is important to understand any additional fees or margin a retailer may require. Also, sales needs to be very diligent with their forecasts and communicate any short term changes with the supply team to avoid supply issues.

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

Read Part 1: How to Think Strategically About Trade - OIs

Read Part 2: How to Think Strategically About Trade - MCBs

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