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.

In-store displays are killing the book section

The Los Angeles Times is planning to kill off its Sunday book review section, according to the Wall Street Journal, joining a trend:

Sometime this spring, the Los Angeles Times is expected to announce that it is folding its highly esteemed Sunday book review into a new section that will combine books with opinion pieces. That would reduce to five the number of separate book-review sections in major metropolitan newspapers still published nationwide, down from an estimated 10 to 12 a decade ago. The reason: not enough ads.

Book publishers in recent years have moved away from buying ads in standalone book-review sections in favor of paying to stack mounds of books in the front of chain bookstores. Some small literary publications, such as the New York Review of Books, are showing growth, but the book review as a separate section is endangered not only at the Los Angeles Times but at other major newspapers like the Washington Post, Chicago Tribune, San Francisco Chronicle and San Diego Union-Tribune.

The trend toward in-store is, of course, not unique to the book biz, as we all know.

In an era of targeted marketing, publishers say the best time to reach readers is when they are in the stores with money in their pockets looking to make an immediate purchase. But with a sea of titles in the stores ... the only way for publishers to stand out is to pay for real estate in the front and pile those books up high.

"You want to see your books in prominent places," says Tom Perry, associate publisher of Bertelsmann AG's Random House Publishing Group. "Such co-op advertising is where marketing dollars are going that might otherwise have been spent on advertising." ...

One publisher says that chain bookstores can charge $1 or more per book to stack titles in desirable locations, such as on a table at the entrance or in a display featuring new nonfiction titles.

This is one of those items where we see the confluence of so many trends -- media fragmentation and the death of newspapers, retail consolidation, the increase in in-store merchandising, and the spread of CPG marketing tactics to consumer durables.

Program differentiation by product

In a recent conversation with an industry professional, he quoted a top Wal-Mart exec as saying that manufacturers often don’t realize that they have the upper hand when they have innovative products, and the retailers only have control with commodities.

An excellent point, which raises the idea of differentiating trade promotion approaches by product (and more specifically by product life-cycle). It’s not a new concept, by any means – I recall Levi Strauss withdrawing co-op advertising support from their 501 jeans about thirty years ago, trying to encourage retailers to promote other products, and I don’t imagine they were the first.

While I like the idea, a problem I see is the increasingly-rapid pace of commoditization. I was struck recently, while wandering through Best Buy, at how quickly MP3 players have moved from a totally new idea to near-commodity status (though Apple seems to be able to continue to demand a pricing premium, for the moment). And Best Buy is reported to be about to introduce private-label plasma TVs.

But that’s a problem with execution, not with the concept. It simply means that trade program managers will need to remain alert to the rapid changes in their product’s position in the life-cycle and be nimble enough to make rapid changes to the program in response. Differing marketing goals at different stages (e.g., awareness and acceptance in the introductory period, gaining distribution and grabbing market share in the growth stage, etc) will require managers to alter the program on the fly.

Add into this the need to differentiate your program by channel, and to maintain specific programs for key customers, and it demonstrates the growing complexity of trade promotion.

The in-store agency

Wal-Mart has appointed Saatchi & Saatchi X (conveniently headquartered in Springdale, Arkansas) as their first agency of record for in-store marketing.

It may be that other retailers have named agencies of record for in-store but, because they weren’t Wal-Mart, it escaped my notice. In any case, Wal-Mart’s embrace of the concept indicates (again) the growing importance of the store as a medium.

I have been arguing for years that the store is the most-important advertising medium, an idea that has gained further traction with the fragmentation and decline of what used to be “mass” media – especially TV and newspaper.

While Saatchi has long been working with Wal-Mart on store design projects and promos, it will be interesting to see what being agency of record truly means. In-store communications in most retailers (and my experience with Wal-Mart indicates that they are no different) consists of a wide variety of vehicles (signage, kiosks, endcaps, in-store broadcast, etc), some produced in-house, the rest from various suppliers, offered up in no coherent manner, and presenting competing and often contradictory messages.

Is Wal-Mart, through Saatchi, going to try to impose some sort of discipline?

It won’t be an easy job (to put it mildly), but it will be interesting to watch. And manufacturers, who are trying to get their messages through the in-store confusion, need to watch carefully and adapt their trade promotion programs accordingly.