Meaning
Rebate structure offered by manufacturers to retailers for specific promotional activities. Receiving a trade allowance often requires the retailer to provide proof of floor displays, shelf space or circular advertisements. This payment reduces the net cost of goods without altering the official list price.
Marketing Support
Manufacturers use these funds to ensure their products are featured prominently during holiday sales. By offering a trade allowance, a brand secures the cooperation of the store manager in launching a new item. Large displays at the end of an aisle are the result of these agreements.
Price Reduction
Retailers use the extra margin provided by the manufacturer to lower the cost for the final consumer. Because a trade allowance is technically a rebate or a discount, it allows for temporary price cuts that do not damage the long term value of the brand. Successful promotions lead to a rapid increase in market share.
Stores track the effectiveness of these discounts to decide which brands to stock in the future. Better pricing attracts more foot traffic to the entire category.
Volume Target
Payments are often tied to the total quantity of goods purchased during a specific quarter. Meeting the requirements for a trade allowance encourages the retailer to buy in bulk and push the product to customers. Financial rewards are paid out after the sales data has been verified.
