What is Co-pack?

A co-packer, or co-manufacturer, is an established food company that processes and packages your product according to your specifications. You are out of the kitchen and can take advantage of their expertise. You also have more time to promote and distribute your product. However, costs are higher and there are a limited number of co-packers.
A contract packer, or co-packer, is a company that manufactures and packages foods or other products for their clients. To market and distribute, a copacker works under contract with the hiring company to manufacture food as though the products were manufactured directly by the hiring company.
A co-packer is similar to a contract manufacturer in other industries, such as automotive or aerospace. Co-packing is commonly used when the producing company doesn't have the packing capacity, machinery, knowledge etc.

So, what exactly is a co-packer? In short, a co-packer is an established food manufacturing company that produces your product to your specifications for a fee. You may ask yourself why you would pay someone to produce your product. When you begin looking into the costs of setting up a food manufacturing facility, you will quickly come to the realization that the capital required to run your own operation is out of reach for most start-ups.

Here are 7 reasons I co-pack my food product:

1. It’s not my strength

When I started my company, the last thing I wanted to do was make a TON of mustard and sell it. I just wanted to do more sales, more management, and build a cool brand. Manufacturing is my weakness. But, it’s someone else’s strength. I try to focus on what I do best and hire for what I’m simply not good at.

2. It allows me to do more sales

As I hinted in #1, I can sell mustard to pretty much anyone. I’ve convinced people who don’t even like mustard to buy it. I’ll up-sell people to 2 or 3 jars in a matter of seconds. Sales is the growth engine of my company – and your company, too. That’s why I’m choosing to focus on it – and not manufacturing. When you manufacture every day, when are you going to do sales? No sales = no money to cover expenses. No money to cover expenses means you’re going out of business. No, thank you.

3. It lets me scale up

When you make product on your own, you can only produce so much product. In the first few “hobby years”, I was making 12 jars of mustard on my parent’s stovetop. Pain. in. the. butt. And if I kept going that way our mustard would have to be sold for $12. And we all know that’s pretty much impossible. To get our product cost down, I scaled up to a co-packer. I could buy ingredients, glass, and packaging in bulk — and my per unit cost of my food product plummeted  – to a point where Green Mountain Mustard became a viable business.

4. My kitchen manager is my partner in crime

Doing everything as a solo founder is madness. I’ve written on the solo founder food business before. There’s a lot to do — in fact, your to-do list is never-ending. Mine often spans 2 pages of my notebook. But, now that I have a co-packer/kitchen manager, I’m able to eliminate a large chunk of my to-do list that would have gone towards producing my product. That ultimately makes me more productive. Don’t you want to be productive, too?

5. My co-packer (honestly) makes my product better

On multiple occasions, I’ve talked with my co-packer about how she makes my product. And every time she tells me a story about making it, I keep thinking, “I would never consider that!” Everything prep of ingredients, filling jars faster, and working with me to increase daily efficiency, it’s a welcome “expense” to pay when you know she can do it better than you.

6. It helps me meet other food entrepreneurs

My co-packer is pretty unique. She pretty much runs a shared kitchen with the option to co-pack (and most manufacturers do). People are in and out of the kitchen all of the time. And I’ve met almost all of them. The best people I’ve met? Other food producers. Why? Because we can chat about what we’re doing, how we’re growing, share suppliers, new retailers, etc. Our co-packing facility is a small family — we all help each other out. And it’s a main reason why I’ve stayed with my co-packer for several years.

7. It’s less expensive

Say what? It’s true! Co-packing is significantly less expensive than opening your own kitchen. If you’d like to open your own kitchen, you’re looking at at least $100,000. And you probably don’t have that hanging around on your kitchen table. You can use a co-packer for a couple thousand dollars a day (all said and done — ingredients, packaging, and labor). Because of our smaller production capacity, my co-packer costs me a couple thousand dollars a month — soon to be more with holiday demand – but it’s still less expensive than finding my own commercial space. It’s just another thing to do.
Those are my personal and business reasons of why I co-pack my food product. It’s ultimately a business decision. You may never want to co-pack your product – ever. But, for many food companies, it’s the next logical step for your company to take production out of their house or a shared kitchen.
The last reason on the list — the fact that co-packing is significantly less expensive – is the main reason I co-pack. I’m young, I have no collateral, and can’t get a bank loan to save my life. So, I co-pack because I can afford to. It helps me grow my little mustard company and create life-long relationships.

Some of the objections to co-packers are:

1. They’re expensive (if you compare to producing food products in your house)
2. They will never make the product better than me
3. I won’t get personal attention


***** Food Manufacturing spoke with Paul Young of DHL Supply Chain about how food manufacturers can best utilize co-packing, as well as other trends regarding packaging efficiency.
Paul Young, Product Development Director, DHL Supply Chain (UK I, France, Eastern Europe, Middle East & Africa)
Q: What is co-packing and how does it work?
A: Co-packing (also known as Contract Packing) involves outsourcing the manufacturer’s secondary packaging requirements (such as outer boxes or packets) to make products shelf-ready. Secondary packaging has become an important competitive advantage for manufacturers, particularly in the food and beverage, health and pharmaceutical markets, as it is a rich area for operational efficiencies. In the current economic climate, co-packing has become increasingly popular as a means of fulfilling large projects without taking on extra staff and equipment.
Q: What are the benefits of co-packing for food manufacturers?
A: Greater product visibility, increased management of costs, flexibility and environmental benefits are just some of the benefits food manufacturers can derive from the process. The primary driver is managing costs, because third-party operators already have the expertise, resource and staff in place. In a recent Contract Packaging survey, highlighted in DHL Supply Chain Matters, 65 percent of respondents who had invested in co-packing said it had increased their business’ flexibility, while 62 percent felt it had helped cut costs. Furthermore, co-packing can reduce carbon footprints; for example DHL conducts a “centre of gravity” study for each customer, recommending ways to cut down on transport and minimise the environmental impact of distribution.
Q: What recent trends have you noticed regarding packaging efficiency?
A: Multi-national manufacturers are increasingly looking at ways to reduce the number of co-packers across country and regional borders. This consolidation allows economies of scale to drive down overheads and administrative costs, providing even greater benefits for manufacturers. Secondly, the legislative drive to reduce waste through elimination at source has prompted greater collaboration with co-packers and packaging suppliers. Previously “over-engineered” packaging has been redesigned and, in the majority of cases, reduced.
Q: What should manufacturers consider when choosing a co-packer?
A: In today’s economic climate, consideration should be given to the financial and operational stability of the co-packer. A multi-country presence with similar operating standards, procedures, capability and transparency are also important. From a cost perspective, the total supply chain costs should be accounted for. For example, it would be a false economy to appoint a co-packer that is 10 percent cheaper if it costs more to send the donor stock and collect the finished goods from the co-packing site.
When choosing a co-packer, manufacturers need to consider three options: co-pack at manufacturing source; co-pack at the stock holding facility or send out to an external co-packer.
Another aspect to consider is the ability of the co-packer to provide an “end to end” solution. The design, sourcing, procurement and management of packaging can be improved through collaboration with the co-packer, especially if it has experience of transportation requirements and has the scale to drive down costs.
The increasing emphasis on sustainability and rising transport costs should also be factored in when making the decision.
Q: How do you see co-packing evolving in the future?
A: Because of its ability to optimise the efficiency of operations, co-packing is increasingly seen as a “core” product offering, rather than a “value-added” extra. The larger co-packers have such a diverse customer base that best practice transfers quickly across sectors and product groups. The tendency for third party providers to expand their services means that co-packing will inevitably shift further back up the supply chain, possibly resulting in the outsourcing of packaging lines at manufacturing facilities.
It’s also likely that we’ll see the emergence of Lead Co-Pack Providers (in the same way that we’ve seen Lead Logistics Providers), who effectively become the main contractor and provide the end-to-end solution.
Increasing environmental awareness from consumers continues to drive many companies’ agendas. DHL is working with its customers and suppliers to produce environmentally friendly, innovative packaging solutions, helping customers eliminate waste at source and reduce packaging costs at the same time.
As consumers benefit from greater choice and manufacturers strive to differentiate themselves from the competition, co-packing will become increasing important in emerging markets too. In this instance, co-packers will need to scale operations to support this requirement, and transfer the skills they have developed in more mature markets.

Import & Export

What is the difference between a proforma invoice and a quotation?

In reality, there is very little difference in function between the two and the proforma invoice is really a quotation in invoice form; in other words. the difference really comes about in terms of the structure and layout of the proforma invoice/quotation. A typical quotation appears more like a business letter describing a written offer, while a proforma invoice appears exactly the same as a invoice (except with the words "proforma invoice" written on the document). The proforma invoice essentially serves as a 'quotation' that sets the road to further negotiations. Some exporters choose to prepare an 'official' quotation, while others prefer to use the proforma invoice as their quotation. In fact, the quotation can contain the same information as a proforma invoice. Sometimes a firm may send out a written quotation and the importer may ask for a proforma invoice. It is important to note that there is no standard format for the proforma invoice and one proforma invoice may differ redically in layout from the next (although there is common agreement on the information that should be included in the coument). It is a document prepared by the exporter and so will take the format/layout decided on by the exporter.

The proforma invoice must be comprehensive, accurate, clear and concise

In other instances where the exporter and importer have met before and have already discussed and thrashed out an agreement perhaps in a face-to-face meeting, only one final proforma invoice is necessary to confirm that the two parties are indeed in agreement. If the importer is satisfied with this final proforma invoice, he/she will request their bank to issue an L/C on the strength of information stipulated in the proforma invoice. For this reason, it is essential that the proforma invoice be comprehensive, accurate, clear and concise. Any errors or misunderstandings will be transferred to the L/C and will cause problems, frustrations and delays down the line. What is more, the proforma invoice is also important to the importer for the purpose of obtaining an import permit and foreign exchange allocation within his country. At the same time, the exporter may use the proforma invoice and acceptance of the order from the importer to obtain funding to pay for the manufacturer of the goods concerned.

Why use a proforma invoice?

In summary, the proforma invoice is a popular document in exporting because:

• It is a widely accepted form of sales offer in the global export community.
• It clearly outlines all of the relevant information required to enable an export purchase decision to be made by the importer
• It is a legal document, which if accepted by the importer is considered the basis of a binding agreement
• Banks and other financial institutions will commonly accept proforma invoices in order to establish a Letter of Credit on behalf of the importer
• The commercial invoice is almost identical to the proforma invoice (except for the title) and is thus easy to prepare, thus minimising the possibility of errors.

Details pertinent to the proforma invoice

The following details are pertinent to the setting up of the proforma invoice and need careful attention:

• The document title should clearly state "Proforma Invoice"
• The name of the exporter (referred to as the shipper) and their contact details (tel, fax, cell, e-mail), including physical (not postal) address
• The name of the importer (referred to as the consignee, meaning the person or firm to whom the goods are to be sent) and their contact details (tel, fax, cell, e-mail), including physical (not postal) address (In the case of transshipment, there may be an intermediate consignee and their contact details and address should then also be included on the invoice.)
• If the person or firm buying the goods (the importer) is not the same as the person or firm to whom the goods are being sent, then you should include both their contact details and addresses in the proforma invoice
• The name of the person and company to notify once shipment has taken place and their contact details and physical address (here the contact details such as telephone, fax and cell number and e-mail address are more important than the physical address)
• A proforma invoice reference number
• An order number or similar reference to correspondence between the supplier and importer
• The date of issue of the proforma invoice (the 'quotation date') - quite important
• A complete, detailed and clear description of the goods in question, incorporating the appropriate HS codes and brandmarks if applicable (here the importer may ask you to remove these codes as they may not be the same in the importing country and may thus incur additional or higher duties to the importer's detriment because of their inadvertent misuse)
• The quantity of goods in question, including the number of units/items
• The packing details, including their external dimensions, cubic capacity, weight, numbers and contents of each package shipped, and kinds of packaging involved (pallets, boxes, bags, etc.)
• The grand total price of the goods for the whole consignment
• Where applicable, the unit prices should be indicated - the unit price multipled by the number of units/items should be reflected in the line total. The various line totals (in the case where different items are included in the same commercial invoice, or where additional services are itemised in the invoice), should add up to the total price for the whole consignment (also referred to as the 'Grand Total')
• The currency in which the goods will be sold (e.g. US dollars or rands)
• The type and amount of any discount given, where applicable
• The likely delivery schedule and delivery terms
• The payment methods (for example cash in advance, documentary collection, L/C, etc.)
• The payment terms (for example 30 days on sight)
• The Incoterm to be used (Incoterms 2000 - FAS, CIF, CFR, DDP, etc.)
• Who is responsible for the banking fees and other related costs (insurance and freight costs are covered by the incoterm in question)
• What the freight and insurance charges are
• The exporter's banking details
• A declaration of the country of origin of the goods
• The expected country of final destination
• Any freight details such as the port of loading and discharge
• Any additional exporter-provided services that should be added to the invoice to come to the grand total
• Any transhipment requirements
• The validity of the proforma invoice - that is, when does the offer expire (leaving it open-ended could be very risky)
• Any other information relevant to the order
• Make sure the proforma invoice is signed, together with the signature's name written underneath, with initials, title and position

Capex vs. Revex

What is a capital expenditure versus a revenue expenditure?

A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.

A revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures.


(Continued..)

Capex Revex (Opex) Definition Capital expenditures are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing asset with a useful life that extends beyond the tax year. OpEx (Operational expenditure) refers to expenses incurred in the course of ordinary business, such as sales, general and administrative expenses (and excluding cost of goods sold - or COGS, taxes, depreciation and interest). Also known as Capital Expenditure, Capital Expense Operating Expense, Operating Expenditure, Revenue Expenditure Accounting treatment Cannot be fully deducted in the period when they were incurred. Tangible assets are depreciated and intangible assets are amortized over time. Operating expenses are fully deducted in the accounting period during which they were incurred. In throughput accounting Money spent on inventory falls under capex. The money spent turning inventory into throughput is opex. In real estate Costs incurred for buying the income producing property. Costs associated with the operation and maintenance of an income producing property. Examples Buying machinery and other equipment, acquiring intellectual property assets like patents. Wages, maintenance and repair of machinery, utilities, rent, SG&A expenses
(Collected)

Price Negotiation Letter to Vendor/Supplier

It is not a contented feeling when you ask a vendor to reduce the price of your buying a product or services. Think back of a time when a customer asked you the same question. Most of us have been on both sides of conversation at some point in our lives. People usually take it as an insult if you tell them that they are asking for too much. It questions their judgment and can bring about a general feeling of resentment.

However, price negotiations need to be done especially if you are buying a bulk quantity even small quantity (depends on the consciousness). Let’s face it; we all know that vendors / suppliers take benefit from economies of scale so technically they shouldn’t be charging too much for the product in question – especially since they are obviously earning a substantial profit.

Things become especially tricky if you are writing a letter to a vendor (and not speaking to him face to face) because this allows for misunderstandings and eventual business relationships issues. But if this form of communication is the only available one, you do not really have a choice.

The tone of letter will need to be decided first; is the vendor you are writing to a new one? Have you been doing business with him for years? This will decide how you want to begin and what you want to write.

Good understanding of Market segments and ATL, BTL activities under Brand and Promotion

Abstract

The annals of Marketing Management have witnessed a tug of war between advertising and sales promotion since inception. But in the early phase of twenty first century this war has taken a new avatar in form of Above - The- Line and Below - The- Line activities, widening both scope and intensity of this war. Above-the-line propagated traditional marketing channels that strive to reach a mass audience with messages that reinforce a brand communicate general product information or inspire an emotional response. “Below-the-line” initiatives, by comparison, acts like traditional direct marketing efforts – they aspire to establish targeted relationships between marketers and individual consumers, and offer comparable ease in measurability. With increase fragmentations and demographic along with the increased pressure to increase effectiveness of marketing communication soon BTL activities started substituting ATL activities and there has been a steady growth in BTL expenditure in this century . With its unique ability to personalize and customize communication this form of communication is slowly replacing the mass media advertising. This paper attempts to highlight these trends and also comment about the existing channels that BTL activities employ. In order to substantiate the claims, a case study has been specifically designed in order to show the relevance of BTL activities in this fragmenting world.

Research Objective: To investigate the relevance of Below -The- Line activities to current marketing communication practices.

Research Design: Analysis of secondary literature and industry documents

Research Methodology: This paper has been written by analyzing the secondary literature and other industrials documents .Data came from primary and secondary document sites on the World Wide Web arising from the reduction in the advertising expenses. Documents from the marketing journals commenting on the obsolescence of mass media advertising in the context of fragmented media, fragmented audience and slowly decreasing retention levels. In addition to this white paper on Vertical Market Trends in Direct Mail and the Impact on Production Service Providers, based on dozens of interviews with executives at large companies engaging in direct mail marketing—including agencies, printers and other industry experts— examines 7 key trends, and focuses particularly on market conditions for direct mail printers and letter shop firms.

Introduction of the Topic

There are two kinds of marketing strategies that can be used to promote any product: "above-the-line" (ATL, essentially advertising in the mass media) and "below-the-line" (BTL). These category names reflect the business practices of advertising agencies. Agencies generally make commission on placement of advertisements in newspapers, magazines and cinema, and on television, radio and billboards, a fee that appears "above the line" on their bill. Traditionally, other forms of promotion—events, direct marketing, email promotions, text message promotions, premiums, price reductions, public relations activities, sponsorship, trade shows, exhibitions, sales literature and catalogues—were charged at a fixed fee and thus appeared "below the line

Above-the-line propagated traditional marketing channels that strive to reach a mass audience with messages that reinforce a brand communicate general product information or inspire an emotional response. “Below-the-line” initiatives, by comparison, acts like traditional direct marketing efforts – they aspire to establish targeted relationships between marketers and individual consumers, and offer comparable ease in measurability. Traditionally ATL and BTL strategies have been considered distinct, and BTL the poor cousin. BTL activities were generally used to complement the main mass media marketing activities and usually a fraction of marketing resources were allocated for these activities. BTL activities first shot into prominence when ATL activities for products which have unwholesome demand were
proscribed by the Socio-legal restrictions. Even though BTL activities started off to fill in for ATL activities, increasingly, BTL strategies are now recognized as economical, unique, and personal ways to achieve "cut-through" in the supersaturated advertising environment.

Figure 1.1 Channels of BTL and ATL activities

Above-the-Line Media	Below-the-Line Media
Are tailored to reach a mass audience	Are targeted to individual consumers, based on their expressed needs and preferences
Establish brand identity or reinforce emotional concepts surrounding a product or brand	Issue a “call-to-action,” inspiring specific customer activity or tailored messages about a product or brand
May or may not drive customer response	Drive individual responses
Are difficult – if not impossible – to measure with any accuracy	Are highly measurable, allowing marketers insight into their return-on-investment, as well as those tactics that are (and are not) working
Cater to the mass market	Establish one-to-one relationships between consumers and marketers

Figure 1.2 Differences s in BTL and ATL activities

Evolution of below -the- line activities

In a market rapidly adapting to changes in technology, available information and heightened consumer demand, traditional, brand-oriented advertising is no longer the primary driver of customer behavior. Whether it’s reflected in dwindling print newspaper circulation or the stagnant market for network television commercials, significant evidence suggests that the marketing landscape has fundamentally shifted – from an “above-the-line” focus on reaching a broad population with emotionally-oriented appeals, to a “below-the- line” approach that stresses targeted, customer-centric communications, measurable results and concrete return-on-investment.

We believe that the metaphorical “line” separating marketing philosophies (often quoted, but never precisely defined) is reflected in three key qualities that separate today’s emerging promotional methods from the top-down advertising monologue of the past. Acting in concert, they embody the universal elements of successful below-the-line marketing efforts:

• Perception – The extent to which a consumer feels that he or she is engaged as an active participant in a marketing dialogue, rather than a target of an aggressive direct sales or branding effort
• Interaction – The extent to which consumers are empowered to respond to marketing communications via preferred channels that are both convenient and accessible
• Measurability – The extent to which a marketer can track the results of an individual initiative, determine commensurate return-on-investment and adjust future campaigns to provide for an enhanced chance of success

 

  Figure 1.3   Framework of BTL activities

The paper, based on exhaustive secondary explores the key factors that are leading sophisticated marketers in all vertical segments to move dollars away from “above- the- line” (ATL) and toward direct, measurable “below-the-line” (BTL) marketing tactics.
 
Channels of BTL activities
Database marketing: It involves use of proprietary database of consumer records which can enhance prospect or customer data sources with unprecedented demographic, lifestyle and transactional data. It can be utilized for tuning marketing offers targeted at new prospects -- and provide their current customers with products that more closely match purchasing preferences and habits.

Database marketing services include:

1.         Data Enhancement/Append: Appending of desired information, including:

• Contact information (email, telephone, and postal addresses)
• Demographic information (age, gender, marital status, children, ethnicity)
• Lifestyle information (income level, home ownership, interests, and hobbies)

2.         Data Quality and Maintenance: Performing full data cleaning to achieve the highest quality

• Duplicates are identified and removed
• Postal address standardization
• Invalid records, such as "do-not-call" or "do-not-mail" are removed ensuring compliance with anti-spam regulations

3.         Database Modeling: Custom querying and modeling for complex marketing strategies that require comprehensive analysis and targeting.

4.         Database Management: Database collection and maintenance to more complex database management.

Mail marketing: It involves creation of compelling branded Mail/email templates and campaign messages, and also our data driven services to develop precise targeting to reach the highest number of quality prospects

Email marketing services include:

1.         Access to responsive online consumers: Targeting the message to proprietary opt in consumer databases, which offers over unique consumer email addresses through:

• Carefully selected consumer profiles that fit their audience
• Predefined niche  audience  segments

2.         Response analysis: On-going reporting and analysis to help clients assess results and make adjustments if needed.

• Full campaign stats – Mails/emails sent, delivered, opens and click rates
• Responder snapshots of demographic, geographic and lifestyle information

Interactive services: By designing online campaigns that generate valuable and conversions by the use of Web Properties, Affiliate Network and Search Engine Marketing
Affinity marketing: Enhancing brand value and gaining new customers by affinity programs like collaborations with

• Veteran's Organizations
• Sportsmen's Organizations
• Conservation and Wildlife Advocacy Organizations
• Seniors Advocacy Organizations
• Political Organizations
• Religious Organizations
• Youth Activity Organizations
• Ethnic Group Advocacy Organizations
• Cause Based Organizations

Direct Response Print: It’s most common form today is infomercials. It is achieved by eliciting a direct response via television presentations. Viewers respond via telephone or internet, credit card in hand.

Other media, such as magazines, newspapers, radio, and e-mail can be used to elicit the response, but they tend to achieve lower response rates than television.

Event Marketing: It involves a strategic-based face-to-face contact designed to impact a brand's perception among its constituents. It is set of promotional activities involving an event such as a sporting or social event, designed to bring a product to the attention of the public

Promotional Marketing:  It is a non-personal promotional effort that is designed to have an immediate impact on sales. Sales promotion is media and non-media marketing communications employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability.

Examples include:

• Coupons
• Discounts and sales
• Contests
• Point of purchase displays
• Rebates
• Free samples (in the case of food items)
• Gifts and incentive items
• Free travel, such as free flights

Sales promotions can be directed at the customer, sales staff, or distribution channel members (such as retailers). Sales promotions targeted at the consumer are called consumer sales promotions. Sales promotions targeted at retailers and wholesale are called trade sales promotions.

Current Scenario in the field of BTL activities

Despite general growth in advertising and marketing services expenditures -- as well as a one-year spike in broadcast television spending brought on by the quadrennial Olympics/ U.S. presidential election cycle – market spending data suggest that above- the-line marketing is not fairing well compared to the industry at large. In 2006, ATL spending (encompassing such channels as television, radio, newspapers, magazines and yellow pages) is expected to grow 5.6 percent, a full 1.7 percent behind the industry as a whole. By 2007, that difference will become more pronounced, as ATL spending growth is projected at just 4.6 percent for the year, compared to an equivalent 7.3 percent industry growth. According to e-Marketer, spending on online advertisements – a unique medium that offers reach and brand exposure along with the  one-to-one  benefits  of  BTL  marketing  –  will  reach  $12.9  billion  in  2005, representing an increase of more than 34 percent from 2004 spending. By 2009, annual online expenditures should hit $22.3 billion, reflecting an average annual growth of nearly 21 percent since 2002.Gains are being realized among virtually all media that provide the BTL advantages of  perception,  interaction  and  measurability.  Whether  in  direct  mail  (projected growth 7.5 percent in 2005, according to the Winterberry Group), promotions (3.7 percent, according to PROMO Magazine) or e-mail marketing (31 percent, according to Jupiter Research), recent spending and marketer commentary indicate a real and growing preference for tactics based on established data and quantifiable results. The world’s largest marketing service providers, likewise, are adapting to the business imperative of one-to-one communications. In doing so, they appear finally poised to transition out of the mass advertising-centric focus that has for so long defined their business. WPP Group, for example – one of the world’s largest advertising and marketing services holding companies, with annual revenues of approximately $10 billion – recently announced that“media investment management continues to show the strongest growth of all our communications services sectors, along with [below- the-line] direct, Internet and interactive and healthcare communications.”

Figure 1.4 Growth in expenditure of BTL and ATL activities

Figure 1.5 Composition of BTL and ATL activities

Figure 1.6 US Marketing Spending, 2001- 2007

Expenditure estimates say a lot about where sophisticated marketers are focusing their efforts, but they don’t address the more fundamental question of why. Why, after so  many  years  of  success  with  above-the-line  methods,  are  marketers  finally changing  their  approach  to  reaching  customers  and  fostering  profitable relationships?  And  why  do  customers  appear  so  willing  to  accept  this  new communications philosophy? The following seven trends explore the factors, both external and internal, that are contributing to this emerging marketing emphasis. Specifically, it identifies seven key trends that are directly impacting the allocation of marketing budgets for both ATL and BTL campaigns. They include:

1. Changing consumer demographics decrease the influence of traditional mass media (i.e. ”one-size-fits-all”) marketing messages
2. Growing consumer sophistication heightens the demand for channel-agnostic communications
3. Widespread marketing “clutter” diminishes the impact of commercial messages that don’t address specific and individually relevant consumer needs
4. Enhanced information availability empowers both marketers and consumers with insight that allows for precise customer targeting and intelligent purchase decisions
5. Heightened client pressure to deliver quantifiable value by evaluation of ROI of the marketing initiatives , forces marketing service providers – especially agencies – to re-evaluate services platforms
6. Growing effectiveness of “multi channel” campaigns (those that cross multiple media) reinforces demand for tactics that establish one-to-one relationships between marketers and consumers
7. Rapid technological advances allow for consumer/marketer interactions that are frequent, easier and more relevant than previously possible

Trends Impacting BTL Marketing Budgets
1.) Changing consumer demographics decrease the influence of traditional mass- media (i.e. "one-size-fits-all”) marketing messages.

Understanding the conventions of culture as well as the individual cultural differences and similarities of target locales empowers marketing professionals to realize that one universal message—whether verbal or visual, can never reach a global audience. One global culture comprised of people with identical values does not exist—not even within the confines of our own country as the recent elections illustrate. Differences in learning and thinking patterns influence the way people process information, as demonstrated in their innate responses to marketing communications. Audiences differ in the way they perceive and value concepts of time, space, money, relationships, power, risk, and even the protocols of gender roles. It is important to note that when attempting to customize communications with cultural differences in mind, it is just as important to recognize the cultural similarities. As much as localization vendors like to overemphasize "extreme customization", cultural similarities do exist, and are deeply imbedded in the core values of your products and service offerings.

This trend is highlighted in a multicultural market like United States, where in 1990; ethnic minorities commanded $647.4 billion in annual consumer spending, or about 15.6 percent of total expenditures. By 2001 that proportion had shot up to nearly 19 percent – some $1.3 trillion, according to American Multi channel Marketing. Clearly, the influence of multicultural Americans, with their widely disparate preferences, customs and even languages, is growing along with their representation in the general population.

Today, approximately 25 percent of the U.S. population is of African, Asian or Hispanic descent. But by and large, above-the-line marketing messages are still crafted for consumption by the larger population – ignoring the cultural sensibilities of many and threatening to reawaken the kind of cross-cultural snafus now immortalized in business legend. Escalating life expectancy and the coming-of-age of the Baby Boom generation are heightening the impact of older Americans, as well. Just like multicultural consumers, this   unique   sub-population   will   require   targeted, relevant   marketing communications in the years ahead.

2. Growing consumer sophistication heightens the demand for channel-agnostic communications.

Advances in marketing and communications haven’t just served to benefit marketers – consumers, too, have learned to exploit technology, information and available media channels for their benefit. Among other capabilities, the sophisticated modern consumer is adept at:

• Using the Internet to compare product prices

• Screening out unwanted outbound telemarketing calls (or telemarketing calls altogether – through     participation on the National Do-Not-Call list)

• Skipping past television commercials – the lifeblood of above-the-line marketing – with TiVo and other digital video recording technologies

• Bypassing   traditional   print   advertisements   through   online   newspaper subscriptions and opt-in “headlines” e-mails that provide a selected snapshot of relevant news with only a fraction of the advertising interference.

Collectively, these practices speak to the active participation of consumers in the marketing process, a phenomenon made possible by the same innovations that many marketers expected would cement their authority in customers’ daily lives. They demand marketing responses that are concise, relevant and universal across all media – so that consumers who choose to interact via multiple channels (say, researching available products online and then completing the purchase in-store) are exposed to a consistent fundamental buying experience.

3. Widespread marketing “clutter” diminishes the impact of commercial messages that don’t address specific and individually relevant consumer needs.

Rapid advances in the quality of available marketing media have had at least one deleterious effect:  a saturated media consumption landscape, plus a resultant consumer backlash against advertising messages that are perceived as intrusive or otherwise irrelevant.

Sophisticated consumers – like the TiVo users referenced earlier, who tune out commercial advertisements in a move to do away with the clutter .Forrester and the Cable television Advertising Bureau note that in 2004, 11 billion U.S. DVR  users  skipped  between  68  and  78  percent  of  commercial  advertisements, effectively accounting for approximately $2-3 billion in wasted advertising spending. Emerging media such as cable-on-demand and podcasted television shows (Available for download to portable video player just minutes after running on broadcast networks) likewise have the potential to further marginalize ATL media that speak to the general population, rather than individual preferences.

4. Enhanced information availability empowers both marketers and consumers with insight that allows for precise customer targeting and intelligent purchase decisions.

Significant advances in database marketing, analytics and customer relationship management (CRM) platforms have spawned an informational avalanche, allowing marketers  the  opportunity  to  build  a  comprehensive,  360-degree  view  of  the customer and their transaction history. By maximizing the complex array of available information, leading-edge marketers are reaching prospects with offers targeted to their expressed (or expected) wants and desires – and driving significantly enhanced response rates and lifetime customer value.

Not to be outdone, consumers are arming themselves with an array of enhanced informational tools to make smarter buying decisions. Web sites reinforce the movement to obtain information and apply it through stricter scrutiny of the available market.

5. Heightened client pressure to deliver quantifiable value forces marketing service providers – especially agencies – to re-evaluate services platforms.

Among traditional advertising agencies, average client tenure now stands at less than18 months per account. In a timeframe shorter than many ad campaigns themselves, marketers are increasingly deciding that these trusted strategic advisers – once thought of as the standard-bearers of marketing strategy, conception and delivery – can easily be replaced by others whose strategic, creative and, most notably, financial objectives better align with their own.

While shoddy creative work is often cited as the reason, more often, the actual fuel for this rapid agency turnover is a lack of concrete delivery. In the face of alternative below-the-line media that offer the benefits of personalization and measurable return-on-investment, the vast investment required to sustain solo ATL campaigns (as well as the agencies from which they originate) is increasingly seen as excessive in the eyes of bottom-line focused executives.

Some agencies have responded in force – by shifting their efforts from above- to below-the-line media. In addition to the WPP example cited earlier, three major agencies, including Publicis USA, Ogilvy & Mather and Foote, Cone & Belding, have each taken recent steps to diminish the traditional barriers between ATL and BTL advertising. In some cases, executives have been tasked with cross-channel campaign development; in others, entire below-the-line business units have been elevated to serve the strategic role once held by their advertising colleagues

Merrill Lynch recently announced that the industry as a whole has finally reached “neutral” status in its reliance of ATL advertising for marketing purposes – indicating that the two core marketing approaches now stand on equal footing, complementing each other -- and depending on each other – to fuel successful integrated marketing campaigns.

6. Growing effectiveness of “multichannel” campaigns (those that cross multiple media) reinforces demand for tactics that establish one-to-one relationships between marketers and consumers.

Given the proper tools, consumers prefer to engage with marketers through a combination of available media (including retail stores, the Internet, catalogs, direct mail and direct response television) thus relegating single-channel categorizations such as” catalog buyer” and “online shopper” to the business archive. But these customers offer more than just a challenge to marketing strategists – they also offer greater profit potential.  According to the Internet Advertising Bureau, well-executed multichannel marketing campaigns generate a sales lift ranging from 7 to 34 percent. Viewed from another perspective, that spells trouble for single- channel marketers (such as those hoping that traditional television advertisements will fuel visits to retail stores).

The real demand for marketers is to exploit the channels at their disposal to craft appropriate, uniform offers for the same customer groups, no matter their chosen interaction point. Increasingly, savvy marketers are waking up to this essential need; according  to  the  Direct  Marketing  Association,  approximately  42  percent  of marketers now sell via two primary channels, while another 40 percent sell via three. Marketers likewise are increasingly searching for service providers whose capabilities span more than one or two media – providing both potential cost advantages and a uniform platform from which to launch cohesive, integrated campaigns.

7. Rapid technological advances allow for consumer/marketer interactions that are more frequent, easier and more relevant than previously possible.

Long ago cited as the most significant factor inhibiting the growth of BTL marketing, the  recent  proliferation  of  appropriate,  cost-effective  technologies  –  for  both marketers and consumers – has finally reached the critical mass necessary to fuel campaigns  that  cross  multiple  media  and  stand  out  from  the  mass-oriented messages proffered by traditional advertising.

The scope of technological advance spans all media, but perhaps the most significant advance  involves  the  widespread  adoption  of  high-speed,  broadband  Internet connections – allowing consumers to surf the Internet effortlessly and manage rich, HTML-coded e-mail and online messages that inspire click-through and greater response. More than 43 percent of U.S. households now connect to the Internet through a broadband connection, according to Jupiter Research, and approximately 80 percent will be on broadband by 2010.

Limitations of the Research

This paper has not taken into account the considerations that how BTL activities should be customized and designed with respect to various industries and segments. It also fails to account for the relevance of a BTL activity to multicultural society. It also fails to consider the linguistic considerations of the people while customizing these activities.

Gap Analysis

This research moves out of the world of Advertising and sales promotion and set up a new standard in the field of marketing communication. Though the existing literature talks about individual channels like direct mailing and event promotion in detail, there is no research pertaining to relevance of all the BTL activities. The existing research highlights the new and modern techniques of marketing communications but it fails to consider it a front end force and it always complements the BTL activities with ATL activities. This paper attempt to defy this convection and shots BTL activities into the prominence just like ATL shot into prominence a century ago

In Summary

With  an  increasingly  complex  array  of  promotional  options  at  their  fingertips, marketers continue to search for solutions that deliver the essential concepts of perception, interaction and measurability offered by the below-the-line marketing approach. Caught between the contrasting needs to grow profitability and meet the demands of a sophisticated customer corps, this dual imperative has resulted in a significant shift in marketing emphasis – away from mass-oriented media and toward direct, targeted and return-on-investment-oriented channels including direct mail, direct response broadcast/print, e-mail, event marketing, online advertising, insert media, promotions and search engine marketing.

To marketers, the go-forward challenge is to identify the appropriate media mix for their business, encompassing both above-the-line (for branding and identity) and below-the-line (for customer acquisition, retention and loyalty development) methods. Service providers that successfully intertwine these multiple channels stand to meet those needs more effectively than providers still mired in a siloed, single- channel approach.