I bet reading this question most CPG marketers will immediately respond with a chorus of “Hell no, I determine my own brand strategy!”. But before you get too excited, let’s just think about the facts: For most, if not all, consumer goods companies, retail expenditure is the number one cost after cost of goods. In many cases 60% of A&P budgets now go “below-the-line”. Most companies struggle to contain a widening gap between gross and net sales. In many markets, getting a listing in key retailers is essential to ensure the success of a brand.
With all this in mind it’s credible to believe that for most marketers, retailers have a major influence on brand strategy. For some the power equation is so strong that retailers really do dictate brand strategy. Take for instance the role of Watson’s in China – many personal care brands, on wanting to enter the market, have chosen to offer Watson’s exclusive rights to distribute the product. Think a little about the power of Coles and Woolworths in Australia, where between them they account for over 80% of the sales of many CPG brands. Even in the US – a marginally less concentrated market is it inconceivable that, without the support of Walmart, many CPG brands could be successful. In all these cases, the power some retailers wield borders on strategic control over the brand.
Is this a bad thing? Surely retailers know best how to sell brands to shoppers and their council is important? Herb Sorensen, thinks differently. In a conversation we had with Herb whilst writing “The Shopper Marketing Revolution”, he told us:
“The fact of the matter is, many brands are laboring under the illusion that retailers have a clue in terms of what they’re doing in managing the shopping process, and they don’t, and it’s a serious problem.”
Herb’s point of view reflects a reality that many retailers are less effective at managing marketing than they are at managing money. Many manufacturers are anaware that retailers are first-and-foremost financial animals. The financial imperative for a retailer is not, as many manufacturers believe, to drive growth for their category, but instead it is to deliver returns on capital employed. It’s worth bearing in mind too that most retailers are really good at this, more so than their suppliers in the main.
This central financial imperative is delivered only by consistently enhancing margins, reducing inventory and driving growth – and only the last of these three has anything to do with marketing at a category level. This underlying drive is a constant source of frustration for marketers who come up with “great plans for retail engagement” only to have them knocked back because the retailer will always place her financial objectives ahead of anything else.
Driving brand strategy through retail
It’s time for marketers to become much more proactive in their attitude to retail. Retailers and marketers do share a common interest – increasing shopper loyalty. Granted for the marketer this is to the brand and for the retailer to the store. But, when marketers can demonstrate that their activities can improve retailer’s financial performance, they can lead the strategic agenda. To achieve this will require:
- An in-depth understanding of which shoppers are important
- A clear view of where shoppers can really be influenced to buy
- A definition of which retail channels are really important.
- Effective prioritization of retailers that leads to investments being made in customers that can deliver results.