How Shoppers, Shopping Behaviors And Retailers Have Changed


Shopper Marketing RevolutionWhen Mike Anthony and I started writing “The Shopper Marketing Revolution” in 2009, the world was a very different place.  In our book we set out to define a new marketing model for the consumer goods industry. In 2009 we felt the need for this change had become extreme. We saw that most companies with whom we worked with were applying a classical approach to marketing their brands. This traditional model seeks to create massive awareness through traditional media and to convert this awareness into sales through extensive retail distribution. By the end of 2009, this model was under extreme stress as media had become ‘hyper-fragmented’ and retailing had become dominated by a small number of global players.

In the four years it’s taken us to complete the book the entire landscape in which consumer brands operates has changed more dramatically than we expected. The global adoption of smartphones, the ubiquity of social media and the transformation in entertainment that services like youtube.com and youku.com has provoked has, in effect, democratized media with both positive and negative effect.

Whilst it’s now possible to finely target and focus messages on key consumers it has also become increasingly difficult to define, locate and communicate to the right people; many marketers continue to make the mistake of applying a mass media model to the digital world.  As hundreds of companies clamor to reach similar market segments the cost of media overall is growing faster than ever. IBM suggests that media costs in the first decade of the century inflated at 5.5% per annum. PWC’s research indicates that in the first 5 years of this decade, cost inflation will grow at nearly 10% a year.

In 2009 the march of e-commerce had long since begun and purchasing airline tickets and hotel rooms online was common practice. In entertainment, Amazon and iTunes were already significant players but e-commerce was only just beginning to affect consumer brands. Looking back over the last four years it’s startling to reflect on what’s changed. The book-selling industry in developed economies has swung hugely online, as has the market for video and music. The list of businesses that have died in these markets includes household names like Woolworths, HMV, Tower Records, Virgin Megastores, Blockbuster Video and Borders.

In the last two years this increase in online purchase has begun to affect consumer electronics significantly. This is a global phenomenon. In China leading retailers Gome and Suning both limped through 2012 in the face of fierce competition from online and Media Markt this week announced its departure from China. This now has a significant impact of some of the largest consumer goods companies in the world (think Samsung; Panasonic, hp and Sony). It has also led to major restructuring of the trade in developed economies; the UK for example has seen the closures of Comet and Jessops in the last two months alone.

It’s clear now that the future of shopping is online, or at least a significant share of shopping will be. Whilst the impact on FMCG brands remains relatively small, shoppers all over the world are beginning to see the benefits of buying groceries online. It would be wrong, we think, to presume that what has already happened to retail in other categories could not happen in the FMCG business.

So as we look forward in 2013, when we will finally publish “The Shopper Marketing Revolution”, we see a very different world to that of 2009. The consumer goods industry is likely to go through tremendous structural upheaval in the coming years and the model we thought was important in 2009 has now become essential in 2013. In The Shopper Marketing Revolution, we introduce a five-step ‘Total Marketing’ approach which creates an integrated strategy for driving profitable growth. This approach helps marketers, sales professionals, advertising agencies and retailers to focus investment on the right consumers, shoppers and retail channels in these exciting and challenging times.

Click here if you would like to be the first to know when The Shopper Marketing Revolution launches! 

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What makes shoppers buy?

 

In October last year I ran a workshop called “The Principles of Shopper Marketing” and it had the sub-title “A complete guide to turning shoppers into buyers”. I’m a little ashamed to say that subtitle wasn’t entirely true. The participants did get loads of good stuff: an integrated shopper marketing model; “how-to” guides for research, insight generation and shopper marketing strategy development PLUS we had a great time! But what one question I didn’t answer was “how do I turn my shoppers into buyers?” so let me answer it now.

I don’t know.

 

You see every individual is unique which means different shoppers, buying different categories, in different retail environments, will behave differently.  So how to convert your shoppers into buyers requires a whole lot of information. See the process of behavioral change is quite complex: a pre-disposed individual assigns specific meaning to a stimulus and commits to a new course of action. With a fair understanding of the individual, her pre-disposition and the meaning she assigns to a stimulus, behavioral psychologists have a reasonable chance of predicting whether or not that individual will commit to a course of action.

I’m not a behavioral psychologist and when asked, “how do I turn my shoppers into buyers?” I don’t have the information necessary to give an answer. What I can say however is what stimuli play a role in affecting behavioral change.

To make it simple we can group these stimuli into three categories:

  • Availability – since shoppers can only buy what’s available in the store this is pretty fundamental. Take a product off a shelf and pretty quickly you’ll see evidence of behavioral change – you’ll lose sales! But it’s not just about being in stock – it’s also about the messages you send in the way your product is made available. When your product is made clearly available by being highly visible in appropriate places where shoppers with a pre-disposition to buy are looking; there’s a good chance that you will stimulate the behavior you want.
  • Communication – unless you’re my wife, it’s difficult to stimulate a response with silence. In most cases shoppers respond to messages that resonate with their beliefs. So a pre-disposed shopper who receives a resonant message may respond by changing his behavior. There a hundreds of ways of communicating with shoppers so instead of giving a list I will offer some advice: shoppers don’t have time to process complex messages so whatever media is chosen keep your communication simple and clear.
  • Offer – this includes price, promotions and so on. It’s often presumed that price or promotions are the main stimuli for inducing change in purchase behavior. This is rarely the case and for a passionate articulation of the issues surrounding price see my buddy Mike Anthony’s post on the topic. What is important is to understand how offers influence the shoppers you are targeting so that money isn’t wasted.

These stimuli tend to work together rather than in isolation so defining the right blend  of the three is important. To get this right and to really turn shoppers into buyers, you have to first know which shoppers you’re targeting, and their pre-disposition to behavioral change in a given retail environment.

The next time I run my workshop (in Singapore on 14th and 15th August) I’ll be sure to make this really clear!

 

Are 76% of purchase decisions REALLY made in store?

 

A recent report from POPAI stated that 76% of purchase decisions are made in store – this is a great sound bite but if you ask me it’s both misleading and counter-productive. Why?

 

Let’s start with the idea of a purchase decision. What the report is saying is that the final product choice is the only decision that shoppers make. Sure it’s the important decision – it’s where the rubber hits the road, it’s the FMOT and so on. But as we all know shoppers go through a series of decisions that lead up to the final choice – all of which are purchase decisions. Think about it: shoppers have to decide that they need to buy a product to meet a consumption need (like ‘I’m out of toothpaste’ or ‘We need salad for dinner tonight’); they have to decide how much time and money they want to spend in the shopping trip; they need to decide which store they are going to; they have to decide where in the store they’ll find what they need and finally shopper need to choose the actual product they are going to buy.

The key truth in what POPAI is saying is that the final decision shoppers make is in the store. But it’s misleading to say that all ‘purchase decisions’ are made in the store because, in the chain of decisions that shoppers  make, it’s really only the last two that can ever happen inside a shop.

Lets then look at the stats: POPAI states that the figure of 76% is derived by adding all of the occasions when purchases are unplanned to those which were ‘generally planned’ and those which were ‘category substitutes’. In the absence of a completely clear definition for these groups or quantification of them, we have to assume that before going into the store some (perhaps many) shoppers had already made a decision to buy a product in a category. POPAI’s claim suggests that the in-store environment is the only determinant of what these shoppers buy, when it needs to be remembered that the decisions they had made outside the store are highly influential on what they actually buy.

We know from our own research at engage and research by others as diverse as Nielsen, TNS and Harvard Business School that most people buy from a repertoire of brands and shop these brands habitually. The fact that people might switch within a repertoire is hugely important but so is the existence of this repertoire. POPAI’s headlines gloss over this.

Lastly let’s look at the implications of a catch all statement like “76% of purchase decisions are made in-store”: it would be fair to say that POPAI’s has a clear motivation to encourage consumer goods companies to spend in-store. Yet in-store expenditure is the fastest growing part of the marketing mix with Deloitte suggesting that its growing at 65%. Other data shows that trade spend is now the largest cost for CPGs after the cost of goods and that it eclipses traditional ATL by more than 50%. Finally, with returns running between 30 and 55 cents in the dollar – a lot of in-store money is being wasted – we estimate that the top 250 consumer goods companies probably lost near to US$200 billion last year alone. Statements like “76% of purchase decisions are made in-store” fuel this growth in expenditure and are widely quoted as justification for moving more money in-store. Instead, I personally feel that POPAI would be better at leading the way in illustrating how money should be spent more wisely.

Bearing the above in mind, here’s what I wish POPAIs would do: Firstly they should make their data widely available and for free, that way we could all understand the detail behind the headlines and use it to plan more effectively. Secondly, they should spend more effort propagating messages on how to get the best out of shopper marketing initiatives based on their experience and network. Thirdly, as Google have done in developing the ZMOT concept, they should be engaging a wider network of practitioners to ensure the industry is being lead with robust insights. Lastly they should be less focused on creating sound bites which might do their case more harm than good in the long-run.

The in-store environment is a hugely potent influencer on shoppers’ behavior, it has a diverse and complex role to play in the entire marketing mix and its influence varies across categories and channels enormously. To fully grasp the value of marketing to shoppers in-store, leaders in the consumer goods industry need a deeper understanding of how shoppers’ behave and how this behavior can be influenced. Simple statistics and generalizations like “76% of purchase decisions are made in store” are no longer enough to deliver real long-term returns on investment.

If manufacturers aren’t researching then they’re probably guessing

I happened to be shopping this weekend for an accessory for a personal electronic device. Nothing special but it was a little specialist and knowing this I thought the best place to head was Singapore’s Funan IT Mall. Here over several floors you’ll find a range of specialists offering everything from high end audio to hello kitty iPhone covers.

Many of these guys are sole traders, a few of which might have a couple of outlets in the mall. Most of the staff know their stuff and if you happen to know exactly what you want and can find the store that sells it, there’s a good chance you’ll get just what you need.

But here’s the thing, what if you’re not sure? Well then it’s a frustrating experience in one store after the next your met with blank looks or faint recognition which ultimately ends in disappointment. But here’s the kicker – when you, the shopper ask, “do you know where I might find something like that?”, there appears to be a complete reluctance to suggest somewhere else. Why? In case someone else gets the sale!

The following idea may seem utopian but here’s where the world of online could help. Millions of microsites and blogs earn decent money out of referral revenue – they get paid for directing shoppers to where they can find an item. Why can’t this happen in the the bricks and mortar world? Everyone wins – the shopper who finds the product, both the retailer who makes the referral and the referee who makes the sale and finally the manufacturer.

So why is that these things don’t happen? I see three key reasons and they all spring from the manufacturer. The first is that few manufacturers really make the effort to find out the role independent retailers play for shoppers. In discussions with TNS recently, a friend in the know estimated 10% of revenues came from shopper studies – that’s up nearly ten times since a decade ago but still not a lot of investment. If manufacturers aren’t researching then they are probably guessing. Guesswork is rarely the best way of understanding human behavior.

Secondly manufactures underestimate independent retailers in their prioritization of different trade segments. You only have to listen to the language they use – “general trade”, “traditional trade”, “distributed trade” of perhaps worst of all “lower trade” are common terms to discernible independent retailers. Traders are seen as being low volume and so they are often de-prioritized in favor of more ‘organized’ retailer channels. Big mistake! independent retailers can be huge influencers of shopper behavior in many cases and often deliver higher profitability.

The last reason is that the solutions manufacturers create for independents don’t look at the opportunities for everyone to make money, rather they focus on shifting more stocks.

If independent retailers play an important role in the path to purchase and they represent a profitable vehicle for influencing shopper behavior, then it’s high time manufacturers started to think more creatively about marketing in these outlets. 

2012 Path To Purchase Summit – Review

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Having returned from this years Path to Purchase summit in Sydney, I thought it might be worth offering up some of the key take outs I got from the event.

New Media Influence

The first and perhaps key take away for me, is that given the huge volume of commentary on the importance of digital interactions, no one in consumer goods can afford to ignore the influence that new media has throughout the path to purchase. This has interesting implications for retailers and manufacturers alike.

Retailers face a huge opportunity and an enormous threat. As shoppers seek ever greater convenience proximity and flexibility, bricks and mortar retailers may find their customer bases dwindle as shoppers are attracted online. Yet those who embrace the potential stand to gain, not only from lower barriers to entry into new markets, but also from new ways to enhance loyalty.

Manufacturers could be the beneficiaries of closer relationships with shoppers and of more personalized and social communications techniques which offer the potential to create stronger bonds between brands and consumers. They risk falling behind the curve and becoming eclipsed by competitors who prove themselves to be more relevant or by failing to capitalize on growing online retail environments.

Shopper Behavior – asking the wrong questions

My second key take away is the huge importance of constructing an in-depth understanding of consumer and shopper behavior. Much was made of the importance of insight and the conference exposed the value of both traditional and emerging techniques to get inside the minds people along the path to purchase. What strikes me is that this is an industry that doesn’t lack data but rather struggles to find insight.

In part I feel this is because many ask the wrong questions: seeking a commentary on what currently happens rather than exploring what does not. Too often companies seek to understand those who currently buy and use a brand rather than those who do not, thus limiting the potential to apply data to assess new opportunities.

What’s Next?

My third take away from the summit is that having listened to a vast amount of analysis and commentary I feel many will be left asking, “what next?”. A recent POPAI report  showed the majority of businesses lack a process for managing marketing through the path to purchase. I believe that without a framework to filter information we struggle to apply it. Mike Anthony and I devised our five- step process to help in this. We seek first to understand consumption priorities then decide shopper behavior in order to prioritize channels. This enables the development of a marketing mix and helps construct a framework for investment.

Using this approach I’d summarize my learning from the Path to Purchase Summit as follows: we are learning more and more about what consumers want everyday and in general we see the desire for individuality and social relevance becoming more important.

We find shoppers have massively extended choice and access to information which helps then make smarter decisions. We see that online and offline retail environments enable shoppers to channel hop in search of best value. This means that marketing mixes will need to be applied more dynamically in the future based in a clear understanding of what behavior is to be encouraged. This will inevitably change the investment environment which is likely to have a profound impact on advertising agencies and retailers in the future.

In closing

Will participants walk away happy? I think many will; there’s much to be gained from hearing from the experts that spoke at the event about the developments in the field and how they might affect changes in the industry. I think some may go away feeling that more specific input on practical application would have been useful and many noted that the talks given by the teams at Kraft and at Heinz offered some really valuable inputs. I’d personally like to thank the organizers of the event for giving me the opportunity to offer my advice in this area.

If you’d like to see the slides from my ‘Strategies To Enhance Shopper Marketing’ presentation please go here

If you’d like to see the slides from my ‘Decoding The Path To Purchase’ presentation please go here