What Are You Doing About It?
I recently met with the head of marketing for a major UK broadcaster whose career had previously included senior roles in shopper marketing and innovation with P&G and PepsiCo. His path had taken him from working with major grocery retail groups on improving visibility and driving product sales for his brands, to finding ways to create distance between his side and the retailer’s own private label. With a move into broadcast I asked whether he felt he’d leapt from the frying pan of a hyper-competitive consumer product world into the fire of the media industry where advertising is increasingly seen as a secondary investment for brands.
His response was that their challenges were essentially the same: both have diminished roles due to changes in consumer preference and new competition; and neither yet had a clear roadmap for changing the models the industries have been built on.
The More Things Change, The More They Stay the Same
What led us here can be found in a simple review of history: in the 1950s brands were king. Consumers had newfound wealth, a desire to fill their homes with goods, and they weren’t yet jaded. In 80s-America, a TV spot that ran on three networks would reach 80% of consumers, stimulate interest, and drive sales. Retail was simply the only fulfillment channel. In the book, Absolute Value, authors Itamar Simonson and Emanuel Rosen argue that the rise of brands was in response to an information-poor environment; brands served as a proxy for quality. But in the 90s this all changed when Tim Berners-Lee created the early version of the Internet and suddenly the consumer could look under the hood, hear from others, get the straight story – this was the beginning of retail’s great tectonic shift. And today, according to Nielsen, almost 90% of consumers with smartphones use them to price check after making in-store product comparisons.
So in 60 years, everything has changed – consumers, media, and the role of retail. But today’s reality is that retail environments, in particular grocery retail, are mostly the same, selling similar products, with margins that are paper-thin. And the only winner is a shopper who, in most cases, doesn’t really appreciate that they are, in fact, winning. This is a remarkable quandary and there is an incredible paucity of truly transformative thinking taking place around what to do about it. When I recently spoke to Darrell Rigby, a partner at Bain Consulting in Boston and the head of their global retail practice, his feeling was that the retail sector had largely ‘bored the consumer into buying online.’ He went on to explain that a fundamental challenge came from the senior executives in retail that made it to the top of their organizations working within the model, rather than by redefining it.
At one time, CPG companies and their retail partners were uneasy allies. Companies like P&G and PepsiCo used to create what were considered the premium products in their categories with success built on limited innovation and straightforward marketing practices. And then private label came along, which originally meant cheap, but then morphed into being, at times, more premium and often more trusted because of its association with the retailer.
Today, North American private label penetration is upwards of 25% and growing (for a view of where it might go, consider the UK with the world’s highest levels of private label penetration at 52%). And those former premium brands have to invest more and more on innovation simply to stay listed – to say nothing of consumers increasingly seeking out smaller, more perceived-to-be-interesting products which causes a squeeze for those national brands at both ends. Crisis? Consider this: the average household purchases 400-500 SKUs annually. Yet last year in the US there were 25,000 new products launched, all trying to get on the shelf and the shopper’s list. With grocery losing share of wallet to specialty retail and restaurants, offering more interesting products is one way to remain relevant. But in this environment, it’s becoming increasingly hard to compete – for everyone involved.
We Invest More in Advertising Attempting to Sell the Myth of Value Than Actually Creating It
With no differentiation in the experience and, often, the products, retailers end up discounting. But they’re going to lose, if not today, then eventually; and manufacturers are losing too. But they’re beginning to push back: the Canadian operations of major CPG players such as Kraft, Nestle, and Coca-Cola are threatening to limit shipments or stop supplying altogether unless their retail partners adhere to minimum advertised prices rather than using their products as loss-leaders and eroding decades of brand equity. In a recent interview, Stephen Kouri, VP of Sales at Smucker Foods of Canada, said, “We’re investing millions of dollars building our brands, to have them sold at prices sometimes well below our strategies leaves consumers wondering about our brands and makes us feel vulnerable. It’s a difficult situation.” These Canadian manufacturers are demanding the government establish a code of conduct to regulate retailer practices around pricing, one that would match codes that already exist in the UK and Australia.
What Are You Doing With Your 7 Minutes?
Retailers and their manufacturing partners need to work more closely together to produce joint value plans. This is not just around increasing product choice, most product categories are already overflowing with choice; but on high-quality shopper experiences. A study last year by Newsweek showed the average ‘digital native’ (a connected 20-something consumer) cycles through 27 different media outlets every non-working hour; they’re always connected, and when confronted with advertising they often shift to different content. Research also shows that consumers spend just 56 seconds on average on a web site. But according to a study done by Philips Retail Solutions in the Netherlands, the average retail visit is 7 minutes, and longer in grocery retail depending on the shopper mission. It amazes me to think about how much intellectual and financial capital is invested crafting a 30-second TV ad or building a web site versus what goes into enhancing the basic store experience – yet retail gets, on average, 7 minutes to engage and build a relationship with its customer.
As I’ve written in previous articles, if you’re a retailer, retailing – how you sell your products – is principally your brand’s ultimate value to the shopper. Boring shelf displays and bad lighting do not an effective brand make. Life for consumers is incredibly complex, and while some would argue there’s no such thing as brand loyalty (and the data sometimes bears this out), the idea that the retail experience can’t contribute to consumers willing to pay more should be unequivocally rejected. With the average consumer exposed to thousands of messages a day, with more choice than they can actually ever experience, leading retailers and their national brand partners have the resources to create true shopper value through more effective product curation, education, and a more seamless multichannel journey. Figuring out how to use your 7 minutes to differentiate yourself and create true value for your customers is the fundamental game changer you and your teams should be focusing attention on. Figure this out and you’ll have something worth advertising.