Latest news and thinking from the engage team

by Mike Anthony on 19th April 2017

One of the most fascinating things about studying shoppers and retail is the diversity. Every store in the world is different. Of course, there are similarities, particularly within a chain. But every store is unique by the simple fact that it is in a unique location. And that means that every single store has a different […]

Retail Channel Strategy – Shopper First!

One of the most fascinating things about studying shoppers and retail is the diversity. Every store in the world is different. Of course, there are similarities, particularly within a chain. But every store is unique by the simple fact that it is in a unique location. And that means that every single store has a different mix of shoppers. Yet too often trade marketers, shopper marketers and key account managers ignore many of these differences, applying broad marketing plans across many stores with quite different shoppers. Our work clearly demonstrates that getting the right products in the right stores with the right marketing mix has a massive impact on both the top line and the bottom line. So how can we build more effective channel definitions as part of our retail channel strategy? 

Retail Channel Strategy – The balance between effectiveness and manageability

Most organizations use the concept of channels to address the differences in outlets. Channels are groups of outlets that are in theory similar. Segmenting outlets into channels is a balancing act, however. Make channel segments too small and specific, and it becomes hard to manage (imagine having to build hundreds of thousands of plans for each individual outlet!) Make the segments too broad and we are unable to reflect the variance in shopper behavior and missions across those outlets, reducing effectiveness and potentially wasting funds on the wrong activity in the wrong stores.

Most organizations lean towards relatively broad channels. Most use industry standard channel definitions based on the data supplied by retail audit companies such as Nielsen or GfK. While this is pragmatic, it can have massive negative implications.

 

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Retail Channel Strategy – The limitations of standard channel definitions

Building a retail channel strategy upon generic channel definitions have three key limitations. Firstly, they are broad, covering a wide variety of stores within one definition. For example in Thailand (as in many parts of the world), Nielsen will supply data for a channel called Convenience Stores. But ‘convenience stores’ covers a wide variety of stores, from a tiny store at a transport station, selling mainly snacks and drinks, to other stores which are closer in form to neighborhood supermarkets. 7-11, a major convenience store chain, recognizes around 12 different store types within what Nielsen call ‘Convenience stores’. These are based on the fact that the stores are in very different locations, are of a different size, and serve quite different shopper missions. – Yet a standard channel definition groups all of these stores together as one channel.

Secondly, the definitions run the risk of being out of date. As discussed before, shopping behavior and retail formats are changing rapidly. Yet for a large agency to change their channel definitions is complex, and risks the wrath of their clients (some might not agree). Historical comparisons become harder to make. So changing channel definition s happens rarely.

Lastly, standard channel definitions are generic – they have to be. It has to be a model that works for most, if not all, companies. Yet for your brand and category, shoppers might use stores differently. And the balance between manageability and effectiveness might vary too. A company selling soap might be perfectly happy with a single convenience store channel: it’s a small share of their business after all. But for one selling beverages, convenience stores may be a huge part of their business: the improved effectiveness of splitting convenience stores into multiple segments might be worth the extra effort of managing more channels.

A case in point. When I travel to Hong Kong, I usually staying in a Holiday Inn Express – a no frills hotel chain. The room has no minibar. The hotel doesn’t even have a bar. Not even a restaurant. Just outside the door is a 7-11 . It has many of the usual categories, but  minimizes many of those that typically (in Asia at least) take up much of a convenience store’s space. Gone is hot food. In its place masses of confectionery and snacks, and a range of around twenty different wines. This was no ordinary convenience store. This was a walk-in minibar!

If I were to ask any manufacturer in Hong Kong to list out their channels, they wouldn’t have ‘walk in minibar’ as a channel. And to the point I made earlier, for some manufacturers ‘convenience store’ might be a perfectly workable channel definition. But for those selling wine, for example, this store might be much more valuable that any of the other convenience stores in the territory, and worth special effort, focus, and investment.

Retail Channel Strategy – Getting Outlet Segments Right for you

Put the shopper first. Retail channel strategy is about working out where and how to best influence shoppers. So it makes sense to start with shoppers when considering how to define channels. How does the shopper look at stores? Do your target shoppes see the store differently? Are they used by different shoppers? Or for different shopper missions? If the shopper uses stores differently then it might be worth considering them as separate channels. Take a look at sales by outlet. What currently sells in different outlets or outlet groups can often be seen as a solid proxy for different shopping behavior (assuming similar ranges are available). And of course,  spending time in stores is a great way to get a feel for shopper behavior.

Think big. If a current channel represents a significant share of existing sales (or growth potential) there is a better chance of creating value out of further segmentation. In the situation above, if convenience stores represent a small share of category sales then further segmentation may be low value. Yet of course there is an exception which proves the rule – C-stores would be relatively unimportant in total for the wine category, which brings me on to…

The channel contains loads of your target shoppers but they don’t usually buy much per store. There is a chance (as the case is here) that a sub-set of stores is responsible for all of the sales. Whilst the sales per store are low, this is merely an average which hides some stores which could sell a lot, and many that cannot.

Look for an unmet need. Again, the situation of alcohol in this Hong Kong store is a great example of this. Business travelers and tourists like a drink. They can’t do it in this hotel, but the need is still there. Unmet consumption needs create new shopping missions, and that creates new opportunities in the stores that are best place to meet those needs.

Go one step too far. If you’re not sure that there is a valuable segmentation there – have a go anyway. You can always recombine segments when you realize that the gains  are not sufficient or that the marketing mix wouldn’t actually be too different across those segments.

Go to stores (I know, I say it a lot, but it is true!). Look and see. Are any manufacturers doing anything different?  Is the retailer? Want to know how to do a high value store visit? Check here.

Reviewing the way outlets are segmented into channels is one of the key tasks of a strategic shopper marketing or trade marketing team. And as shopper behavior changes, and retail channels change to adapt to the world of the digital shopper, this process will become ever more powerful. For more on managing channels, check out our free e-book, and other resources here.

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