What does marketing to Supermarkets and Pharmaceutical research have in common?

What does marketing to Supermarkets and Pharmaceutical research have in common?

Mar 13, 2019 | Branding, Governance, Marketing, retail

Quantifying the ROI of marketing investments remains the single most challenging task of marketers. While marketing costs  remain being seen as a variable expense, stuck in the monthly P&L , it will remain hostage to the whims of expediency, corporate politics, and short term thinking. The real KPI of marketing investment should be the sustainable margin delivered over a considerable time, as you would with an investment in machinery.

The obvious problem is that you can measure the output and productivity improvements associated with a piece of machinery, the numbers become available with use, although, they are all in the past. Marketing investment is all about influencing the future, and measurement, even with the benefit of hindsight is very hard, and useful only as a learning tool.

Is there something we marketers can learn from elsewhere?

The  Kaplan Meier curve is a basic concept used all the time by medical and pharmaceutical researchers. For example, if they are testing a new drug for say, patients with diagnosed terminal prostate cancer, you plot on a daily curve the lifespan of those on the test drug, and those on the placebo.

Assuming there are 100 patients in the trial, at day 1, all 100 are alive, then  you plot the numbers who remain alive daily with, and without the drug. If the plot line of those with the drug goes above the line of those without, you can imply the outcome of longer life, and you have some numbers to support the conclusion. If the line of those on the drug dips below the placebo line, you are killing patients. Lines that stay together indicate the drug has no impact.

Simple idea, widely used in medical research.

For years I have watched suppliers to supermarkets being screwed by those supermarkets, and increasingly allocating advertising funds aimed at brand building , which delivers margins over time to the brand owners, and indirectly despite the protestations to the contrary, to the retailers. This reallocation of advertising to working capital and margin via in store promotional activities, and supermarket profitability, at the expense of advertising, has been a huge mistake.

It has seen the demise of some great brands. To be fair however, consumers have benefitted by cheaper prices, at the expense of choice.

A few weeks ago,  the recently merged businesses of Kraft and Heinz, announced a disastrous profit result. This came about as progressively brand advertising that gave consumers confidence in the  brands has been redirected to price promotion that is the primary competitive tool of supermarkets. Meanwhile, those  same retailers have introduced house brands that look very similar, and that trade off the value proposition developed by Heinz and Kraft over many years.

The same thing has happened in Australia, perhaps more so given the concentration of supermarket retailing.

I was around as a junior product manager in the early  days of Meadow Lea brand building, at what was then Vegetable Oils Pty Ltd, a long gone business, swallowed up by corporate stupidity.

 ‘You ought to be congratulated’ is one of the great propositions of Australian brand building. In a hugely crowded margarine market, Meadow Lea held at its height, a 23% percent market share at premium prices, four times that of its closest rival. This was a direct outcome of a good product, great advertising, and a brand that delivered.

I had a look in a supermarket yesterday, and had trouble finding anything labelled Meadow Lea.

What happened?

Retailer power happened, combined with the lack of  understanding of the power of great brand building consumer propositions by retailers. Meadow Lea was squeezed by retailers for more and more promotional dollars that ended up  being funded by reductions in the brand advertising and building activity, with the end result that the brand in effect no longer exists.

It has become nothing more than a label!

I wonder where the  next market building initiative will come from?

Certainly not from the manufacturers, as they know that immediately they create a market the retailers will undermine it with cheap versions, so there is no value in the risks involved in the innovation necessary, and no reward.

Back to where I started, and I do not have the data for this, but I bet that applying a Kaplan Meier analysis to  the delivered margin from Meadow Lea over time, both to the now owners of the brand, and the retailers, would show that the allocation of brand activity to the low prices demanded by retailers had hurt everybody concerned, including consumers.

Image credit: Wikipedia

 

 

Is Amazon at it again, remaking retail in their own image.

Is Amazon at it again, remaking retail in their own image.

Mar 11, 2019 | Innovation, retail, Strategy

Amazon launched their ‘Dash’ button in 2015 in an experiment with Procter and Gambles Tide detergent, the monster of the category in North America. It is a one touch, one product order and delivery system that has succeeded, expanding to a range of 350 Sku’s in the middle of 2017 (latest numbers I could find)

Now Amazon  has withdrawn the Dash button from ‘service’. I guess the role played by the buttons is being overtaken by voice operated loyalty systems, largely Amazon Prime and Alexa, and on top, they were recently declared illegal in Germany for breaching consumer laws.

Killing off a successful service that was still growing at a very fast rate, but that was being replaced by a newer set of technologies is a logical move, but one only a company with the power of Amazon, who also owned the replacing technology space, would contemplate.

Clearly, Amazon  is now a technology and data business first, and being a retailer, where they started, is a very long second. 

They know more about many of us, our habits, preferences, and foibles than we know ourselves, and have that knowledge stored for analysis, retrieval and action by emerging AI functionality. They also know that we are not looking for a wide range of choice, despite what we say, that just confuses us and actually reduces purchase. We instead want certainty. 

Put all that together with the now 472 FMCG Distribution locations (450 in the US) Amazon has via the purchase of Whole Foods,  and you have the potential for Amazon to anticipate what we might buy, shape it by adding usage tips, recipes, and thoughtful additions, all in a box that delivers to your door. It combines operational and logistic efficiencies with maximum margin to Amazon while wowing customers.  

Suddenly the withdrawal of the dash button makes more sense than ever, as in the supply chain of the very near future, it would have been just another point of friction.

Meanwhile, Coles and Woolies are tarting up their Deli sections in stores my now three year old granddaughter will probably never visit to do her shopping as an adult.

 

 

 

 

 

 

 

Where is the gap to be filled in retail?

Where is the gap to be filled in retail?

Mar 8, 2019 | Customers, Marketing, retail

The range of retail format options is huge and multifaceted.

At one end of the continuum you have pure on-line retailers,  to full service bricks and mortar retail at the other, and everything in between.

It is the ‘everything in between’ where the development is happening, and the opportunity lies.

Apple ‘Zigged’ when everyone else was ‘Zagging’ and spent a decade and billions of dollars opening retail stores. While they are now the most successful retailer in the world on a turnover/square foot basis, the reason was more about brand building over the long term than just retail revenue. Brilliant.

Amazon has been the catalyst to the on-line gold-rush, but you have to ask yourself are they are retailer, or a data business first? They started as a retailer, simply using a different channel, but to enhance their position they have evolved into a data company that uses on line channels to sell and deliver product.  With Amazon Go, they have combined bricks and mortar retail with their data capabilities, which can only become more important as they evolve their purchase of Whole Foods.

Meanwhile, B&M retail is either hunkering down, cutting costs, and generally moaning about how on-line sales are cutting their margins, or investing in their businesses, some by increasing service levels, others by setting about ‘digitising’ to compete.

Any way you look at it, the gap is in the middle.

That gap will be rapidly filled by deploying digital tools already available, or in development, based it seems on two rapidly converging technologies:

  • Facial recognition, powered by our on line profiles and pattern recognition software, and
  • Location definition powered by our devices and GPS.

Amazon Go is able to recognise and record stock movements from the shelf to your shopping basket, and back, as it happens, and debit your card with the purchase. It is a small step to use facial recognition as you approach a store, or product category while inside the store, and match that with your previous purchase patterns to make exclusive, and immediate offers to you tailored to your history.   You do not need to be Amazon go to deploy the second part of that scenario, you just need the facial recognition and location data connected to your purchase history, and perhaps purchase intent identified by browsing history.

This combination of location, facial recognition, purchase history and browsing patterns will be the game changer in the current gap.

The question to be answered is how we as members of the public and consumers feel about this complete exposure of what has been to date private. On the one hand we seem to want the convenience and immediacy it can deliver, but on the other, remain very wary of offering up our privacy to the unknown forces that can tap the data in ways never expected or sanctioned.

However, I suspect the horse has bolted, and the gap will rapidly  be filled!

Photo credit: Kristian Dye via Flikr

When price becomes almost irrelevant.

When price becomes almost irrelevant.

Nov 1, 2018 | Marketing, retail, Sales

Price is just an arbitrary scale for the ‘unquantifiables’ which has only two functions:

  • it is a reflection of the amount someone is prepared to sell something for.
  • It is a relative measure, helping you to make purchase choices by giving you and the seller a constant scale and language to reach an agreed point of exchange.

How often do you choose a restaurant because it is the cheapest?

You might decide to go Italian, or Chinese, then decide which one. You decide on a variety of factors, parking, quality of the food and service, are they licenced, who is it that is going with you, is it a special occasion or just a meal. The conversation in your mind goes on and on, often almost unnoticed.

Why is it then that we tend to make major commercial decisions on price?

Almost every  time I am involved with a client in a commercial purchase decision, one party or another uses price as a major point of choice and often leverage

Why?

Few people buy purely on price, and often you would not want them as a customer anyway, so why let them hammer you down?

Think about the value, what it is that the product or service is delivering, how it solves a problem, how it reflects the image to be projected,  how it fits in with everything else going on.

Price is just a means to come to a point where the value can be exchanged.

Value is what is important, price is just a way of converting value to a common language.

Next time you  are being belted about how high your prices are, agree, they are high,  but they deserve to be because of the value delivered.

Just talk about the value.

Talk persuasively about value, and price will become a result, not a driver of the decision.

The real challenge is to figure out how to do this in a situation where the other party has all the power.  A small supplier selling to one of the Australian supermarket gorillas has little leverage, the definitions of ‘Value’ will never be easily reconciled, so the hard choice is to walk away, and deliver value to  customers outside the supermarket system.

Header credit allanandallen.com

Future retail success will come from ‘Organic Intelligence’

Future retail success will come from ‘Organic Intelligence’

Oct 24, 2018 | Change, retail

 

There is some really interesting and contradictory stuff going on in retail.

On line shopping is continuing to expand at breakneck speed, so we are told. According to Statista.com the current percentage in Australia is 7.2%, but the percentage varies enormously from very little to an astonishing (estimated)  19% in China.

Small brands are being created, that rapidly become big brands, such as Shoes of Prey, that would not have been able to get off the ground pre internet, and bricks and mortar retail is struggling, going out of business at a rapid rate.

The latest casualty is Sears, the ‘Amazon’ of a former era, started in 1886 by Richard Sears, selling watches on the side of his day job as a railroad station manager. After the first catalogue was produced in 1896, to bring access to goods to the widely spread American population, Sears expanded geometrically. It was an entirely mail order operation, ‘analogue on line’ until the first store bricks and mortar store opened in 1925 adjacent to the distribution centre. The  following rapid spread of stores, saw the end of ‘Mum and Pop’ stores around the country, who could not compete with the range or prices that Sears offered.

Sound familiar?

Sears became a huge diversified business, accumulating a huge property portfolio as well as associated businesses and brands they owned, but it started to unravel in the mid 90’s, just as ‘Big Box’ retailers moved in, and the net evolved as an alternative channel.

Now we have Apple and Amazon investing billions in bricks and mortar stores, re-imagining them, but they are still bricks and mortar, and they are profoundly successful.  Apple, on a sales per square foot basis, the standard retail KPI, is the most successful retailer in the world. Amazon effectively acquired Whole foods for nothing, paying $US13.6 Billion for the chain, then seeing the share price rise in the following days by more than that amount on the back of the purchase. While Whole Foods is yet to make the expected profits, it is early days. On top of that you have Amazon bookstores and Amazon Go carving out a niche.

When the two most innovative and successful  retailers in the world double down on a business model, it might be worth a close look, and when it resembles an older model, but is clearly superior, that examination should be very thoughtful indeed.

The factor that has driven the success of Amazon, and all other on line retail, is Artificial Intelligence. The ability to write code that can trawl through mountains of data, identify patterns, and alter the output as a result of that recognition. They get better with use, but within the boundaries of the algorithms.  The factor that made Sears, and all other analogue retailers successful over the years, and has taken Apple to new heights, is the opposite side of the coin.

Organic Intelligence.

That ability of human beings to exercise empathy, and make connections an algorithm cannot yet make, and perhaps never will.

Apple and Amazon are learning to use both together,  and are streaking ahead as a result. Meanwhile, those legacy retailers who have not figured out AI are struggling, and more often than not, reducing their investments in Organic Intelligence as a short term means to reduce costs, so assisting in their own demise, as did Sears.

I wonder of any of the legacy retailers in this country will still be around in a decade?. To me it looks like the only one in the FMCG market that has demonstrated an understanding of the power of Organic Intelligence is Harris Farm.

 

 

 

 

 

What is the future of FMCG brand loyalty?

What is the future of FMCG brand loyalty?

Jul 16, 2018 | Branding, Marketing, retail

 

A few things have happened in the last few weeks that made me ask that question.

  • Coles MD John Durkan articulated a clear strategy for house brands, to build them at the expense of proprietary brands. I cannot help wondering if his successor will follow through.
  • I received a package from Amazon full of books, ordered in front of the new GST regime that came in on June 1, and it was covered with ads for Amazon Prime, which is now arguably the most successful loyalty program on the planet. At the time I was surprised, but then a day or two later, I realised they had launched in Australia.
  • Another small supplier to FMCG, a formerly successful business in a country town that had been around for 25 years, with a small but seemingly loyal consumer base, quietly packed it in. In the scheme of things a relatively insignificant event, unless you happen to be one of the people who have worked there for ages, and now find yourself unemployed and unlikely to be re-employed in your home town.

There is  no doubt the trend towards house brands across all categories of consumer spending will continue as retail supply chains become more transparent and global. Consumers are in a position to make judgements on the value they receive based on information from a variety of sources, not just on a label. Combined with the increasing necessity to pro-actively manage their spending, why would they not go for a cheaper item that delivered similar characteristics to a proprietary brand?

The driver of the change is digital. It is revolutionising the way consumers shop, by delivering them information that disrupts existing brand equity relationships. Consumers are now way less tied emotionally to brands, simply because they no longer have to be in order to feel confident about themselves and the quality they will get.

The ‘brand trust’ needed in the past has been replaced by access to information.

Retailers from FMCG to all forms of specialty retail see this. They are setting out to replace the consumer preference for product brands with a preference for their retail brand. Pretty much a strategic no-brainer when you think about it, but hard to deploy, simply because consumers do like some choice, and they recognise the retailers self interest in housebrands.

Mr Durkan points out that in some categories, the Coles house brands have a 50% market share, and seems to wrongly equate that number to consumer preference. In fresh produce, this number would be more like 95%, (I do not have numbers, this is a guess based on what I see) simply because Coles, (and Woolies) have not allowed proprietary produce brands onto their shelves, with very few exceptions, almost from the beginning.

This is not  driven by consumers, this is driven by  the strategy to capture the proprietary margin. If you are a shareholder, particularly of Woolies over the last decade, it has been a good outcome, but for a shopper, not so good. When was the last time you bought a plum in Coles that did not taste suspiciously like a cricket ball?

In FMCG retail, the driver of the change has not been digital, that is just an enabler, the real driver is Aldi, whose growth has hit the gorillas hard, and they have yet to find an answer. Aldi is a retailer, just like Coles and Woolies, but with a limited range, all housebrands, with a very few selected exceptions  like Vegemite and a few Arnott’s lines. This is not digital, it is a different business model, and neither of the gorillas has met Aldi on their own ground.

It is easy to be smart with hindsight, but here goes.

Woolworths responded to Harris Farm, and the move towards ‘specialty and fresh’ with Thomas Dux, initially very successfully, then screwed the pooch by not keeping it separate. Had they persisted, they could have built a very profitable and sustainable business, on a different platform to Woolworths.

The same opportunity offered itself in discount retail. It was not as if there were no precedents! I am old enough to remember ‘Jack the Slasher’ stores that stirred the pot  probably  35 years ago, Franklins, Jewel, and others. Discounters do work, they do attract customers. Aldi has just done it better than its forebears by eliminating transaction costs, and keeping overheads at a minimum.

The problem Coles and Woolies have is one of identity.

They are used to being all things to all people, and cannot conceive of a situation where consumers reject the idea. By eliminating proprietary brands, they are also eliminating one of the paths to differentiation and some level of intimacy with their customers, which will turn out to be a  bad mistake.

My view is that it is much harder now to develop a brand that builds and retains consumer loyalty than it has ever been, but then greater rewards will go to those who succeed. Those that do succeed will do so outside the ever decreasing  reach of the current retail gorillas, who will become increasingly challenged by both technology and new channels to the consumer.