There’s something terribly disturbing happening in retail stores around the world. The companies that manufacture the products on the shelves are frequently losing money while the retailers themselves are making profits. Despite all of the efforts of consumer marketers, shopper marketers and key account managers, despite the investment in consumer research and insight, many manufacturers lose money a lot of the time.
Many consumer goods manufacturers are stuck in a nightmare constructed in the past, very slowly, slice by slice, by retailers who have inched trading terms upwards, taken larger discounts, escalated slotting fees, gondola fees and marketing fees. Often the retail profit is not actually made on the sale of the goods (the gross margin: the difference between what they buy a product for and what they sell it for). Much of a modern retailer’s profits come from the fees that consumer goods companies pay them. This is one of the key factors that have contributed to consumer goods margins hitting an all-time low (Deloitte’s estimate the average profit of the top 250 consumer goods companies to be 8.5%). These days much of the activity driven into stores actually loses money for the manufacturer (our surveys suggest as many as 70% of promotions lose money for the manufacturer).
Sadly the situation is unlikely to get better by itself – in fact it is much more likely to get worse. Despite difficult times big retailers continue to add stores, and whilst many are turning back on some of their international expansion (think Tesco in Japan and the USA; Carrefour in South East Asia) this is done with a view to consolidate their grip on home markets and markets where they are already strong. The onslaught of online retailers might be seen by some as creating a little breathing space by balancing some company’s over-reliance on a few customers, but phenomena such as showrooming seems in our experience to be putting more pressure on bricks and mortar retailers, who in turn pass that pressure on to their supplier base.
A new marketing is required.
If things are unlikely to get better by themselves, then something has to be done. There is an urgent need create a new way of working: a new way to engage with retailers that creates more possibilities for win-win propositions for both parties. Any new marketing must enable brand owners to drive consumption of their brands whilst at the same time creating meaningful benefits for the retailer too. There needs to be a recognition that manufacturers and retailers have different goals: manufacturers want to drive their brands but care little where it is sold; retailers are the opposite: they care little what is sold but want it to happen in their stores. The fact that these goals are diametrically opposed is one of the core reasons why Category Management’s track record is so patchy: any new approach needs to recognize that both parties have different goals.
This requires a new approach to marketing – we call it Total Marketing , and at the heart of this approach lies shopper marketing.
Total marketing creates opportunities to meet the needs of both parties. The retailer wants category growth—which comes from drawing in more shoppers, more frequently, and getting them to buy more products on each visit. The manufacturer wants to drive long term brand growth – and that means driving consumption of their brands. Total Marketing begins with the consumer, building an understanding of the target consumer and the opportunities to change their behavior, before integrating this with a clear understanding of the target shopper. This, combined with an understanding of how these target shoppers behave in different retail channels, creates the opportunity to tune retail activity to the benefit of both parties: the right activity drives brand consumption and retail sales. Investment monies are focused on activities which will create demonstrable changes in shopper behavior, and because these are predictable and measurable, it is possible to model the impact on top and bottom line for both parties. The true value of activity to both parties is understood: creating a stronger platform for cooperation and mutual profitability.
There is a lot of talk of shopper marketing across the industry, with many companies now embarking on their shopper marketing journeys, and many already seeing huge commercial benefits. Chris Hoyt of Hoyt & Co. quotes dramatic increases in ROI for shopper marketing activity versus more traditional promotions. There was a time when shopper marketing might have been optional. The pressure on margins and the fiercely competitive world we now find our selves in suggests that shopper marketing is rapidly becoming mandatory.
Let us help you on your shopper marketing journey. For details of how we can help, or for a personal appointment with one of our experts, please contact us!