New study questions in-store shopping decisions

Tradition says that 70% of shopping decisions are made in the store. I've heard that figure quoted so often that it seems to be almost an article of faith. From time to time, I've seen it questioned, but nobody questions that a great many decisions are made in-store.

An IRI study, though, says that a result of the recession may be that more consumers are planning out their shopping at home.

... IRI's research found that by the end of last year, more than three-quarters -- 76% -- of consumers were making their purchase decisions at home, up from 60% in the first quarter.

Just because people put together a shopping list at home, of course, does not mean that they follow it when they get to the store and see something they want. It does make sense, however, that people are more cautious in a recession, and will likely make fewer impulse purchases.

But the other point about this is that the article is entitled "Trouble in Store for Shopper Marketing?", with its theme being that if in-store marketing is likely to impact fewer buying decisions, then money should be pulled out of Shopper Marketing.

But that gets us back once again to the question we asked here a couple weeks ago: What is Shopper Marketing? In a poll we ran on the TPMA newsletter, we found that 71% believe it to be a hybrid of trade promo and brand-building. The Ad Age article seems to assume that it is strictly trade promo and that, therefore, if it does not produce immediate sales, it should be dumped.

For those making strictly trade promo decisions, it's worth noting the IRI study, and perhaps moving some promotions to formats where they reach the consumer at home (e.g., inserts or coupons). But Shopper Marketing decisions would be less impacted by the study.

Definitions and metrics

In an article entitled, "What Is Shopper Marketing, Anyway?", Ad Age tries to get to a meaningful definition of Shopper Marketing (something I've tried myself).

A few definitions are offered. Here's an exercise in gobbledygook from an agency: "any stimuli or any marriage of a brand with a shopper or consumer along the shopper continuum which turns them from consumer to shopper to buyer." Which is so broad as to be meaningless.

Something more to the point is this from Kimberley-Clark:

K-C officially defines shopper marketing as "integrated-marketing programs based on a deep understanding of shopper attitudes and behaviors designed to build equity for the brand and differentiate the retailer while the consumer is in shopper mode and prepared to make a purchase," said Mark Scott, VP-sales and shopper marketing.

It's often said that "you can't manage what you can't measure." It's equally true that you can't measure what you can't define. I've written before that I see Shopper Marketing as being the nexus of trade promo and brand advertising which, if correct, would mean that such promotions would need to be measured in ways similar to traditional media (e.g., reach and frequency), and also in trade promo terms (volume lift, incremental profit, etc).

The aborted PRISM initiative was an effort to develop the former, while several companies offer the means to do trade promo measures. But there still is no consensus definition, which means that there are no consensus measures, which means that establishing best practices and benchmarks is still somewhere off in the future.

Nielsen drops PRISM

Nielsen has announced that it is "suspending" their PRISM initiative, stating that the prices for the information created would be too high in the current environment.

"While the industry as a whole is very supportive of the syndicated service, many clients, in the face of the current economic environment, are not in a position to fully fund a syndicated service at this time."

Nielsen said it will keep providing custom work measuring and analyzing shopper marketing "until a syndicated service is financially viable for many of our clients."

I hope the initiative is revived. Although I was initially skeptical about it, I eventually came around to the view that it would provide valuable data, and now I'm disappointed not to see that data, and (more importantly) not to see how it is used to improve targeting of in-store promotions.

We will continue to have the most basic (and most important) measure of trade promotion -- POS (though often lacking, for in-store promotions, vital performance data to give full meaning to it). But PRISM was intended to be about Shopper Marketing, as distinct from trade promotion. Shopper Marketing, as I understand it (it's not always clearly defined), is intended to be more than trade promo alone -- it is intended to perform both the usual functions of trade promo (immediate sales lift) and of national advertising (brand building) . Without PRISM we will not have any measure of the second function.

It also seems that the costs are not excessive, though any cost may reasonably be viewed that way in the current economy.

... the cost of PRISM data, which an executive for a consortium member said ranges from the low to mid-six figures annually (and up to seven figures for bigger marketers), is particularly daunting in the current economy.

A million-dollar (to choose the higher end of the range) expenditure to measure and improve the effectiveness of a billion-dollar expenditure seems quite reasonable to me. But again we are playing by different rules today.

Are the agencies starting to get it?

There has been a notable increase recently in the interest shown in shopper marketing by Madison Avenue types. They are apparently becoming aware that all that grubby in-store stuff actually produces sales, and also that it represents far more money than the more glamorous TV advertising they've long been addicted to.

Adweek has an article this week about shopper marketing that points out that American Idol reached 35 million people for its season finale last year, while 150 million shop at Walmart each week. After acknowledging that the stores are today's true mass medium, the article focuses mostly on the number of ad agencies that are creating shopper marketing divisions and on the creation of in-store advertising networks.

I'm still not convinced that the agency world really understands trade promo and in-store (and they probably won't get fully on-board until we start holding our annual meetings in Cannes), but they are slowly groping their way toward understanding.

Staples expanding in-store marketing

Staples has signed a deal with News America Marketing to put a greater focus on in-store marketing:

Through the partnership, announced this month, News America will design coupon machines, shelf messaging, floor ads and sampling programs in more than 1,500 Staples stores nationwide. The in-store media will launch next month.

The deal is an expansion into a new market for News America, which has been concentrated almost entirely on the food and drug channels. News America notes, though, that they have working relationships with many of Staples' suppliers.

This is another example of the growing intrusion of CPG marketing practices into other channels. In early 2007, I posted an item titled HP goes CPG that involved, by coincidence, Staples:

Hewlett-Packard is employing tactics from the world of consumer packaged goods, demonstrating once again something I (and others) have been noting for a while – the growing convergence of the two wings of trade promotion in consumer products, CPG and consumer durables.

BusinessWeek reported recently that HP is making payments to retailers to get them to stop selling private label cartridges for HP printers:

Those executives say the company has approached chain stores that sell store-brand cartridges compatible with its printers and offered them incentives if they end the practice.

Staples is offered as an example. The article goes on to raise questions about the legality of the practice, which is of interest, of course. But I was more struck by how HP, an iconic company in the high-tech arena, is using a marketing tactic more identified with the selling of canned peas.

This is not necessarily because CPG has the better set of tactics (a strong case could be made for the contrary), but because the nature of trade promo has always been driven by the nature of the channel, and the durables channels today are becoming more similar to the mass, grocery and drug channels. As retail concentration increases, therefore, we will likely see more coupon dispensers and floor ads in unexpected places.

On a somewhat related note, Brandweek had an article entitled "OgilvyAction's Roth Explains Shopper Marketing", which I read eagerly in the hopes of having Shopper Marketing explained to me (heck, I'd settle for having it clearly defined). I was, alas, disappointed, although some good examples were cited. Interesting, though, how much interest ad agencies are showing now in in-store marketing. Do you think it might be related to declining revenues from traditional media?

Ad agencies expecting big cuts soon

Madison Avenue is getting ready for some major staff cuts in the new year, with the prediction that total ad spending in 2009 will be down 5.7%.

After trimming jobs throughout the year, Madison Avenue is bracing for even bigger layoffs in 2009.

Ad executives and recruiters expect agencies, which have been cutting in dribs and drabs, to hand out a flurry of pink slips early next year as the ad downturn worsens.

The talk in industry circles is that the major agency holding companies - Interpublic, Omnicom and WPP - are planning deeper cuts to ring in the New Year.

"Close to 50 percent of agencies are owned by holding companies," said Joanne Davis, a longtime ad-industry consultant. "The public markets are putting pressure on these companies to perform."

Some of the ad agencies have recently created divisions to deal with shopper marketing and other in-store promotion. Perhaps they will finally be motivated to become seriously involved in the segment where most of the marketing budget is spent.

Shopper Marketing metrics still need definition

Marketing Daily reported here on Shopper Marketing, with a few interesting points. The main one, to me, is this:

Only one-third of both retailers and manufacturers report that they agree on the metrics for evaluating programs even "most of the time," while nearly two-thirds of marketers say they only reach agreement with retailers about how to measure success "occasionally" or "never."

The metrics for Shopper Marketing are going to be difficult to define, and even more difficult to get agreement on, in part because it's both brand marketing and trade promo at the same time, and in part because the definition is still in flux -- how can you measure it if you can't define it? I addressed these points here.

Trade Promo Tactics and Processes for Shopper Marketing

A couple weeks ago, I discussed an article about Shopper Marketing that in turn referenced a Deloitte/GMA study from last fall. It was a thought-provoking study, and I'd like to present a few of the things that crossed my mind while reading it.

Definition

The study made the point that there is no generally accepted definition of Shopper Marketing (a fact that calls into question their efforts to measure it). I'm not too hung up on tight definitions, but a description in general terms of what I'm talking about is a necessary starting point, I think. I'm not suggesting that others follow my definition, and I'm perfectly willing to accept another if a consensus forms.

A definition is especially important for manufacturers when they get to the question of budgeting, as I discuss below - what is included in which budget is a point that will require very tight definitions indeed.

I'm inclined to say that Shopper Marketing is limited to in-store promotion, because I'm of the opinion that definitions that become so broad that they exclude nothing (e.g., "TV advertising is directed to shoppers, so it's shopper marketing") become meaningless. I can see an argument that mailings to loyalty card members are Shopper Marketing, but for now I'll stick with saying that Shopper Marketing is limited to in-store promotions. An important question is whether pricing actions are included. For now, I'll say no (for reasons I detail later), but I can see combo price/image promos being Shopper Marketing. Further refinement of the definition will be needed, but let's leave that for later.

For now, my working definition is: "Joint manufacturer-retailer in-store promotions that are focused primarily on building or maintaining brand image."

Applicability across Categories

The study was entirely concentrated on the CPG/grocery category, which is hardly surprising, given that it was sponsored by the Grocery Marketing Association. Nor is it a surprise, given that the biggest trade promotion expenditures are found in that category.

But a growing share of consumer durables sales is going through channels using CPG tactics (and many of the leading retailers in durables channels are adopting CPG tactics). So, although this study may be less applicable to consumer durables, the subject of Shopper Marketing is not without interest even in those categories.

In addition, much of the attraction of Shopper Marketing is not channel-specific. It is based on the growing awareness that, as mass media fragments and the channels consolidate, it is becoming much more efficient to reach mass markets in the store than through traditional broadcast and print media.

It is harder to see applications of the study or of Shopper Marketing in general for business-to-business or non-retail marketers (e.g., financial services).

Funding/Budgeting

In order to create trade promotion programs that facilitate effective Shopper Marketing, a number of changes are necessary. The most important are in the areas of budgeting and in the control of the programs and budget.
Because we're talking about control of large budgets, I don't think I need to tell you that these changes will meet with opposition by those who see their empires threatened.

The vast majority of trade promotion budgets in CPG/grocery are under the control of the Sales department. This is hardly surprising, since the purpose of the programs has long been seen as driving immediate sales. If, however, we are examining an initiative whose purpose is less focused on immediate results, and more on maintaining or building brand image, then it makes little sense to have Sales in charge of the budget, because Sales is not responsible for nor measured on brand-building.

I will state the obvious: Sales is not going to like this.

I can hear the VP-Sales right now: "If Marketing wants to do in-store activities to build the brand, I'm all for it. But the funding needs to come out of the national ad budget."

I don't entirely disagree. To the extent that Shopper Marketing is intended to supplement or replace brand-building efforts such as national TV or magazine ads, it should be funded from the budget that currently pays for those activitiesd. But the fact remains that a portion of the trade promo budget has always gone for endcaps, signage, and similar activities. If we are to say that those items are now to be paid for by Marketing, with no offsetting decrease in the budget controlled by Sales, the effect would be to increase the amount of spending on price promotion - not, I trust, what anyone wants to do.

What needs to happen is that both the Sales-controlled trade promo budget and the national advertising budget are cut, and a new Shopper Marketing budget created.

The logic behind the split would be that if the primary intent of an in-store promotion is to lower price to the retailer (and, perhaps, the consumer), it comes out of what I am calling the Pricing Promotions Budget, which is controlled by Sales. If the primary intent is to build the brand in concert with the retailer, then it comes out of the Shopper Marketing Budget, which is controlled by Marketing; traditional consumer-directed advertising run by the manufacturer alone stays in the national advertising budget.

Not covered in this description is out-of-store joint promotions (e.g., newspaper or radio run by the retailer promoting the brand). This category is substantial in durables, and not insignificant in CPG/grocery. Although it is not (in my definition) Shopper Marketing, it should be in that budget because it fits the same intent and function - that is, it is a joint supplier-retailer effort that is primarily brand promotion rather than price.

This split moves budget authority and responsibility where it belongs - Marketing has responsibility for the brand, and Sales for pricing.

This does not mean that there will be no conflicts and gray areas (many promotions, inevitably, involve both pricing and branding), but if managements understands and endorses the principles, then resolution of such questions should be possible.

Allocations

There are two ways I can think of immediately that a manufacturer might look at these budgets. One is to establish an overall budget figure (say 15% of sales) for price promos and Shopper Marketing, and base the breakdown largely on the retailers' demands for pricing money This might end up looking like:

• SuperValu -- 9% on price promo, 6% on brand-building
• Kroger -- 8% price, 7% brand
• Wal-Mart -- 15% price

It might also be that Sales sets a particular percentage for price, while Marketing allocates whatever budget they have based simply on which store is the best vehicle for the brand activities they want to carry out. In some cases that might lead back to something close to the above, since the retailer whose emphasis is totally on price may not be the best environment for building a brand image (depending on the image you're trying to build).

I imagine we'll end up with these two, blendings of these two, and various other approaches, before any sort of consensus approach is reached.

Systems, Processes, and Administration

Splitting of the trade promotion budget will require modifications to the systems and processes that currently control and monitor trade promotion activity and spending. If Sales and Marketing go their separate ways and use separate systems, it will not only be wasteful and inefficient, it will obscure management's view of overall channel spending.

TPM systems currently exist that can (in some cases, with moderate tweaking) separate control of budgeting and allocation processes, while rolling up to a single expenditure total. Without such systems and accompanying processes, a manufacturer will end up with Sales having budgetary control over an area (brand-building) that is Marketing's responsibility, or Marketing having control over Sales's pricing functions. Neither approach will work.

The administrative processes currently in place (e.g., for documentation and settlement) can probably be continued with few changes, with the exception that it would be best to move them to a "neutral" dpartment (Customer Service or Finance, perhaps) to avoid the turf wars that may erupt between Marketing and Sales.
Shopper Marketing and Collaboration

The Shopper Marketing paradigm described here is very dependent upon a strongly collaborative relationship with retailers - a relationship that manufacturers may need to limit to key accounts or even a subset of their key accounts, both because of their own resource constraints and because of the inability or unwillingness of some retailers to participate.

Several years ago, Dale Hagemeyer of Gartner produced a slide depicting several collaborative scenarios, a slide that many (including me) have stolen for their own presentations. In simplified format, it looks like this:

Successful Shopper Marketing efforts will require collaboration that looks like the diamond on the right. At present, brand-building trade promotion efforts generally follow the butterfly scenario and look like this (based on a chart in the GMA study): A successful Shopper Marketing collaboration will look like this:

In regard to planning, the Deloitte/GMA study made a recommendation with which I strongly agree:

Follow One Strategy. Manufacturers should not put strict boundaries between trade promotions and shopper marketing programs. Both are stimuli that influence shoppers in the store. First, manufacturers should start aligning trade promotion with shopper marketing programs. Then, they should approach retailers with one plan/calendar that has all the programs that influence a specific shopper segment.

The trick, of course, will be getting Marketing and Sales to step outside their silos long enough to agree on a single go-to-market plan and coordinate their efforts to implement it. This will be tough - we don't often enough see coordination between two efforts today (national advertising and trade promotion), how much harder will it be to coordinate three - national advertising, Shopper Marketing, and pricing promotions?

However difficult it is, I would submit that the rresults are likely to be more than sufficient to justify the effort.
Even after divisions are overcome within the manufacturer, it will be necessary to build relationships with the retailers' marketing departments. Promotions that run through the retail buyer face problems similar to those created on the manufacturer side if Sales is in charge of the Shopper Marketing budget: The retail buyer's job performance ratings and other incentives are not affected by how much brand-building goes on in the store; he or she is judged on pricing and sales measures.

Because of the complexity of these relationships, and the obstacles to them, it is almost certain that Shopper Marketing programs will be rolled out over time, beginning with only a few key accounts, and will probably vary in important ways between accounts. Account-specific marketing will be supplemented by account-specific Shopper Marketing.

Measurement and Analytics

Shopper Marketing is greatly dependent upon data and analysis, and will require both new measures and new tools.

This is where Nielsen's PRISM (about which I have expressed some skepticism in the past) and similar initiatives may prove to be of great worth.

Part of the reason for segregating Shopper Marketing and pricing promotions, in addition to the points made above, will be the need to apply separate measures to them. Pricing promotions will be subject to the trade promotion metrics that have been developed in recent years - lift, cost per incremental case, and other volume and profit measures derived from scanner data.

Shopper Marketing will be subject to measures more similar to print and broadcast media - reach, frequency, cost per thousand. Ideally, though, combo measures will be developed so that we will see what percentage of the shoppers who saw the display bought the product. These will be similar to direct mail conversion measures, or perhaps will mimic the movement of Internet advertising metrics, which moved in a few years from gross impressions to cost-per-click to cost-per-sale.

Shopper Marketing also offers opportunities to use retailer data insights. Wal-Mart's Retail Link, for example, segments stores into clusters based on demographic characteristics of their customer bases, such as ethnicity or age. At present, relatively few manufacturers take advantage of such data in designing promotions for their retailers. I believe (though I certainly can't prove) that Shopper Marketing programs run by Marketing would be more apt to utilize such data than trade promotion programs run by Sales.

Conclusion and Summary

None of these proposals are certain to happen, nor are they certainly the best way to approach Shopper Marketing. What I've presented here is intended simply as a starting point for a discussion on how best to deal with an approach that involves both Marketing and Sales, that is attempting to accomplish both immediate sales lift and longer-term branding, that involves both advertising/promotion and pricing actions. My tenttive prescription is to separate budgeting, authority, and responsibility based on intended goals, while blending the planning and reporting, and both separating and blending the measurement and analysis.

Shopper Marketing and Trade Promotion

I was reading an article about trade promotion in Advertising Age yesterday, something I generally do with trepidation, because that magazine repeatedly demonstrates a total lack of understanding of the topic.

Nonetheless, being a glutton for punishment, I read the article, which contained this paragraph:

A study by Deloitte Consulting for the Grocery Manufacturers of America last year found shopper marketing, formerly known as trade promotion, is growing faster than any other medium for package-goods marketers, including digital advertising. Deloitte estimated package-goods companies spend 8% of their marketing budgets now on shopper marketing, but that percentage could be well over 35% if all forms of trade promotion are included.

Putting aside the mention of “well over 35%” spending – I suppose somebody may be in that category, and I wish them well, but that’s about double the norm in CPG/grocery and even farther off for other categories – putting that aside, I’m wondering about that line, “shopper marketing, formerly known as trade promotion…”

Huh? Did somebody change the name and forget to tell me? Is my book Trade Promotion Marketing already out of date? (It wouldn’t be the first time – my previous book was called Co-op Advertising – though in that case, I knew the title was outmoded, but the publisher insisted on it).

So I contacted a few people who know whereof they speak. Rob Hand replied to my inquiry with his typical pithiness:

They have no clue...never did. Aren't they the ones who first coined high tech trade promotion as "soft dollars?"

Shopper marketing...that's a good one.

Andrew Wilson was a bit more diplomatic:

If they're referring to In Store Shopper Marketing (ISSM), this only covers a small (but significant) sub set of the total Trade Promotion activity. Why replace a perfectly good term with one that's more limited in reach?

It's taken us long enough to gain recognition for Trade Promotion as a discipline. Let's not confuse matters by rebranding it so quickly!

And Mike Kantor of the Trade Promotion Management Association indicates that they have no plans to change their name:

I appreciate the attempt by the publication (recognizing the strategic role of Trade Promotion), but to refer to Trade Promotion as Shopper Marketing is like calling Wal-Mart a drug store. Although Wal-Mart has pharmacy departments as part of their mix, it does not solely define their business. Same is true here – Shopper Marketing is an integral part of Trade Promotion, but we all know Trade Promotion as inclusive of integrated sales and marketing, demand planning, category management, brand management, account management, retail execution, and related back-end processes including settlement and analysis.

Actually, even the study they quote makes the point that shopper marketing is only a piece of the total trade promotion budget – an important and growing piece, but still just a piece.

Having indulged myself in a bit of Ad Age-bashing, the subject of shopper marketing is one that is worth some attention. It is a very fast-growing area of spending, because it is effective; because retailers demand such funding and retailers have power; beccause the mass media are fragmenting and in-store marketing is one of the most effective replacements* … and probably for numerous other reasons.

That Deloitte/GMA study also indicated that trade promotion (exclusive of shopper marketing) is anticipated to decline by 2% annually. To which I say: Good – since the portion being cut is presumably mostly pricing actions (TPRs, trade rebates, etc).

I think the subject of shopper marketing and how it should be integrated with and differentiated from the pricing aspects of trade promotion is the most interesting and important area of this subject, and worthy of a fuller exploration, so the next issue of TPM Update will feature some thoughts on how to approach shopper marketing in terms of strategy, tactics, planning, budgeting, and management.

But for now, my first reaction is that if the trend in trade promo is to move money away from price cuts and toward brand-building activities, then that’s a very positive development.

Regardless of what you call it.

--
* I commented on this point three years ago (ironically, in response to an article in Ad Age).