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serve only a handful of major retail channel partners – reducing their clout in the relationship. Sensing their increasing presence in the consumer’s shopping experience, many retailers have invested in their own brand image, expanded store brands, and implemented shopper marketing strategies, all of which affect the role of consumer brands. Target Stores’ Archer Farms, Wal-Mart’s Great Value, and Costco’s Kirkland 5 have all become major brands in their own right today, increasingly profiled along with consumer manufacturer brands in consumer ratings. But in spite of consolidation and private label competition, channel companies – especially the large retailers – are not always the ogres that they are made out to be. Retail margins have dropped to virtually nothing, especially when the products are promoted or when there is a contractually low discount applied to every product sold. 6 And while massive merger and acquisition activity over the past three decades has reduced the number of channel companies, it has also spurred tremendous growth of branch retail locations and retail channel formats that offer more opportunity for the consumer than ever before. New stores, more spacious and attractive interiors, more emphasis on product categories and the expansion from goods only to combinations of goods and services mean higher cost, higher complexity and higher concerns from both sides of the channel. The Role of the Economy In the late 1970’s, the center of power for financial assistance (co-op advertising and trade funds) moved from consumer goods companies to the retailers, causing spending to accelerate in the ‘80s and ‘90s. Alarmed, numerous fast-moving consumer goods companies changed their funding methodology from lump sum to product-based accrued funds to provide more direct control of their expenditures. The effort initially had some success: over most of the decade of the 2000s, the growth of trade spend flattened. But the current economic problems in the U.S. and across the globe have changed the base of power once again. With private label 5 From Deloitte Consulting, Shopper Marketing white paper, 2008 6 Everyday Low Pricing (EDLP) structures popular with Mass Merchants result in an extremely low price markdown at wholesale in lieu of accrued and/or allocated trade funds. 6
growth up 1% in the second half of 2008, 7 consumer goods companies are suddenly fighting to maintain, much less grow strong brands. The current recession not only straps the retailer for capital – it puts tremendous financial pressure on consumer goods companies in all categories to innovate and restore brand loyalty. Source: Consumer Goods Technology/AMR Research"2009 Sales and Marketing Report," June, 2009 Trade Tactic (Moment of Truth) "At the Shelf" Spending 59% "Before the Store" Spending 41% Evolving Trade Relationships Manufacturers and retailers prefer different promotion tactics: • Retailers prefer “before the store” tactics because they believe they have better spend effectiveness. • Manufacturers prefer “at the shelf” tactics because many shopper decisions are made in the store. Much of the trade spending mandated by the retailer is for “before the store” initiatives – promotion tactics intended to drive price discounts, provide pre-event advertising or other pre-promotion activity. More than 41% of the total trade spend involves this type of outlay. 8 Manufacturers argue that these costs, though a major industry competitive requirement, are less effective and, therefore, often wasteful. On the other hand, spending that is directed to generate consumer desire and purchase at the shelf is the most difficult to prove for performance compliance. The same study shows that the effectiveness of the spending (based primarily on the effect on ROI) is marginally higher for the “before the store” tactics by an average of 7.48 to 7.34 out of 10.0 for “at the shelf” spending. 9 Fundamental differences in retailer and manufacturer beliefs about consumer response are the basis of much of the argument, mistrust and strained relationships that have existed between the Consumer Goods companies and the retailers. For years, the problems retailers and manufacturers faced were often transparent to each other, or worse, the channel wielded power over the manufacturer/supplier so completely that the “don’t ask” policy of the channel buyer prevailed. That meant giving more money and getting less in the way of true marketing recommendation opportunities. Manufacturers should focus their 7 AMR Research, Lora Cecere, C.J. Wehlage, and Jane Barrett; February, 2009 8 Consumer Goods Technology/AMR Research “2009 Sales and Marketing Report,” June, 2009 9 Consumer Goods Technology/AMR Research “2009 Sales and Marketing Report,” June, 2009 7
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Page 15 and 16: How the Process Works A comprehensi
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