White Paper- Jack Brown

Transcription

1 White Paper- Jack Brown A History of Manufacturer and Retailer Relationships This white paper traces historical manufacturer and retailer relationships with a particular focus on the evolution of collaborative marketing initiatives. It further addresses how these collaborative initiatives will need to be built on in the future to capture and retain a newly empowered consumer. Historically, manufacturers and retailers have operated in a symbiotic relationship, with manufacturers establishing value perceptions for their brands among target consumers, and the retailers converting these consumers into customers who purchase these brands at their store locations. In this relationship, the manufacturer understood the consumer from a consuming perspective, and established brand preferences among these consumers through advertising brand benefits. The retailer understood these consumers as customers, or shoppers, and encouraged these consumers to shop at their store locations through promotion and merchandising. Traditionally, the manufacturer/retailer relationship has been clearly defined, but the balance of power, and ability to leverage the relationship has varied depending on which party has the most meaningful information on consumers, and the wherewithal to effectively communicate with these consumers. This notwithstanding, the manufacturer has been a supplier to the retailer, while the retailer has been the seller to the customer, or now more commonly referred to as the shopper. More recently, however, this traditional paradigm has been undergoing changes. Manufacturers are beginning to sell directly to the consumer via the Internet, while still maintaining distribution of their brands at retail. Further, a number of manufacturers are setting up their own brick and mortar outlets, think Apple, while also maintaining retail distribution. This raises the issue of competing with your own retail customers, and so far, only manufacturers with dominating brands have been successful in maintaining this dual distribution balance. During most of this history, the consumer has been a passive participant in the development of brands, or their selection by retailers for sale or promotion. Instead, these decisions resulted from a broad market consensus, driven by mass marketing initiatives. However, the Internet and mobile technology in particular has empowered the consumer with unprecedented levels of connectivity that allows for active engagement in the development and customization of their own products, media and shopping experience. This new paradigm is forcing manufacturers and retailers to reevaluate how they engage this newly empowered consumer/shopper, and will require greater collaborative efforts to attract, sell and hold these consumers/shoppers. 1

2 Although symbiotic relationships have generally been the norm, within these relationships, manufacturers and retailers have run the gamut of either being in a combative, competitive or collaborative phase. This relationship balance of power has historically swung like a pendulum, and has depended on which party has the most meaningful information about the consumer, and the ability to effectively access and communicate to this consumer/shopper. Shifting Balances of Power Information Media/Communications Marketing Initiatives Traditionally, marketing has been a two-stage process whereby the manufacturer has focused on creating pull through by communicating value to the end consumer through advertising, while the retailer has adopted a push strategy primarily utilizing the tactics of pricing and promotion to encourage shopper purchase. Over this period as noted previously, the party that has dominated this symbiotic relationship has been the one with the greater access to information and the ability to harness communication technology. During the s, manufacturers dominated the relationship. Information included syndicated data, purchased from A.C. Nielsen, which captured consumer purchases based on a sample of selected stores audited within given marketing regions. This data was then projected to arrive at estimated brand shares and category sales within these regions. The manufacturer was willing to share this information with the retailer, when it was in their own best interest, usually to leverage shelf space and merchandising activity for their brands. This brand focus by the manufacturer contrasted with the retailer s interest and focus on optimizing sales of the total category. This disparity in focus, although manageable, continued into the 1980 s. 2

3 The manufacturer domination during this period was further enhanced by the advent of television, which allowed access to mass audiences, who were captivated by this medium and its unprecedented ability to persuade. The focal point of the manufacturer during this period was the consumer. Accordingly, the allocation of the manufacturer s marketing budget was skewed toward communicating value to the consumer through advertising, particularly through the medium of television. Trade spending, or funds spent to generate retail-merchandising activity was kept at a minimum. It was more the norm at this time for major brand manufacturers to have a 75/25 percentage split in their marketing budget in favour of consumer advertising, as opposed to trade spending. During the 1980 through 2000s period, retailers began dominating this relationship. By upgrading their data gathering capabilities using UPC scanning technologies, they were able to get actual consumer purchase information which allowed for greater SKU rationalization and fact-based merchandising decisions. Additionally, with this information, retailers were in a better position to leverage manufacturers into purchasing shelf space and supporting retail merchandising programs. The issue for manufactures was that an increase spending with retailers to communicate price discounts and shortterm promotions, commensurate with a reduction in advertising which was designed to convince consumers of a brand s value, was diminishing the perceived value of the brand. Exacerbating this situation further was the growing dominance of Wal-Mart and its every-day low pricing strategy. This strategy forced retailers to counteract with even more aggressive feature pricing and promotion, forcing manufacturers to support Wal- Mart s low pricing strategy at Wal-Mart, while supporting the broader retail base as their demands for pricing and merchandising concessions grew. Accordingly, during this period, many consumer goods manufacturers witnessed a severe erosion of brand loyalty as marketing funds skewed to support this new retail reality. Consequently, the typical manufacturer s marketing budget flip-flopped to a 25/75 percentage split in favour of trade spending. Although consumers generally benefited from this lower pricing environment, they still had limited involvement in what products were produced and sold relative to today s environment. With 20% of the products manufactured and subsequently sold through retailers accounting for 80% of the sales, manufacturers and retailers focused primarily on this 20%. This recognized both the manufacturing efficiencies and the reality of finite limitations of shelf space in brick and mortar retailers. Although research conducted among consumers confirmed their needs, and products were developed and 3

4 manufactured to meet these needs, sales at retail determined the success or failure of a product. Accordingly, niche products had little opportunity for success. Collaborative Initiatives Manufacturers and retailers worked together early on to develop in-store merchandising and promotion events, with the objective of generating incremental sales on items being promoted. However, sharing of information on these sales results were rarely forthcoming from retailers, who considered store sales information to be proprietary. In order to validate the effectiveness of the promotions, manufacturers were forced into extrapolating data from factory shipments to customer warehouses, pre and post the promotion period, to estimate the impact of the promotion and its return on investment. This began to change however, with the adoption of category management. Category Management The adoption of category management in 1989 was a watershed event because it provided manufacturers and retailers with their first common platform for mutually beneficial collaboration, a significant step forward from traditional buyer-seller negotiations. Made possible by analyzing scanner data in its various permutations, manufacturers and retailers were able to develop insights-based strategies for pricing, promotion and product assortment. Also for the first time, the focus moved from product centric marketing and promotion to category centricity, and the management of categories as business units. This required retailers to establish category managers who became responsible for their assigned category s sales and profits, and manufacturers to develop in-store marketing programs promoting the category rather than their individual brands. Category management by definition required the sharing of what was considered proprietary shopper information with a chosen category captain representing the manufacturer. These category captains were usually chosen among manufacturers whose brands were market leaders in the category. This sharing of shopper information also proved a watershed event as it heralded in a new level of collaboration based on mutual trust and sharing what had previously been considered proprietary information. The concept of collaboration was further institutionalized in the mid-1990s with the Efficient Consumer Response (ECR) movement, sought to establish consumer understanding as the foundation for improved demand management and supply chain efficiency. While ECR s mission has always been to improve consumer value and choice at the store level, its attention to reduced costs and streamlined processes had a debatable impact on marketing and merchandising innovation. 1 1 Instirute, In-Store Marketing. "Shopper Marketing Best Practices." Industry Report,

5 In net, there appears to be a consensus that category management provided greater benefits to the retailer, and only produced manufacturer benefits to the extent that their brands were favourably positioned by being the market leaders within the category. Co-Marketing Concurrent with the adoption of category management, co-marketing evolved as an initiative which incorporated manufacturers and retailers into advertising messages. These messages were communicated through traditional media including direct mail and television. Unlike previously run tag programs which utilized 30 second brand commercials, cut down to feature 5 second tags of retailers, co-marketing initiatives integrated both the manufacturer and retailer s messages seamlessly into 30 second commercials, or into direct mail pieces. The television commercials included promotion offers, or were structured as joint equity messages without promotion offers. In these joint equity commercials, the brand s benefits were integrated with the retailer s positioning, a clear breakthrough in advertising thinking at the time. Conventional wisdom dictated consumers would be confused by a dual message. This latter coequity initiative pioneered by P&G proved highly successful when executed on their key brands and their major retailer partners. The co-marketing initiative proved accretive to category management in that as category management focused on in-store activity attracting customers who were already in-store, co-marketing communicated beyond the store to build additional store traffic. The major benefit of co-marketing was its ability, particularly with the use of television, to build incremental store traffic to the participating retailer during promotion periods. Further, the co-equity initiatives by P&G proved to be equally effective at generating incremental store traffic and sales, even without a promotion offer. This provided the added benefit of advertising brand value, while supporting the store s positioning, without the costs of a promotion. Category Management vs. Co-Marketing A D V E R T I S I N G Infants/Children Cost Reduction Distribution Assortment Inventory Shelf MIS Revenue Generating Promotion P.O.S. Display T.V. Direct Mail Couples Families Radio Career/Business People Print Elderly 12 5

6 Although co-marketing proved an effective adjunct to the marketing efforts of manufacturers, its value began to erode during the early turn of the century as the costs and the ability to target consumers in the rapidly fragmenting media landscape became problematic. However, it is significant to note that co-marketing established a willingness of both manufacturers and retailers to share their equities, which had heretofore had been an anathema to manufacturers especially P&G. Co-Marketing Commercials Kraft and Safeway breakfast promotion circa: Tide and Target co-equity commercial circa: Shopper Marketing The Retail Commission on Shopper Marketing defines shopper marketing as follows: Shopper Marketing is the use of insights-driven marketing and merchandising initiatives to satisfy the needs of targeted shoppers, enhance the shopping experience, and improve business results and brand equity for retailers and manufacturers, 2 As a logical extension of category management, which focused on pricing, promotion and product assortment to optimize retail shelving, shopper marketing addresses the instore marketing and merchandising of brands. Fundamental to shopper marketing is the understanding of the consumer as a shopper. While product manufacturers regarded their brands as having consumers with specific needs, and focus their advertising and marketing efforts towards these defined consumers, the retailer, by analyzing their shopper s data, is able to identify different shopping patterns among the shoppers of the brand, and this requires different in-store approaches to cater to the consumer s shopping habits. The promise of shopper marketing is by identifying key shopper segments of the retailer, and sharing this knowledge with the manufacturer. This shopper information, combined with an understanding of the shopper from a consumer perspective, more impactful in-store marketing campaigns can be delivered to specific shopper target segments. The In-Store Marketing Institute s recent report on Shopper Marketing Best Practices confirms that shopper marketing is still a work in progress. The Institute points out there 2 Instirute, In-Store Marketing. "Shopper Marketing Best Practices." Industry Report,

7 still remains a lack of clarity on the specific goals and benefits, and although manufacturers have the resources and motivation to create shopper focused campaigns, they as yet do not have a connection point at most retailers to develop and execute these initiatives. Given the promise of potential benefits provided by shopper marketing for both manufactures and retailers, the incentives for retailers to make the needed commitment are compelling, and many leading retailers are making this commitment. Customer Centric Collaboration Technology is changing the balance of power once again, but now shifting it to the consumer. Consumers have readily available access to information about products and pricing, and the ability to get what they want, when they want it. They are no longer restricted to buying what is only available in the brick and mortar outlets. Although the Internet has provided the platform for consumers to shop online, the growth of consumer involvement with social media has added a new dimension to consumer communication and influence. No longer can manufacturers and retailers depend on the traditional push strategies to sell products. They are beginning to learn that the winning formula will be to establish relationships with their consumers and shoppers, and this is still a work in progress. To date, both marketers and retailers have tended to establish these social media relationships independent of each other, and although this is understandable, co-relationship building initiatives should be developed, much as the co-marketing initiatives were additive to category management. By sharing social media platforms, consistent in-store and out-of store messages can be communicated which will create synergies and further enhance the consumer/shopper relationship. In a world of pervasive technology, the advantage will go to those who share especially to those who make sharing worthwhile. Information sharing will reach new levels: between manufacturer and retailer, manufacturer and consumer, retailer and consumer, and consumer and consumer. Consumers will share so long as there is a good reason to share. Those companies that make sharing worthwhile will have the opportunity to dialogue with consumers and establish personal one-on-one relationships. 3 3 Forward, Retail. "Retailing 2015."

8 This emerging one-to-one relationship is bringing us full circle from the pre-1950 s where the butcher, baker and grocer knew us personally, carried the goods we preferred to purchase, and serviced us accordingly. Jack Brown was founder and Chairman of the J. Brown Group and Worldwide Director of Co-Marketing for the Grey Global Group. Jack currently coaches and consults with marketing leaders, and is an Adjunct Professor at the University of Alberta School of Retailing. Jack resides in New York City. 8