In this article, learn about:
How trade promotions and allowances work at Walmart
What Amazon’s Co-Op agreements are
Target Vendor Income (TVI) and its vehicles
One of the best ways to understand the function of trade promotions and allowances is to take a look at how major retailers manage them. Although Walmart, Amazon, and Target each approach promotions and allowances differently, having a thorough understanding of their methods can help you understand the foundations of the retailer-supplier relationship and how trade spend looks in practice.
Walmart Trade Promotions and Allowances
Walmart executes trade promotions through negotiated allowances that are included in the Supplier Agreement. The Supplier Agreement is a legal document between the supplier and Walmart, outlining the terms of the partnership and agreement to adhere to Walmart’s supplier standards. Walmart allowances are not automatically built into the Supplier Agreement. Instead, allowances must be negotiated with key stakeholders at Walmart.
Related Reading: Walmart Agreements and Allowances Cheat Sheet
Allowances are a powerful tool when used correctly. On the other hand, if they aren’t managed well, they can also lead to negative outcomes.
✅ Allowances Used Correctly | ❌ Allowances Used Incorrectly |
Sell through more product in the short term | Accounts Payable deductions |
Support Retailer with new initiatives | Stacked fines due to an inefficient supply chain (i.e. OTIF, SQEP) |
Outlines clear processes for irregular events | Potential for Post Audits |
| Increased operational costs |
Walmart has many types of allowances, ranging from marketing promotions to freight allowances. For each type, the supplier is responsible for the cost of the allowances, which are typically taken directly off the invoice. Off Invoice (OI) refers to a discount that is taken directly from the supplier’s invoice, so there’s no need for a deduction to be taken later. If an allowance is not taken Off Invoice, it then appears as a deduction later on. It’s generally better to agree to Off Invoice allowances, as they are easier to track and account for during financial planning.
Related Reading: How Walmart Allowances Can Go Wrong
Here are some of Walmart’s most common allowance types:
Code | Name | Description |
AA | Advertising Allowance | This allowance is negotiated to defray advertising costs. The percentage is applied to the total amount of all POs generated. |
DA | Display/Encap Allowance | Enables the stores to properly display the product. The percentage is applied to the total amount of all POs generated. |
DM | Defective Goods Allowance | Negotiated to help defray the costs involved in handling defective goods. This percentage must be adequate to cover all defective goods markdowns or additional claims will be filed. Percentage is applied to the total amount of all POs generated. |
EB | Early Buy | Negotiated in return for giving the Supplier budgeting advantages. Percentage is applied to the total amount of all POs generated. |
FA | Freight Allowance | Compensate for transportation costs. Percentage is applied to the total amount of all POs generated. |
HA | Business Development Fund/Handling Allowance | Negotiated to help develop the Supplier’s product. Percentage is applied to the total amount of all POs generated. |
NW | New Warehouse Allowance | This is to cover the initial stocking order of a new warehouse. Percentage is applied to each line item for each new warehouse. This is to cover the initial stocking order of a new warehouse. |
OL | P.O. Level New Store Discount | Supports Walmart’s investment in new stores which may help suppliers grow their market share. Discount is usually 1% to 5% (discount is also mentioned at .1% to .5%). |
PA | Promotional Allowance | Usually used for certain to promote products for a specified period of time. Percentage is applied to the total amount of all POs generated. |
QD | Warehouse Distribution Allowance | Eliminates work and expense required for DSD shipments. This is negotiated through the warehouse and the percentage is applied to the total amount of all Type 33, 83, and 93 POs. |
SA | Line Level New Store Discount | Supports Walmart’s investment in new stores which may help suppliers grow their market share. Discount is typically 10% or greater (5-10% based on Walmart recommended numbers). |
SW | Swell Allowance | Negotiated to help defray the costs involved in handling defective goods. This percentage must be adequate to cover all defective goods markdowns or additional claims will be filed. Percentage is applied to the total amount of all POs generated. |
TR | TV/Radio Media Allowance | Negotiated to defray TV/Radio costs. Percentage is applied to the total amount of all POs generated. |
VD | Volume Discount | Compensate for large quantities of volume. Percentage is applied to the total amount of all POs generated. |
WA | Warehouse Allowance | Eliminates the work and expenses required for DSD shipments. This is negotiated through the warehouse and the percentage is applied to the total amount of all Type 33, 83, and 93 POs. |
Amazon Co-Ops
Amazon utilizes Co-Op Agreements, also known as Contra CoGS, to cover a variety of trade spend agreements, like allowances, promotions, coupons, and cash discounts. These agreements can help vendors promote their products and raise brand awareness by increasing traffic and sales of their products.
In general, Co-Ops fall into five categories:
Freight/Damage Allowances
What it is:
Freight allowances are a way for vendors and Amazon to share logistics expenses. Vendors help pay for some of Amazon’s logistical expenses, and in turn get to benefit from access to Amazon’s logistics solutions. Damage allowances are used to mitigate expenses for Amazon when a customer returns a vendor’s product within a warranty period.
How it works:
Both of these allowance types are calculated each month based on the value of goods Amazon receives into its fulfillment centers. At the end of the month, Amazon totals the accrued balance and issues a bill according to the schedule outlined in the agreement.
Volume Incentives
What it is:
Volume incentives are agreements between Amazon and a vendor that reward higher sales performance. These programs are funded by the vendor and typically offer a discount or rebate to Amazon based on an agreed-upon sales volume.
How it works:
Volume incentives are often laid out in a percentage- or tier-based agreement, with the discount increasing based on sales volume. However, if the target sales are not reached, the vendor’s investment will be refunded.
Straight Payments
What it is:
Straight payments are a fixed amount for promotional activities, versus paying based on a percentage of sales. Straight payments aren’t variable, meaning vendors will know exactly what they’re paying, which makes them simpler to manage but may not guarantee a return on investment. For example, a vendor might agree to pay Amazon a flat $2,500 fee to feature their product in a category-specific marketing campaign or on a seasonal event page. However, this may or may not translate into $2,500 more in sales during the event.
How it works:
This type of agreement involves a fixed, pre-negotiated payment between Amazon and the vendor or supplier. It’s typically used for one-time business costs or specific initiatives.
(SPA)/FLEX Promotional Allowances
What it is:
Vendors use promotional allowances to fund temporary promotions or discounts on Amazon.com. For example, coupons, discounts, Best Deals, and Lightning Deals are examples of promotions that may be funded through (SPA)/FLEX allowances. These programs help vendors increase visibility and drive sales during specific promotional periods.
How it works:
The allowance is based on orders placed (and not canceled) during a set promotion period. Usually, these appear as Vendor Funded Sales Discounts and are accrued based on net sales, not net receipts.
Price Protection
What it is:
Protects Amazon against a reduction in value of the units currently on hand, on open purchase orders, or in transit.
How it works:
Under these types of agreements, if a vendor lowers the cost price of an ASIN, Amazon will apply the new lower cost to all existing inventory and outstanding orders.
Target Vendor Income
For Target vendors, trade spend is executed through Target Vendor Income (TVI), which is a contract that outlines the amount that vendors will contribute to support promotions and other marketing expenses.
Note: Target Vendor Income is also the name of the Partners Online portal that is used to manage TVI contracts.
Target Vendor Income Vehicles
Target refers to the various TVI activities as vehicles. These vehicles cover a range of activities, from promotions and Target Circle offers to markdowns and margin protections. In total, there are 24 vehicles for TVI:
TVI Vehicle | Purpose |
A Markdowns | Funds used to support markdowns on clearance products. |
Accrual | Funds accrued based upon performance (i.e., shipments, pallet utilization). |
Actual Defectives | Funds to support markdowns associated with defective/unsaleable products. |
Circular Placement | Funds to support physical place in Target circular. |
Circle Target Initiated | Funds that cover the cost reduction associated with a Target-initiated Target Circle offer. |
Circle Vendor Initiated | Funds to cover the cost reduction associated with a Vendor-initiated Target Circle offer. |
C Markdown | Funds to support markdowns taken for competitive discounts. |
Comprehensive D MD | Funds provided to support promotional activities. Generally, the contract is negotiated on an annual basis. |
Comprehensive Promo | Funds provided to support promotional activities. Generally, the contract is negotiated on an annual basis. |
D MD//Promo Discount | Funding provided for any promotional activity. |
Digital Accrual | Funds to support digital channel sales. |
DVS Fee | Funds to support the Digital Vendor Ship fee. |
Endcap Fee | Funds that cover promotional endcap space. This could be Company- or Department-owned space. |
Enterprise Space Fee | Funds to cover promotional display space. This could be Company- or Department-owned space. |
Event Based Promo | Funds that support any short term and/or event specific promotional activity. |
Fixtures (FCA) | Funds to ofset costs of Target-produced fixtures. |
Fixtures (Non FCA) | Funds to offset costs of Target-produced fixtures. |
Margin Guarantee | Funds to cover a specific margin rate. |
New Store Discount | Funds provided to open new stores. |
Price Protection | Funds to cover a capped reduction in retail on market priced items. |
Roundel | Funds collected by Roundel to cover vendor spend on digital media, including online or in stores. |
Transition/Revision Fee | Funds to cover fees associated with adding new items to assortments. |
Volume Rebate | Discount offered based on defined volume. |
Vendors will utilize the TVI application to enter contracts into the portal at the time they are negotiated. This ensures both the vendor and Target have visibility into the contract. It’s important to note that contracts should not be entered into TVI until it’s confirmed who owns the entry with the Target Buyer/Vendor Income Expert.
Related Reading: What is Target Vendor Income (TVI)?
