The late retail expert Peter Glen ran a New York gift boutique that completely changed its interior design every month. Not just little changes, but a total makeover every month. It made the store a destination in its own right, as people flocked through the doors each month just to view the latest new look.

Is your business an attraction in its own right?

Do your customers shake their heads and say “you folks are incredible”?

What can you do to make your business an outrageous attraction?

Think about, and then swoosh – just do it!

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The US National Retail Federation’s Shop.org arm, which concerns itself with matters ecommerce, tells us in its latest Smart Brief email update that:

• ‘One-third of retailers plan to add “buy online, pick up in store” capabilities in the next 18 months.’ [Shop.org SmartStat March 23, 2009. Source: Retail Horizons: Benchmarks for 2008, Forecasts for 2009]

Um, sorry to be rude, but what took you so long?

Forrester Research identified the trend as far back as 2004, slapped a label on it (’Cross Channel Shopping’) and issued their usual comprehensive report on the topic, in this case “The US Consumer 2004: Multichannel and In-Store Technology”.

Even back then, it was a pretty big deal to retailers. In 2004 cross-channel shoppers spent an average $458 on products they researched online and bought offline. Just as importantly, when they did hit the offline store, 47 percent ended up spending more, $154 on average for additional products. That’s a lot of money to leave on the table for five years.

The numbers have only grown since then. BIGresearch’s June 2006 Consumer Intentions and Actions Survey was reporting that “87% of consumers research products online before buying them in person or in a store.”

DO AS I DO, NOT AS I SAY

There’s something of a cognitive disconnect involved in this whole ‘research online, buy offline’ process, as exemplified by a May 2008 Nielsen Online MegaPanel survey.

According to the survey, consumers say they would rather buy a “high consideration” product like a consumer electronics product online than in a local store, primarily because of price. Over two-thirds of consumers say that they could get a better price online than in a local store and fully half believe it is easier to compare prices online. Other reasons cited include: getting convenient at-home delivery (45%), comparing retailers (41%), choosing from a much broader selection (40%), accessing more product information (40%), and reading consumer reviews (37%).

However the reality is somewhat different. When it comes to check-out, consumers are actually twice as likely to make a consumer electronics purchase in the local store (59%) rather than online (31%).

Why?

Reasons cited in the Nielsen Online Megapanel Survey:

• 58% wanted to physically evaluate the product before purchasing
• 52% didn’t want to wait for the product to ship
• 43% didn’t want to pay for shipping and handling
• 27% wanted to talk to a sales person in person, before purchasing
• 23% thought they could get a better price in store
• 14% weren’t sure anyone would be home when the item was to be delivered
• 11% wanted to support a local business

Nielsen’s conclusions from the Survey (as noted in their September 2008 Consumer Insights newsletter) make a whole lot of sense and are well worth repeating in full:

Whether consumers buy online or in-store, multi-channel shoppers are big spenders. In fact, Nielsen found that consumers who shop both online and offline are the most valuable. Looking across a mix of brick and mortar retail channels, multi-channel shoppers spend 57% more at CVS, 61% more at Walgreens and Costco, 38% more at Walmart and 37% more at Sam’s when compared with the average spending of consumers who exclusively shop online or only shop offline.

Complementary cohorts
Nothing is quite like the actual in-store experience for some products—the ability to physically evaluate a product or speak to a knowledgeable salesperson can literally make or break a sale. On the other hand, the convenience of visiting a much broader selection of virtual retailers to compare and contrast pricing and capabilities without ever leaving home is, well, simply priceless.

Clearly in-store and Web channels complement each other—the combination of the two has absolutely become table stakes for successful retailers. In fact, Nielsen found that 80% of consumers actually purchased a consumer electronic product from a local store whose web site they visited as they were doing research online. Striking a balance between online and in-store can lead to a big payoff.

The source of choice
Perhaps for a “high-consideration” category like consumer electronics, it is no surprise that the Internet is the source of choice for 58% of consumers if they were only able to use one resource to support their next purchase. A visit to the local store trailed way behind as the singular option for 25% of consumers. However, in the case of a “low-consideration” category like pet food, where 44% of buyers visit the web site to learn about food or issues related to pet food, it is important for marketers to understand how to employ an active crossover strategy by engaging the consumer more successfully online.

And unlike consumer electronic buyers where price is the motivating factor for going online, 48% of pet lovers are more interested in learning about nutritional specifications. Learning about product ingredients and recalls were a close second for 45% of pet food buyers. Other factors include learning about safety issues and finding sales and promotions (40%), evaluating and comparing prices (36%), finding a local store (25%) and reading consumer reviews (16%).

Learn from the best
Some retailers are making the most of their web sites as a destination source to engage consumers. Best practices include Safeway’s printable recipes linked to shopping lists, Best Buy’s in-store inventory availability check, Walmart’s site-to-store free shipping option, Lowe’s “how-to” content information, and Kraft Foods’ recipe availability from six different downloadable platforms. Offering great product- and category-level content is the critical foundational element to make multichannel retailing most successful. Key pieces of content must be portable and enable easy printing.

Making it accessible via mobile and in-store devices is a plus. The bottom line is this: give consumers a multitude of ways to reach your product and remain agnostic regarding in which channel the ultimate purchase is made. In doing so, you not only build customer loyalty, but you boost the bottom line as well.

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A typical city in ancient Greece had a large open area (the agora) where local merchants could set up displays and sell their products. Merchants of similar goods had shops together in a specific area in the agora, not unlike today’s shopping districts in major cities around the world.

As you might imagine, such clustering, while convenient for the customer, made life extremely competitive for the retailer. When a new shipment of ivory arrived from North Africa the ivory merchants would cry out loudly to passersby, proclaiming the merits of their particular offerings. Bustling, noisy and chaotic.

Inevitably, those merchants who understood and developed a long-term relationship with their customers – so that they could minimize having to shout out all the time to gain attention – were the most likely to prosper. Which households needed and could afford new linens from Egypt or spices from Syria? Which Athenians had just bought new slaves and needed extra stores? Send a runner to connect with the customer. Call it the earliest beginnings of the CRM process.

The drive to understand the customer continues. In April 2007 the Economist Intelligence Unit conducted an online survey of 180 senior global executives from the retail industry, querying respondents on their current and planned strategies to understand and anticipate customer needs. The resulting data has been captured in a special report sponsored by SAP, “Intelligent Merchandising: Creating a Unique Shopping Experience”.

To customers bombarded with so many products and experiences, it’s the brave retailer who can claim to offer anything unique by way of merchandising or customer service. So just how do retailers try to hook customers with fresh, unusual and relevant shopping experiences?

The Economist Intelligence Unit started with customer loyalty, asking about the single technique most used by retailers to identify and understand their best customers. The most-cited results:

• 40% Tracking of purchasing records through loyalty cards (recency, frequency, monetary value)
• 26% Formal use of surveys/questionnaires at point-of-sale (POS)
• 15% Analysis of participation in incentive contests and programmes (eg, promotions)
• 9% Analysis of dispute resolution (eg, returns, pricing errors)

To all intents and purposes, though the labels may be different and the technology a little more advanced, these are the same CRM techniques used instinctively by those long-departed Greek merchants to identify their most-favoured households.

There’s nothing much new in the “encouraging customer loyalty” toolkit either. Loyalty-enhancing strategies used by more than half the respondents were introducing new products (63%), local store activities (56%) and targeted discounts for specific customers (52%).

Other popular loyalty-focused initiatives included:

• 48% Incentive programmes for repeat purchases at the POS (eg, cards, clubs)
• 37% Off-site incentive programmes for repeat purchasers (eg, rewards, discounts)
• 29% Follow-up phone calls to customers after significant purchases
• 41% Customised promotions based on past purchases
• 42% “Special customer only” events and promotions
• 46% Targeted advance notification for sales and promotions
• 19% Special e-mail discount codes for best customers

Once again, the methodology may have changed but the customer service principles remain eternal.

Measurement
Communicating is one thing, but measuring the success of that communication is another. The Economist Intelligence Unit asked respondents what measures they use to track the success of promotions. The top two responses were somewhat intuitive indicators—customer satisfaction (55%) and customer retention (52%)—while the eminently measurable sales per square meter of retail space/week (40%) offered a strong statistical counterpoint.

In-store traffic (31%) and customer opinions (31%) are still perceived as important indicators, emphasising the heavy reliance that executives place on sales staff. This dependence on the lowest-paid member of the retail organisation as a reliable observer of customer behaviour is a conundrum of contemporary retailing.

Despite the number of advanced data collection technologies available, the sales associate is still the retail organisation’s number-one ambassador and data collector, so the acquisition, training and retention of appropriate help is a critical element in the strategy of any successful merchant. Just can’t get good slaves.

Winners & Losers
The Intelligent Merchandising report even goes beyond the numbers, drawing on the cumulative statistics to create fascinating profiles of retailing winners and losers.

Merchandising Leaders:

• Create trends
• Lead their customers
• Push the envelope in product development
• Cold heartedly kill the dogs
• Encourage responsible risk
• Expect a great deal
• Strive relentlessly
• Have swagger and bravado

Tired merchandisers, on the other hand:

• Wait for customers to accept trends
• Merchandise based on history
• Rely on line extensions
• Are risk averse in product development
• Focus on the fact that most products fail
• Make excuses for the dogs
• Carry too many unproductive SKUs

If you want to find out more about CRM techniques in Ancient Greece, may we recommend a visit to your local library. More up-to-date customer service insights, however, can be found in the Intelligent Merchandising report, which we share with subscribers to MARKETING RAG.

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The Coca-Cola Retailing Research Council Europe (CCRRCE) is an organization dedicated to the development of a better understanding of the food retailing and allied merchandise distribution business in Europe. The focus of its energies is to identify and then to study selected critical issues and, when appropriate, to present the findings in a suitable forum.

The most recent study (June 2007) released by the CCRRCE is “The Inflection Point” – a report on signposts or predictors of impending change in the marketplace, how to spot them and what to do about them. As the report notes, “there are points in time in the evolution of markets when an Inflection Point is reached that predicts or even dictates changes in retail practices. Failure to recognise or respond to changes in observed or predicted consumer behaviour, market conditions or opportunities has often spelled disaster for retailers around the world.” No pressure, then.

Six impending Inflection Points identified through the study include:

Age of Wellness
An explosion of consumer interest in Health and Wellness issues, resulting in significant shifts in product mix, services and sourcing for retailers. Pushed to its extreme, we may see a world where every product has to be able to broadcast some sort of wellness benefit. The first retailers who figure out a way to integrate the larger concept of wellness into their business will turn the market to their advantage.

Format Frenzy
An increasing number of formats will be developed and managed by retailers as a way to respond to the fragmentation of both consumers and shopping occasions in their core markets. One size no longer fits all. The impending ‘death of the traditional hypermarket’, as we know it today, will force retailers to venture into new formats and to discover new functions for their asset base. Retailers who wish to grow or maintain market share will have two basic segmentation schemes: 1) by format size and 2) by format purpose. The Inflection Point will come either when one retailer manages to perfect one format, effectively becoming a format ‘killer’, or manages to create a brand which seamlessly stretches from kiosk to super-centre to virtual store.

Greentailers
Some retailers will emerge as active agents of social and environmental change, taking a pro-active role in protecting the environment and leading the charge on accountability. All retailers will have to be able to prove their environmental and ethical credentials. Currently a point of differentiation and the license to charge a price premium, the demonstration of environmental/ethical behaviours along the whole supply chain will evolve to become a hygiene factor. The ethical standard will constantly shift, following the market leaders and consumer and media demands.

Micro-tailing
Retailers will have the ability to customise the assortment and service proposition in their stores through the use of consumer insights, ultimatelycreating ‘unique’ stores for their customers: ‘MyStore’. This will be achieved through the development of the right format to fit each community and the tailoring of the assortment in that format. Mastering and applying precise consumer insights on a localised basis will be essential in these executions.

Branded Retail
Select retailers will be capable of elevating themselves to the status of true brands through unique assortments, differentiated marketing messages and an unmatched competitive position. They will effectively become a “market of one”, creating a sustainable competitive advantage.

Techno-change
Technology breakthroughs which allow relevant information transfer across platforms and systems along the supply chain right up into the consumer space will provide a sustainable competitive advantage for companies who back the right technologies and invest early. Technology breakthroughs will help substantially reduce the costs of doing business and provide consumers access to products in new and different ways.

If you’d like to future-proof your organization against these potentially-fatal disruptors, check out “The Inflection Point”. We do happen to have an electronic copy of the study, yours for the price of an email.

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There’s a wonderful, iconic statistic — seemingly unsupported by anything as trivial as hard data — claiming that “70-75% of all purchase decisions are made by the shopper as he or she is actually walking around and shopping”. It’s a figure we’ve seen bandied about many times, largely by those promoting Point Of Purchase marketing solutions.

A related figure, this one supported by a US study by the Prime Consulting Group, concludes that “at-retail advertising drove additional sales 70% of the time”. That strikes us as significantly more credible, as long as you broaden the definition of “at-retail advertising” to include price-tags, packaging and all the normal tools of the retail trade.

Whatever the numbers, however, one thing is clear: there’s a serendipity factor involved. Shoppers come into a store to buy Product X but happen upon Product Y and add it to their list. Retailers can afford to promote loss leaders (and indulge in other expensive promotional tactics) because they count on and budget for this effect.

Ecommerce operators try hard to trigger the serendipity scenario, but it ain’t that easy. Even Amazon.com, masters of the “people who bought this also bought …” software, struggle to interest destination shoppers in peripheral opportunities.

Enter the social shopping networks. As reported in the New York Times, sites like ThisNext.com, Kaboodle.com, Wists.com and StyleHive.com are spearheading a new category of e-commerce called “social shopping,” that tries to combine two favourite online activities: shopping and social networking. The sites are hoping to ride the MySpace wave by gathering people in one place to swap shopping ideas.

How does it work? Users who register with social shopping services typically create their own pages to collect information on items they find. But instead of simply describing what they have found on other sites and posting a Web address, they can download a piece of software that allows them to grab images of those products to post on their own shopping lists.

In effect, these social shopping networks are trying to harness the “recommendation engines” of early adopters, to create a network of influencers who do the product finding and then bring their choices to the attention of the community at large. The result might be more compelling if they weren’t so blatantly commercial in their intentions — the sites expect to generate revenue through a mixture of context-sensitive advertising and sales commissions.

We suspect that the current crop of startups will struggle to sustain a user base — who wants to be a shill for others to exploit? But somewhere in a garage in cyberspace there’s bound to be an idealist who’ll take the concept and make it work — accidentally creating a very valuable property while serving the greater good.

Serendipity in more ways than one.

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New U.S. private label research from ACNielsen, Daymon Worldwide, DemandTec and McKinsey, released earlier this month, aimed to demonstrate how retailers can build profitable customer loyalty and competitive differentiation though private label brands.

Key insights (from the portion of the study developed by ACNielsen):

1. Retailers with greater focus on private label (i.e., those with higher overall private label shares) are effectively shaping more positive consumer attitudes towards private label products and encouraging more solid buying behaviours as a result.
2. While heavier private label buyers offset “branded” spending with private label spending, they are in stores more often, buying both private label and branded products, providing retailers with opportunities to drive store loyalty.
3. Heavier private label buyers offset branded spending with private label buying – enabling consumer savings and allowing retailers to compete in a “value-oriented” environment.
4. Study findings suggest an opportunity to narrow existing price relationships between private label and branded products.
5. Consumers who spend the most at retail have a weaker private label commitment, but these are also the consumers where private label sales opportunities are the greatest – suggesting a need for greater focus on premium private label offerings.
6. Private label is no longer limited to the historic buyer profile of low to middle income, blue collar families. Nielsen see high buyer development in households with US$70,000 plus incomes, particularly among households who are top-spend private label buyers who shop in retailers with strong private label commitment.

Consumer Attitudes towards Private Label

Private label is in a position to compete on quality with national brands:

• Up to 85% of top-spend private label buyers say they are a good alternative to brands
• 59% of consumers say they are “just as good”
• One third of consumers state that some private label items have “higher quality” than brands
• 4 of 5 consumers think private label products are acceptable when quality really matters

Improvements to private label packaging are paying off:

• Even low-spend private consumers have a positive image of packaging
• 9 of 10 consumers say they feel comfortable serving private label to their guests

Consumers have positive attitudes towards private label’s value proposition:

• 2 out of 3 consumers believe private label is “an extremely good value”
• Consumers feel that private label is no longer for ‘lower income’ families
• 73% of consumers do not think brands are worth the extra price
• 36% are willing to pay the same or more for private label items they really like
• About half of consumers compare private label prices between retailers

Opportunities to expand private label assortment:

• Almost half of consumers state they would buy more private label products if a larger variety was available

ACNielsen’s recommendations as a result of the research:

• Private label provides retailers with the ability to compete in a “value-oriented” world & drive store loyalty
• Stop thinking about price gaps & start aligning private label pricing to reflect the quality of your private label offerings
• Expand or enhance your private label products to target demographic segments & attract most valuable shoppers

Encouraging news if you’re a retailer. But if you’re a branded product manufacturer, the news seems grim. How did this happen? What can be done? Australia’s Assent Consulting tackled the issue three years ago, in an article in their FAST journal of October 2003:

Clearly the branded manufacturer’s position is not as strong as it was. How did this happen?

There are a number of reasons.

1. Manufacturers haven’t really mounted a response to economy category generics. Many have simply gone into denial; it is still not uncommon to hear complaints along the lines of “It’s not fair – the battle for the consumer is fought in-store and they are giving their brands disproportionate shelf, time and focus.We can’t compete with these margins!”
2. It has been put in the too-hard basket.
3. Marketing has, in many cases, foisted it onto Sales,and vice versa.
4. A number of manufacturers have believed their so-called strategy was to make Private Label themselves. (The Harvard Business Review of 1996 said quite clearly, “If you aren’t making Private Label now, don’t start”.)
5. The decline and fragmentation of traditional mass media – in both reach and effectiveness – is an acknowledged cause. It is no longer easy to plant authoritative messages in consumers’ minds with an obvious ROI.
6. A lot of manufacturers believe that the aspirational quality, emotional benefits and image cues they have built up through years of advertising can never be replicated by Private Label – yet the introduction of Private Label into mainstream categories is challenging this. Most at risk, consequently, are second and third tier brands since they lack these image and quality cues.

So what can be done?

There are several strategies, most of which are not new. However, the six reasons outlined above, as to why it happened in the first place, contain the real answers to the problem. In many ways, retailers are simply a strong competitor who is brilliantly copying established innovators. So, the solution is clear – more product and sales innovation, more quickly, to a higher quality. Radical strategies such as diversification into new channels, or NPD, will then back up traditional brand strategies.

However, denial, the too-hard basket, Sales versus Marketing, arrogance as to brand strength, as well as lack of insight as to consumers’ real view on large companies (particularly overseas ones), have allowed a succession of marketing directors to ignore the problem. Here’s how to start the comeback.

Brand management versus product stewardship
If the category is full of products with no emotional benefit, no aspirational quality and therefore no image, it is obviously at risk from (1) any kind of competitor and (2) strong retailers in particular. Therefore, brand strategies (not line extensions, sales strategies or a few hastily cobbled together promotions) are essential. This means that good brand managers must have a good process, and rather than ducking, everyone in the organisation above their level should support them in addressing the opportunities and threats they have identified.

Portfolio strategy to support brand strategies
Brand strategies must be complemented by portfolio strategies. A typical CPG category contains six large sub-categories.

• First, there is the super premium category – probably not large volume in grocery, very profitable, generally imported.
• Then there is premium –while marketers are busy making this, the salesforce are often busy getting it on frequent and deep discounts so that it can become mainstream. While this tactic has merits in encouraging trial and shifting lots of pallets, it has to be done sparingly. The premium category will have a good price premium, may have authentic local cues or may be from overseas. It will be chockablock with real (emotional) brands.
• Then comes mainstream. Often the largest, again contains good strong brands with good blue-collar socio-economic cues, sensibly priced, often discounted. This category can be very cluttered.
• Value is another often cluttered category.
• Next is economy which is the heartland of the original Private Labels. Its cues: large pack sizes, ‘buy one get one free’, banding together of packs. The consumer who regularly buys only on promotion is particularly strong at this level.
• Finally, there is sub-economy. Budget and No Frills are familiar brands here. Until now, only the courageous have shopped at this level, or people who are or have to be genuinely bargain-obsessed.

Many manufacturers simply don’t segment in this way. While it isn’t the only segmentation model that should be used, it is the most fundamental model for running health checks on your category.

If you don’t have real (emotional) brands playing in all these categories, you will be under attack from any kind of competitor. It follows that if you play in economy, you must have an economy brand, and if you play in mainstream, you must have a mainstream brand. Brands are often associated only with premium categories. Not so. Some of the world’s most powerful brands sit in mainstream. It can be argued that McDonald’s, for example, sits across mainstream and value categories.

Winning in the portfolio, and in the category
So, it is essential that as well as having a portfolio of brands across the key categories, you have brand strategies in each. You can be as aspirational in lower-value categories – for example, I am a thrifty Mum – as you can be in premium or super premium – for example, don’t I look good eating, drinking this? If branded manufacturers do not field a brand in the value or economy category, a competitor (retailer) will!

Good news
The good news, from a strategic perspective, is that retailers are copying the established leaders. True, they may be playing unfair in-store with shelf space, facings and obvious priorities. True, they are now advertising. But they are copying. So, if they have copied product quality, if they have copied packaging quality, if they have copied advertising, then obviously the way to address this must be – to borrow from Edward De Bono – sur/petitious. Sur/petition is leaping over the competition.

If your next sur/petitious idea is not around yet, getting it should be top priority. How about a new processor manufacturing technique that gives some capability, that will take at least three or four years for the competition (including the retailer) to copy? A core competence in generating better creative is much more likely to succeed than “Let’s hope this year’s advertising does the trick”.

If you have not yet discovered an emotional benefit to build on the functional benefit of your product, this must also be top priority. For example, if your product genuinely does taste better, it’s time to turn up those messages about discerning consumers, how the difference is important, and get into competitive advertising/communication. If you believe that value (the functional benefit – “I buy it because it saves some money”) will help you build a sustainable strategy, then bring in an emotional value benefit now. Emotional value cues come as: nurturing, being clever with money, stretching the budget, being a good Mum, getting one over on the big boys.

Sounding too hard?
Already, this will be sounding too hard. Most strategies in CPG are too hard. By definition, CPG is so intensely competitive, with such low barriers to entry, such focus and reliance on a few key retailers, and such established manufacturing technology, that keeping your brand different and real is always in the too-hard basket!

Think of it as seeds and harvest. By continuing to brand-build the way you have for a few key brands with budgets concentrated on these and no alternative form of brand development, firms are in effect continuing to harvest the ideas built many years ago.

Retailers still get us in-store
True, there is little sense in forward-thinking marketing strategies being put in place if you don’t have talented key account managers to keep banging the drum. Key Account Managers need to be involved at the portfolio level of strategy. They need to be goaled, motivated to prevent down-trading from premium to mainstream, and so on. They need their own strategies and tools to persuade retailers of the (obvious) benefits of true emotional brands.

We can do this
As with so much marketing, this article basically recommends that the strategies that have worked so well in the past should be reviewed and re-engineered. Where it goes one step further is in the urgency that is required. If brands cease to own (through continual innovation) every aspect from flavour/efficacy/performance, to aspirational image/quality, to the way they dialogue with consumers, the industry will change irreversibly towards store brands. There will be more CPG people working for retailers, there will be fewer second and third tier brands and SKUs on the shelves, and the consumer will become loyal to their retailer brands.

Is this really something that CPG CMOs can continue to put in the too-hard basket?

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