Transcript In-Store Merchandising

Promotion Renaissance
2005 NCH Symposium
Chicago, IL
September 13, 2005
www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]
Today
Hoyt & Company believes that a combination of diverse and seemingly
unrelated circumstances is about to resuscitate consumer promotion
as a major weapon in the differentiation arsenal.
We are here today to tell you why we think this and what you as
promotion experts can do to help accelerate and capitalize on this
opportunity.
What we will cover is:
 The key change drivers relevant to consumer promotion
 How the industry has responded to-date to these drivers
 The role we think consumer promotion will play over the next five
years and what it will take to get on top of the curve and remain in
front
NCHR2.ppt
2
The Key Change Drivers –
Trends and Facts of Life That Won’t Go Away
 Population Fragmentation
 Media Fragmentation
 Touchpoint Marketing
 Shopper Marketing
 Retail Consolidation
 Retail Branding
 How to Differentiate
 Retail as Media
 Demand for ROI
NCHR2.ppt
3
It’s getting harder and harder to build brand share in the face of an
atomized consumer market that seems to be growing increasingly
impervious to traditional marketing.
 Because everyone is already familiar with what is meant by “population
fragmentation”, let’s skip the statistics and get right to the heart of the
issue:
• “Demographic segmentation is no longer a reliable consumption
predictor because four different people in the same household may use
four different brands of toothpaste and consume as many as 10 different
brands of beverages.”
 Same thing applies to media fragmentation. It now takes 117 commercials
to reach 80% of one’s target consumers versus three in 1965.
 Meanwhile, an average of 70% of those who watch TV are typically only halfwatching – meaning they have one eye on the tube and the other eye on a
monitor or a newspaper at the same time.
 Technology has enabled dedicated watchers to skip commercials entirely:
Currently 20% of households own TiVo or DVRs and 70% of these routinely
fast forward. By 2010, this 20% is expected to grow to 50%.
NCHR2.ppt
4
Even when marketers do finally “get through” – they find a consumer
all but “fed up” with the entire proposition. According to Yankelovich:
65% of consumers think they are “constantly bombarded with too much
advertising”
59% think that, “Very little, if any, marketing and advertising has any
relevance to me.”
61% feel that the quantity of advertising and marketing they are exposed
to is “out of control”
60% report that their view of advertising is “much more negative than just
a few years ago”
59% of consumers feel misunderstood by marketers
Source: Yankelovich Monitor, January 2005
NCHR2.ppt
5
The result of this growing dissatisfaction is that between 1994 and
2003, prime time viewership has plunged from 45MM to 25MM HHs – a
45% drop in only 9 years:
Despite this – amazingly enough – ad spending during these years has actually
increased in real dollars from $5 – $7 Billion or 40%.
What’s Wrong With This Picture?
Viewers2 (MM)
50
45
Real ad
Spending 3 ($B)
Prime Time TV1 in the United States
10
Viewers
9
40
8
35
7
30
6
25
5
Peak Ad Spending
20
4
1994
1997
2000
2003
1 Segment of broadcast day from 8pm - 10pm; includes 4 major networks (ABC, CBS, Fox, NBC)
2 Estimated
3 Adjusted for inflation to 2004 dollars
Source: Deutsche Bank: TV Program Investor. Kagan Research from the McKinsley Quarterly,
“Boosting Returns on Marketing Investment” 2005 #2
NCHR2.ppt
6
When combined with a highly fragmented consumer market, this apparent contradiction has
prompted leading manufacturers to seek out cost-effective alternatives that enable them to
“Touch” the consumer all the way from home to shelf – what the industry now commonly refers
to as “Touchpoint Marketing”
Oh, How Do I Touch Thee? Count The Ways!
PermissionBased E-mails
Print
Internet Ads
FSPs
Cable TV
Mega-Event
Sponsorship
Direct Mail
In-Store Sampling
FSIs
Content Implants
In-Store TV
Customer Service
Network TV
Movie Theater Ads
Newspapers
Outdoor Signage
Coupons
NCHR2.ppt
Radio
DVD Trailers
High Impact
Retailtainment Product Placements
7
Touchpoint Marketing requires a highly personalized, tightly integrated
communications and promotion strategy that “touches” the target consumer
every step of the way from home to and through the store to the shelf
STORE









HOME






T.V.
Print
Internet
Mail
Radio
Word of Mouth
NCHR2.ppt





Shelf
Displays
Circulars
T.V.
Radio
Kiosk
Carts
POS
Events
Radio
Billboards
Cab Tops
Transit Signs
Events
8
Why the store? Because in all the flux of population fragmentation and media
fragmentation, the one thing every marketer knows for sure is that the one place they can
reach 100% of their target shoppers at least 2-3 x’s per month is in the retail store.
NCHR2.ppt
9
Another reason for “the store” is that consumers make approximately
70% of brand decisions and 60% of category decisions after they enter
the store:
Percentage of Purchase Decisions
Made In-Store
72%
70%
68%
66%
64%
62%
60%
58%
56%
54%
70%
60%
Brand
Category
In other words, despite all of the advertising and other means manufacturers
use to build awareness and loyalty, consumers are most heavily influenced by
in-store stimuli.
Source: POPAI, 2005
NCHR2.ppt
10
Reaching consumers in-store has now become manageable since 15-20
retailers now comprise 60% or more of most CPG manufacturers’
business:
2004 Concentration of Business By Principal CPG Trade Channel
2004 Sales
# Total
($B)
Accounts
Total $
Sales
Total Channel
Sales ($B)
% Channel
ACV
3
$83.5B
$85.5B
97.7%
$133.1
$2.9
$11.5
$5.3
$5.5
5
$158.3B
$176.0B
89.9%
Walgreens
CVS/Eckerd
RiteAid
Jean Coutu
$36.4
$32.7
$16.9
$9.9
4
$95.9B
$174.4B
55.0%
Wal-Mart
Kmart/Sears
Target
$60.7
$39.6
$40.8
3
$141.0B
$154.0B
91.6%
$47.1
$34.3
$32.1
$27.1
4
$140.6B
$474.5B
29.6%
19
$619.3B
$1,064B
58.1%
Channel
Accounts
Clubs
Costco
SAM’s
BJ’s
$39.0
$37.1
$7.4
Wal-Mart
Kmart
Meijer
Fred Meyer
Target
Super
Centers
Drug
Traditional
Discount
Total Grocery Kroger
Albertson’s
Safeway
Ahold
TOTALS
Source: Progressive Grocer, Drug Store News, Discount Store News, MVI
NCHR2.ppt
11
Some of these retailers are now national in scope and have achieved
household penetration levels that exceed those of most national brands
Sample HH Penetration Levels of Leading National Retailers – 2001 - 2003
2001
2002
2003
100%
90%
84% 86%
80%
74%
70%
60%
66%
60%
62%
59%
60%
60% 62%
55%
49%
50%
45%
48%
38%
40%
29%
26% 28%
30%
20%
10%
0%
Wal-Mar t Tr ad
Wal-Mar t Total
Wal-Mar t SC
Tar get Total
Kmart Total
CVS
Walgr eens
Source: IRI Panel Data, 2004
NCHR2.ppt
12
Targeting the mutual heavy shopper in these stores is no longer difficult
because retailer Frequent Shopper Programs (or credit card data) now
help segment the whales from the minnows
Heavy Channel Shopper Importance – 2003
% Shoppers
100.0%
% Dollars
93%
90.0%
83%
81%
79%
80.0%
78%
75%
70.0%
59%
60.0%
50.0%
40.0%
33%
33%
33%
33%
33%
33%
33%
30.0%
20.0%
10.0%
0.0%
Grocery
Super centers
Mass Merch
Drug
Warehouse
Doll ar
Conv/ Gas
Source: Total U.S. - 52 we 12/28/02 ACNielsen Channel Blurring Study 2003
NCHR2.ppt
13
Perhaps, most importantly, Retailers also have a vested interest in
anything that will help them differentiate. Take a look at some of their
problems:
 Outlet Saturation – Too many stores/too few consumers
 SKU Proliferation – Too many items create “choice confusion”
 Mass Availability of Same items in Different Channels – Virtually every CPG
channel now uses fast-moving consumables to build traffic
 Category Hijacking – One channel stealing destination items from another
 Disintermediation – Competition from consumer direct alternatives like the
Internet
 Shopper Disloyalty
 Price Competition from Value Discounters
There are more… but these are the most frequently mentioned.
NCHR2.ppt
14
Because Wal-Mart “owns” the low price space, all other retailers must
now find ways to differentiate on a non-price basis.:
Wal-Mart’s March To The Top of the U.S. Food Chain: 2001 - 2010
(Food & Drug Sales Only)
2010
$195B
2007
$162B
Bigger than
Kroger,
Albertsons,
Safeway and
Ahold combined
2004
$112B
2003
$95B
Bigger than Kroger
& Albertsons
Combined
2002
$82B
2001
$63B
Surpasses Kroger as the
nation’s #1 food retailer
*Wal-Mart
*SAM’s
*Neighborhood Markets
Source: Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003, Hoyt & Company, 2005
NCHR2.ppt
35%*
15
Some retailers, in fact, are striving to become household brand
names in their own right:
 The big nationals have adopted brand slogans:
“Expect More.
Pay Less.”
“That’s Life.
This is Walgreens.”
“Life To
The Fullest”
 Retailers have also caught on to the fact that being expert merchandisers is
no longer enough: The next phase in their development is to become expert
marketers.
 In line with this, retailers want “Fewer, Bigger, Better” customized
promotions or “retail-tainment” events that help reinforce these positions
and/or – in the case of supermarkets – clearly off-set them from their
competitors, even if only for a short period.
NCHR2.ppt
16
Retailers’ intuition about “Fewer, Bigger, Better” and
“Retailtainment” appears to be right on:
If one uses spending growth rates to judge what is really important to
Americans, having fun and being entertained is America’s #1 priority while
eating at home is last
U.S. Household Expenditures By Category
(% Growth 1992 – 2002)
94.6
100
90
81.4
80
70
60.7
60
50
42.7
44.1
65.7
82.3
99.4
99.5
Education &
Res earc h
Rec reati on
84.9
71.9
49.6
40
30
20
10
0
Food At Home Pers onal CareClothi ng/ J ewel ry Household
Operations
Housi ng
T rans portation Food Away
From Home
Medic al Care
Reli gi on &
Wel fare
Pers onal
Bus ines s
Source: Bureau of Economic Analysis, U.S. Dept. of Commerce, 2004
NCHR2.ppt
17
The investment in “Bigger, Better” promotions appears justified as
recent research suggests that current cumulative retailer reach can be
favorably compared to the major networks:
Potential Advertising Reach – Top 10 Retailers vs. Major TV Networks
Last Four Weeks
No. of U.S. Adults 18+
% of US Adults 18+
Shoppers at a top 10 retailer
(Wal-Mart, Home Depot,
Lowe’s, Kroger, Target,
Albertsons, Costco, Safeway,
JC Penney, or Walgreens)
176,512,000
85.5%
Watched ABC, CBS or NBC
172,860,000
83.7%
Watched NBC
136,912,000
66.3%
Watched CBS
133,833,000
64.8%
Watched ABC
123,582,000
59.9%
Source: Simmons Research Bureau, 2003
NCHR2.ppt
18
In addition, unaided in-store recall appears to be dramatically better
than traditional media, perhaps because – once in the store – the
consumer is now “shopping prone” and therefore more receptive
In-Store TV Potential - Un-Aided Brand Recall
Ne twork TV
Cable TV
Ne wspaper
In-Store Ne t
0%
10%
20%
30%
40%
50%
Source: McKinsey & Company Simmons Market Research, Morgan Stanley Dean Witter, CAB/Nielsen,
TheStore.com
NCHR2.ppt
19
Whereas formerly, promotions were uniformly structured to help sponsoring brands
achieve certain consumer objectives, over the past two years, the state-of-the art has
been taken to an entirely new plateau via the introduction of “shopper need states”:
 The premise – for those who may not already be familiar with this – is that
your brand’s consumer is a different person once she morphs into a shopping
mind-set.
 The needs that consumers bring to a particular shopping occasion strongly
influence not only what channels and retailers they choose but where they go
and what they do once inside a store:
• Saturday for a full stock-up at the Supermarket
• Monday for a quick run to the Drug Store to fill a prescription
• Thursday for a fill-in shop at the nearby Convenience Store
 The motivations shoppers bring to their decisions are not always the
motivations that brand marketing thinks they are when viewed only through a
demographic lens.
NCHR2.ppt
20
Current thinking on shopper need states is that there are nine different
classifications of need states to explain the key purchase drivers of
most shopping occasions.
Shopper Need States
Consumer Packaged Goods
Fill-In Trips
18% of Spending
Functional Trips
61% of Spending
Fun Trips
21% of Spending
Small Basket Grab & Go
Care For Family
Discovery
5% of Spending
27% of Spending
9% of Spending
Specific Item
Efficient Stock-Up
Bargain Hunting
9% of Spending
16% of Spending
10% of Spending
Reluctance
Smart Budget Shopping
Immediate Consumption
4% of Spending
18% of Spending
2% of Spending
Source: Amended from The World According to Shoppers, 2004, Coca-Cola Retail Research Council of North
America. Percentages are based on grocery spending.
NCHR2.ppt
21
Awareness and understanding of consumers as shoppers has now
become the Gold Standard for CPG marketers:
Excellence Hierarchy in Marketing Through Retailers – 2005
Gold
Standard
Silver
Standard
Brand Marketing Awareness
Consumer/Shopper Insights
High – my brand marketers
design programs with customer
implementation and customer
brand strategy firmly in mind
Shopping modes by category
well understood across formats
– shopper research and insight
a key priority for market
research
Medium – brand marketers will
talk the importance of
customers, but not consistently
act – depends on the
person/relationship between
sales & marketing
Medium – real understanding of
retailer’s target market, and a
deep understanding of
shopping occasions
Low – brand people still view
retailers as points of
distribution only
Use consumer data to do
overlays between my target
consumer and retailer’s to
convince them of brand
synergy
Bronze
Standard
Source: MVI, 2004
NCHR2.ppt
22
Bottom line on all this as far as we are concerned
The Consumer Promotion Perfect Storm
RETAILERS
70%
IN-STORE
DECISIONS
MANUFACTURERS
Consumer
Promotion
2005 &
Beyond
NON-PRICE
DIFFERENTIATION
RETAILER VS. RETAILER
MANUFACTURER VS. MANUFACTURER
How has the industry responded to-date to these changes?
Answer: Varies by company, but, in general, not very well
Reasons:
 Budgets inadequate to the task
 Misaligned priorities
 Brand marketing myopia
NCHR2.ppt
24
Budgets inadequate to the task: How can one do “bigger, better” in the
face of declining funding?
Between 1997 and 2004, CPG manufacturers have steadily chipped-away at
consumer promotion budgets, reducing them from 24% to 16% of total marketing
spending while simultaneously increasing spending on both trade promotion
and DTC advertising
% CPG Manufacturer A&P Spending Trends: 1997 - 2004
1997
1998
1999
2000
2001
2002
2004
% vs.
‘97
Consumer
Promotion
24
19
17
16
15
17
16
(33.3%)
Trade Promotion
53
56
60
60
61
59
58
+15.1%
DTC Advertising
23
25
23
24
24
24
26
+13.0%
TOTALS
100
100
100
100
100
100
100
100
Source: Cannondale Associates, 2005 Trade Promotion Spending and Merchandising Study’
NCHR2.ppt
25
Misaligned priorities: While the increasing cost of DTC advertising
explains the increase in Ad budgets, the Trade Promotion increase is
harder to justify as payouts decline and less than 50% payout at all:
Percent of Trade Promotions That Manufacturers Say
Pay Out
60%
50%
40%
30%
20%
10%
0%
54%
49%
Feature/Display
43%
40%
AccountSpecific
Marketing
2003
33% 34%
Price Reduction
Only
31% 30%
Frequent
Shopper Card
2004
Source: Cannondale Associates, 2005 Trade Promotion Spending & Merchandising Study
NCHR2.ppt
26
Marketing Myopia: Defined as siloed organizations and consequent
failure of Marketing Departments to incorporate retail realities into the
core brand planning process:
As IBM recently put it in a comprehensive December, 2004 study on
silos & Customer Management:
“Many of the firms interviewed as a part of this survey still maintain
siloed organizations with little collaboration between Sales and
Marketing.”
“These companies cannot continue to do business as usual or else they
will find themselves struggling to maintain growth and profitability.”
“Going forward, they must make a concerted effort to elevate Customer
Management to a position of equal standing and competence as their
traditional focus on products and brands.”
“Companies must continue to push further to complete the evolution to
a fully integrated approach to the consumer and the retail customer.”
Source: IBM Business Consulting Services – The Strategic Agenda for Consumer Products Customer
Management, Dec, 2004
NCHR2.ppt
27
Hoyt & Company’s Contentions:
 Siloed brand groups do not have a sufficiently adequate grasp of what
is going on at retail to properly assess priorities or – in some cases –
even know what the opportunities are.
 Despite population fragmentation, media fragmentation, consolidation
and the consequent growing influence of the retailer over the
consumer’s decision-making process, some brand marketing
departments even still believe that, “Marketing stops at the door of the
store.”
 As a result, promotion in these companies continues to be relatively
parochial – focused on brand consumer objectives versus consumers
as shoppers in specific retailers.
 The fact that consumer promotion – the one device that offers truly
great opportunities to help differentiate in intangible and measurable
ways – remains so sublimated in these companies is an unfortunate
result of these anachronistic and out-of-touch attitudes.
NCHR2.ppt
28
Happily, the indications are that all this is about to change:
 A number of recent surveys confirm that the industry is on the verge of
a breakthrough in terms of integrating retail considerations into the
total marketing mix and adjusting spending allocations accordingly.
 Leading companies like P&G, Unilever, Kimberly and Clorox have
already reengineered their organizations to elevate Customer Marketing
to the same level of importance and competence that these companies
ascribe to Consumer Marketing.
 Trade Promotion appears to be declining in effectiveness despite the
spending increases over the past 7 years.
NCHR2.ppt
29
Why all this is about to change, cont’d
 Even leading retailers are beginning to recognize that dependence on
manufacturer’s trade allowances is no longer a sustainable business
strategy.
 As consolidation continues and the need for non-price differentiation
continues to intensify, CPG manufacturers will be forced to fill this need
with something more tangible than “insights”, no matter how incisive or
electrifying these may be.
 Since Trade Promotion clearly has little utility in this equation, it seems
inescapable that leading companies will revive the blockbuster
consumer promotion as the ideal tool to accomplish this.
NCHR2.ppt
30
Results of a November, 2004 joint Meridian Consulting/GMDC survey of
senior and mid-level executives representing 180 CPG companies and
related industries:
In response to the question, “Which of the following marketing vehicles are
growing the most in importance?”, 50% of those surveyed ranked “Marketing
Through The Retailer” as #1:
Which of the following marketing vehicles are growing most in importance?
Marketing Through The Retailer
50%
Buzz Marketing
45%
Internet
37%
Mass media
28%
PR
25%
Direct Mail
12%
Other
7%
Source: The Hub, March/April 2005 . DX Manners Consulting Company, Westport, CT
NCHR2.ppt
31
Cannondale Associates’ view of what marketers can expect in
terms of resource allocation starting in 2005 and beyond:
Key Drivers Of Marketing Spending Patterns by Type and Period: 1950 - 2010
Periods
1950’s – 1980’s
1990’s
2000 – 2005
2005 – 2010
Theme
Brand Marketing
Control
The Power Shift
Trade and
Consumer Shift
Marketing-At-Retail
Full Shift
Consumer
Consumer
Shopper
Shopper
Trade
Trade
Go-To-Market
Focus
Consumer
Trade
Comments
 Brand is king
 Emergence of WalMart
Consumer
Trade
 Retailer
Consolidation
 Brands are
challenged
 Category
management
 Retailer data insight  Consumer
marketing and
 Differentiation is key
shopper marketing
– brand and retailer
re-balance
 Retailer revenue
 Mass/national
needs increase
retailers balance
better regionals
Source: Cannondale Associates, 2005
NCHR2.ppt
32
P&G, Unilever, Kimberly and Clorox have all converted from traditional silo to
customer-centric full resource deployment organizations: While the details for
each company may differ, the schematic below gives the general idea.
BEFORE (Traditional Silo)
AFTER (Full Resource Deployment)
Team Leader
Adv. Agency
Marketing
Cons. Promotion
Marketing
Retailer A
Retailer B
Retailer C
Customer Marketing
Customer Marketing/
Trade Marketing
Sales
Consumer Promotion
Sales
Team Leader
Team A
Team B
Team C
Team D
Marketing
Retailer
Retailer
Retailer
Retailer
Customer Marketing
Retailer
Retailer
Retailer
Retailer
Sales
Retailer
Retailer
Retailer
Retailer
Retailer D
Retailer E
Retailer F
Consumer Promotion
Etc.
Etc.
Source: P&G/Hoyt & Company, 2004
NCHR2.ppt
33
The Coup de Grace is that even Supermarkets now recognize that they
have to change their business models to forego their dependency on
trade promotion:
Recently, we got the following from Steve Burd, CEO of Safeway, when
speaking to analysts in September and December, 2004 and then again in
February & March of 2005
“Safeway expects vendor allowance income to decline in the next five
years as it seeks dead-net pricing from vendors…”
“Our goal is to get down to a net cost so allowances go away and price
reductions are reflected in the cost of goods.”
“We believe we can brand the shopping experience like a consumer
packaged goods company brands a product…”
“We’re going to connect the dots for consumers and create enough
“Aha’s” for them to ask themselves why they should shop anywhere
else.”
Source: Supermarket News 9/8/04 and 12/21/04
NCHR2.ppt
34
So what do CPG marketers and their agencies need to do to get on top
of this curve and remain in front as these changes accelerate, if they
haven’t done so already?
 Accept that the marketplace has permanently changed
 Ensure that you have the right organization for the new marketplace
 Throw out the old delineations of “Advertising, Consumer & Trade”
both in your thinking and in your budgeting
 Zero-base your allocations rather than perpetuating the status quo
 Measure the results so you learn what works for your brands
NCHR2.ppt
35
Thank You
We appreciate the time you have spent with us today and
hope you have found this to be both fun and informative.
Also, special thanks to Tim Hedrich and NCH for inviting
us and giving us such a great platform and audience with
whom to share our thoughts.
www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]
A few words on the use of the material in this presentation
All material in this talk is copyrighted by Hoyt & Company, LLC.
You have Hoyt & Company’s permission to use any or all of this
material as long as:
 You do not change any words or alter the content of any text, charts
or graphs in this presentation.
 You will reference Hoyt & Company as the source of this material on
every page or excerpt you use for either internal or external
purposes.
 You do not change, alter or eliminate the sources we cite as the
authors of the source material we used to develop this presentation.
Thank You
www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]