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Food Industry Overview - Industry Terms

LMSB-04-0207-018

"This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

4. Industry Terms

 

Industry Term

Definition or Explanation

Account-specific marketing

The practice of tailoring marketing programs to specific-customers.

Accrual

The amount of funds earned through purchases over a stated period. Usually earned on the basis of so much per dollar or per item purchased.

Accrual period

The period during which purchases accrue allowances.

Ad scrip

A certificate entitling a retailer to a specified amount of co-op funding. Often used as a means to provide allowances to indirect customers.  Sometimes called “co-o in a box”

Advertising deadline

The last date by which advertising may take place if it is to qualify for reimbursement.

Affidavit of performance

A sworn statement that provides information about certain advertising.  Typically refers to a statement from a medium, such as a radio, cable, or television station or an outdoor supplier.

Audit

A process by which a claim is analyzed and a determination made as to whether a claim falls within program guidelines and, if so, how much should be paid.

Automatic inventory replenishment

An arrangement by which a retailer authorizes a manufacturer to monitor the retailer’s inventory of the manufacturer’s products and automatically ship additional products when inventory reaches certain levels.

Barter

The trading of merchandise instead of paying cash for advertising.

Carryover period.

A period after the end of a co-op program during which a retailer can spend funds left over from the program.

Category killers

A relatively new class of exceptionally large retail stores that is devoted to one category of merchandise, examples are Home Depot, Best Buy.  Also called superstores.

Claim

The invoice from a retailer or other intermediary for reimbursement of the cost of advertising or promotion of a supplier’s product or service.

Cooperative advertising

Any arrangement by which a product or service is brought to public notice over the names of both the supplier and any intermediary who comes between that supplier and the ultimate purchaser.  The intermediary may be a retailer who buys a product for resale, a distributor who sells to retailers or other form of intermediaries.  This arrangement results in consumer advertising as well as other forms of promotion.  The cost of the promotion may be shared by the supplier and the intermediary, or the supplier may pay all costs.  The process commonly involves reimbursing retailers for advertising they create and place.

Credit memo

An alternative to cash as reimbursement to customers for cooperative advertising.  The supplier issues a credit memo that authorizes the retailer to deduct that amount from the next payment to the supplier.

Deal/deal period

A time frame during which a manufacturer offers products to its customers at unusually low prices and/or with other inducements, such as increased co-op accruals or volume rebates.  Most common in the packaged goods industry.  Some deals may induce a customer to buy more products than can be sold during the deal period, leading to diverting.

Deduction

A retailer’s subtraction of co-op charges from the supplier’s invoice.

Direct customers

Customers who buy directly from the manufacturer without going through a wholesaler.

Display allowances

Payment by a manufacturer to a retailer for in-store displays or for preferential shelf space or positioning.

Diverting

The practice of buying a product on deal in one area and reselling it in another area where it is not on deal.  Often done by retailers who resell to other retailers or to other divisions of their own company.

Efficient consumer response (ECR)

A catch all term covering a variety of actions undertaken by many food and packaged goods manufacturers, distributors, and retailers to improve distribution practices and clean up abuses in the industry.  Trade allowance practices including deductions, are a major component of the process.

Electronic data interchange (EDI)

A variety of techniques by which firms communicate with each other, generally through computers tied into dedicated networks using standardized formats.

Everyday low pricing (EDLP)

Originally a retailing concept most often practiced by warehouses and clubs, in which there are no or few off-price promotions; any deals are averaged into the everyday price and products are offered at the same price consistently.  Has now spread into manufacturing, where some companies call it  “value pricing”

Failure fees

Payments made to retailers when a product is discontinued due to lack of movement.

FTC Guides

Federal Trade Commission Guides for Advertising Allowances and Other Merchandising Payments and Services.  The Guides present the FTC’s view of how suppliers, retailers, media, and others can comply with the terms of the Robinson-Patman Act as it relates to promotional allowances.  Issued in 1960 and reissued with major modifications in 1969 after a Supreme Court decision in the case of FTC v. Fred Meyer, Inc.

Just-In-Time

The concept of cutting inventory costs by ordering supplies only as needed.  Pioneered in manufacturing by the Japanese, now increasingly popular among retailers.

Key market funds

Funds over and above the normal co-op allowances made available by suppliers for use only in certain markets in which they have a strong interest.

Market development funds (MDF)

Extra funding given to specific retailers for specific purposes, such as a major seasonal promotion, by the manufacturer’s sales and/or marketing management.  These funds generally are not given out on a proportional basis, when this is the case; they are of questionable legality (Robinson-Patman Act).

Multi-vendor programs

Programs in which two or more manufacturers jointly offer a promotion to their retailers.

Off-invoice

The practice of taking an allowance directly off the price of the product, rather than submitting a claim for payment of the allowance.

Overbill

A practice among some retail buyers who ask suppliers to bill in excess of the regular price and hold the excess funds at the buyer’s disposal to be used for promotional or other purposes.  Sometimes stimulated by management pressure on the buyer to seek money over and above the supplier’s regular allowance.  In other cases, buyers use this approach when they want to promote an item for which no store funds are available.  In some industries, called “price loading”

Pay for performance.

Programs offering to pay retailers a specified amount for each unit of the manufacturer’s product sold during a specified period usually based on scanner data.

Push money

The practice by which a manufacturer offers cash or other inducements to retailer’s salespeople to encourage them to recommend its products to potential buyers.  Most common format is to offer the salesperson a certain amount per unit sold during s specified time period.  A common variant is to offer points, which the salesperson can sue to buy various merchandise from a manufacturer-supplied catalog.  Also known as “spiffs”

Robinson-Patman Act

Federal legislation requiring that all competing customers of a supplier who offers promotional help to those customers must be treated on an equal basis.

Sales contest

A form of push money in which, instead of offering cash incentives, the manufacturer offers participating retail salespeople the opportunity to win some kind of prize, either through a drawing or by achieving defined levels of sales.

Slotting/slotting allowances

Payments by a manufacturer to a retailer for the retailer’s shelf space.  Sometimes also used incorrectly to refer to payments for displays or preferential shelf space.

Soft dollars

Promotional allowances. 

Stock-keeping unit (SKU)

Each item inventoried by a retailer. For example,  “Widget” might represent several SKUs for typical grocery store, one SKU for each size, style, etc.  The more shelf space required, the more inventory cost.

Trade loading

The practice of inducing retailers or distributors to take on unusually large amounts of merchandise, generally by offering exceptional prices or terms.  Often done at the end of a quarter or other financial reporting period in order to reach quotas.

Vendor support programs

Requests by retailers for extra funding for specified promotional efforts.  Such programs are often illegal.

Vendors

Name typically used by retailers to refer to manufacturers.

 

Chapter 3 | Table of Contents | Chapters 5, 6, & 7

Page Last Reviewed or Updated: 05-Mar-2014