Tuesday, October 30, 2007

Is trade promo failure a CPG thing?

We frequently hear numbers on the failure of trade promotions indicating that 70% or more of promotional events are unsuccessful for the manufacturer (though not necessarily the retailer), even with "success" being rather limply defined as producing enough lift to pay for the cost of the promotion. I've also heard it said that the average promotion returns 65c for every dollar spent.

Ouch. If I really believed that I worked in a business whose function was to subtract value, I'd look for another trade. The following is an example of results I've often seen, based on supplier and retailer promo profitability:

What I find interesting is that these horrific numbers always come from the CPG side of the trade promo world. Over in durables and business-to-business, the story is very different.

This particular graph comes from the hardware/d-i-y world and represents sales growth results for retailers based on the level of their usage of a particular manufacturer's co-op/mdf program. In an earlier life, I did this same study for probably a hundred manufacturers, in a variety of durables and B2B categories, and the results were similarly positive in all but two or three cases.

I can think of four possible explanations for these apparently contradictory results:

1) Trade promotion doesn't work: The CPG numbers are true, the durables/B2B numbers false -- a reflection of the more sophisticated analytics available in CPG.

2) Trade promotion works: The durables/B2B numbers are true, the CPG numbers somewhat false, because in CPG many promotions that are planned and paid for don't actually happen. Therefore the negative numbers in CPG are often the result not of unsuccessful promotions, but of promotions that never happened.

3) Trade promotion works if it's done right: Both sets of numbers are true, and are reflective of the fact that durables and B2B trade promo programs have more in the way of rules and structure behind them, which leads to a more disciplined usage of trade promo funds. This is somewhat related to #2, since in durables/B2B, part of the rules/structure I mentioned is that documentation of events is generally required.

4) Maybe it works and maybe it doesn't: Both sets of numbers are false -- which means we don't have a clue what's going on.

I have no way of proving any of these contentions, but my belief is that #3 is closest -- that trade promotion, when used in a targeted manner to promote to the end-buyer, and with the discipline of documentation behind it, generally drives increased sell-through.

The question for CPG manufacturers is how to re-introduce discipline in their programs. For durables/B2B manufacturers, who seem to be moving quickly toward the CPG model, the question is how to avoid following CPG over the cliff. I don't pretend to know for sure, but I suspect the answers lie in better analytics and better use of the resulting findings.

Intel mandates 35% on web

Intel has put a new rule into its Intel Inside program -- 35% of spending must be online.

It seems common-sense that a technology company would put its marketing money where its customers are, though whether 35% is the appropriate percentage is of course open to debate. Some of Intel's major partners, who are technology companies themselves, apparently think it's too high, since they have not been putting that much into online advertising. The linked article cites HP at 23.6%, Dell 18.9%, and Toshiba 19.1%.

Putting a minimum or maximum on co-op/mdf spending is not unusual in the durables and B2B arenas, so what Intel is doing is new only in terms of the medium involved.

It is, of course, yet another piece of bad news for the traditional media.

Nintendo's on a roll

The good news continues to pour in at Nintendo: Ad Age selected them as Marketer of the Year -- one of those rare occurrences where I don't disagree with that mag.
Video-game sales were starting to flatten in North America. In a dash of in-home market research, Nintendo executives saw their own families divided into gamers and nongamers. Instead of a problem, they saw an opportunity.

So while other video-game makers were busy trying to incorporate gamers' intense demands into their next-generation hardware, Nintendo set out to create products that could change the dynamics of gaming and expand the audience well beyond what it had been before.
More importantly, the company's profitability and stock price are soaring:

The stock rose 5.3 percent to 71,300 yen on Monday, bringing its market capitalization to 10.1 trillion yen -- a fivefold increase in the past two years.

Nintendo's market capitalization is almost double that of Sony, whose total revenue is more than eight times as big as Nintendo's.

From a channel marketing standpoint, what all this means is that Nintendo is able to watch smugly as their competitors are forced to cut price:

Profits at Nintendo have surged on the runaway success of the Wii and the portable Nintendo DS machine in North America, Europe and Japan, forcing Sony and Microsoft to slash console prices in a desperate catch-up bid ahead of the holiday season.

Iwata said the company was struggling to meet demand of the Wii and a price cut was out of the question.

Monday, October 29, 2007

Next TPMA -- April in San Francisco

TPMA had another good meeting here in Chicago. Good attendance (near 200, representing more than fifty manufacturers and a heartening turnout of retailers) and some great presentations.

As always, though, the most valuable (and enjoyable) part of a meeting like this is talking with all the smart, experienced people -- here's a pic from the networking event at the Lincoln Park Zoo's ape house, sponsored by SAP:


The next meeting will be April 20-22 in San Francisco. The focus topic is directed to sales, marketing, and merchandising folks: "If you spend it will they come?" The description is here. I plan on being there and I hope to see you.

Nike taking a shot on goal

Forgive the labored headline, please. Nike's goal is to be the major power in soccer by World Cup 2010, so they've bought British supplier Umbro to give them an assist.
The acquisition is a major step for the U.S. apparel and shoe maker, which has said it wants to become soccer's top brand by the next World Cup in 2010.

Nike's soccer brand has performed well and grown in recent years, but Umbro's ties to the United Kingdom, where Nike has struggled, should boost the company's profile and performance.
Umbro will apparently continue to operate as a separate brand, largely because of its high brand awareness in the soccer world -- "... Umbro supplies uniforms to the national teams of England, Ireland, Sweden and Norway, six English Premier League teams and more than 100 other professional teams globally."

Penn Traffic execs facing criminal charges

Because of TPMtoday's hiatus, we failed to report this item when it happened a few weeks ago. As we reported several times last year, Penn Traffic, a 100+ store chain in the northeast, had been playing games with trade promo allowances.

I'll give you a moment to recover from the shock.

Now two of the company's former top executives -- Leslie Knox, the Chief Marketing Officer, and Linda Jones, a VP -- have been indicted.
Jones, 48, of Reynoldsville, Pa, and Knox, 61, of Titusville, Fla., were charged with conspiracy to commit securities and mail fraud and causing false filings to be made by Penn Traffic. If convicted, each faces a sentence of up to 20 years and fines totaling $5 million.

According to the complaint, Penn Traffic prematurely recognized promotional allowances from the second quarter of 2001 through at least the fourth quarter of 2003.

Knox and Jones directed and took part in the scheme in an effort to meet internal budget plans, the complaint said. As a result, the company pulled forward about $10 million in operating income that was included in Penn Traffic's public filings.

All about Wal-Mart

Well, not all about. That would take a blog (or two or three) all by itself. Let's just settle for a bit about their domestic and international growth plans:

When last we met to discuss these issues, I was noting how Wal-Mart seems to be tripping all over itself to change its direction repeatedly (the Sears Syndrome) in the US, while having mixed (at best) success overseas. Nothing new to report on the change of direction question (which means, perhaps, that they've solved the problem), but international operations don't seem to be much improved.

After years of poor performance at its Seiyu operation, which it owned 51%, Wal-Mart is going to try going it alone in Japan. There had been speculation that they might pull out of Japan, as they recently had from Korea and Germany, but this means that they are, almost literally, doubling down.
But Seiyu has struggled amid intense competition from smaller retail chains, as well as from major local companies that are introducing large Wal-Mart-style stores and price-cutting.

The Japanese retailer said in fresh earnings results announced Monday that it expects to book its sixth straight year of losses this year, with a 10.40 billion yen ($90.90 million) loss amid poor sales and ballooning restructuring costs.

And they plan to enter Russia next:

Wal-Mart is looking abroad for stronger growth in the 13 countries where it has stores and hopes to add Russia to a list that already includes China, Britain and Japan, according to the company's chief executive.

Wal-Mart Stores' business has been growing faster internationally than in the United States, accounting for 22 percent of last year's total sales of $345 billion, the chief executive, Lee Scott, said at an annual meeting of investors and financial analysts Wednesday. He said international stores would be "a bigger part of our business."

But the most interesting point in that article is how much they are cutting back on US growth (more on this point here): They had been opening 280 store per year; this year it has been 195; next year 170; then 140. Such cutbacks are inevitable, given the cannabalization effect of new stores, but that means there's that much more pressure to perform internationally -- something they haven't been able to do consistently outside North America.

Manufacturers who have ridden Wal-Mart's coattails in recent years also have tough questions to ask themselves: What will they do for domestic growth as Wal-Mart slows down?, and, will they be Wal-Mart's suppliers of choice overseas, or will they run into local competitors?

Sunday, October 28, 2007

And in further channel-blurring news ...

Dell appears to be well on the way to being a full-time player in the retail market, now announcing a deal with Staples:
Dell and the world's biggest office products supplier announced Monday that Staples would offer Dell desktop and notebook computers, monitors, printers, ink and toner starting Nov. 11. Dell products also will be available through Staples' Web site.
Dell built itself into the world's #1 computer brand on a direct-to-consumer model, but after losing the top spot to HP, they've moved into the retail space. Prior to the Staples deal, they recently moved into Wal-Mart. Outside the US, "Dell also has struck partnerships recently with Bic Camera Inc. in Japan, Carphone Warehouse PLC in Britain, and Gome stores in China."

Macy's and Hilfiger make a deal

Macy's is going to be the exclusive distributor for Tommy Hilfiger apparel.
Beginning in the fall of 2008, Mr. Hilfiger will restrict sales of his men’s and women’s sportswear lines — from hoodie sweaters to puffer coats — to Macy’s roughly 800 stores. The combined lines are estimated to have annual sales of at least $200 million.
It's becoming very hard to come up with a clear definition of "private label".

Newspaper biz is healthy in the (very) long term

Those who have read this blog for a while will know that I'm pretty negative about the newspaper industry. In part because of external factors -- there's little anybody could do about many of the problems the industry faces; and even more because of the incredible blindness and arrogance of those in the industry -- there are things that could be done to mitigate the damage of those external factors, but ...

Fortune's Richard Siklos recently published a column arguing that things aren't quite as bad as the seem, noting correctly that newspapers still account for about a quarter of all advertising revenue in the US.
So much depends on how you view the numbers. A report by PriceWaterhouse Coopers estimates that revenue for the newspaper industry will be down 1.4% for 2007 to $59.2 billion, the second straight down year. The report sees advertising for the industry at essentially flat through 2011, after taking into account papers' rising online revenues. Put another way, according to this analysis nearly one out of every four dollars spent on advertising in this country is spent today on newspapers. And much of the upheaval is due to the fact that it is moving to one in five dollars in a hurry, largely thanks to online upstarts. There are plenty of businesses that wish they had these problems.
Meanwhile, an analyst for Deutsche Bank was announcing what amounts to good news these days -- that growth will return for newspapers ... in 2012. But even that tempered optimism had to be tempered further, by noting that the good ol' days will never return:
Wall Street analyst Paul Ginocchio predicted that big metro newspapers would bounce back—but not until 2012. But the Deutsche Bank Securities analyst warned that when earnings turn positive again, they would be in margins far below the levels newspapers got used to in the 1990s.
For the newspaper business today, every silver lining has a cloud.

And then, of course, there are ongoing rumors about a potential buy-out of the New York Times, and one look at their stock price over the last couple of years shows why:

But even the gloomiest viewers of the newspaper biz (a category in which I could probably be placed) think newspapers are going to disappear. As Siklos notes, "[I]t's instructive that no legacy medium has been obliterated by a new technology: consumers simply adjust and adapt. In the era of DVDs and downloads, we still go the movies and listen to the radio."

The blog of the undead

It's the appropriate time of year for such things, so now is as good a time as ever to bring TPMtoday back to life.

While it was on sabbatical, I've put aside my private consulting practice and gone to work for Oracle Consulting. I'm pleased with the move, enjoy working with a host of highly-skilled people, and look forward to having the huge range of Oracle resources to bring to clients.

If reading the previous paragraph makes you think that TPMtoday will turn into a lengthy ad for Oracle, please don't worry. I'll make every effort to keep my postings unbiased. In addition, this remains my blog, unaffiliated with Oracle.