In this article, let's chat about a Trade Promotion Pricing strategy widely used in any business. If you know how to master it, you can expect nothing but excellent results!
The power of Free Goods as a trade promotion pricing tactic
A Free Goods promotion strategy is defined when a company gives merchandise free of charge. It can come as Free Samples, Free Gifts and Buy-One-Get-One-Free (BOGOF) related promotions.
Companies can give free samples to incentivise new consumers to get to know their products. They can also use a BOGOF promotion to boost sales. Studies show that consumers perceive more value in free items rather than percentage discounts even if, mathematically speaking, the cut is more beneficial. Who doesn’t love freebies?
So, why don’t many companies carry out Free Good promotions?
Free Goods may be as simple as a BOGOF promotion, but it can be more complex when encompassing a different combination of requirements to get a product at no charge.
Discount programs such as Free Goods can create administrative challenges across multiple areas like managing sales and accounting processes. This activity when manually executed has a high chance of leading to a loss of sales and revenue.
There are three significant problems that companies face if they can’t precisely manage Free Goods.
Loss of incremental sales – free goods and coupons are related to cross-sell because they can drive more sales. You can encourage your clients to buy three or more items to get one for free. This promotion strategy will inevitably impact your sales growth.
Slow moving stock - free goods can be used to move inventory. If a company is storing deals in Excel they might have a list of promotions that they can use at any time. However, your sales team might forget to apply a promotion or a discount because they can’t track all the deals manually.
Lost tracking of cost elements - some companies give free merchandise but don't keep track of this action. In this situation the item is going to be accounted at zero cost and this isn't correct from a financial approach. Distorted cost information can lead to loss of profit.
Make it easy with a solution for managing your promotion pricing
A promotion pricing tool is a powerful ally for companies willing to invest in automation and looking for a better solution to manage their business processes. Flintfox’s Trade Revenue Management Suite comes with a Free Goods template feature that can be enabled inside the Trade Agreement.
In three easy steps, you can run your Free Goods promotion!
Step 1 – Set up your Free Goods templates in the Trade Agreement
The system will add a Free Goods pricing line in the pricing tab of the Trade Agreement window.
Step 2 – Set up details of your Free Goods promotion
The system supports simple promotions such as Buy-One-Get-One-Free, as well as Buy 5 Get 1, Buy 10 Get 2 or any other combination. In those scenarios, the user needs to set up the number of merchandise purchased required to qualify for Free Goods.
The system also provides features that can be used for managing more complex Free Goods transactions where a mix of different product combinations is required.
Step 3 – Apply the Free Goods in your Sales Order
During order entry, the sales rep will be alerted to the availability of a promotional offer such as a free good. The sales rep can manually select the product that will be given at no cost to the client.
This product is displayed in the system as a "reward" and will be added to the invoice. The accounting system will make an account for this item considering the original cost of the product for the company rather than zero value.
In summary, by using a Trade Revenue Management solution to execute your Promotion Pricing needs such as Free Goods, the company won’t lose sales, stocks will clear up, and the operation will comply with financial and accounting transactions. Easy as pie, right?
If you would like to see a live demonstration customised to your requirements, you can book a time with one of our expert consultants.