By Benjamin Smith

Image courtesy of Engadget

I don’t care whether you are a retailer or a brand marketer, I just know that at some point on Friday November 19, 2010 you wished you had the same idea that some genius(es) at TJ Maxx did.

Imagine you’re sitting in a conference room in the bowels of your corporate office back in June 2010, trying to figure out what your Black Friday strategy and offers are going to be. At a retailer like TJ Maxx, in the past that could have included the sweet deal on a pair of PJ’s or a cashmere glove / scarf set. Settle down, I know the thought is intoxicating.  Mind you, the previous year TJ Maxx didn’t think too much of going bonkers for Black Friday, as you can see the played down Black Friday 2009 on their own facebook page. That person probably got fired.

So the pressure is on the new guy/gal.  What are you going to promote – the same old, or something better.  You’ve got your agency making a proposal for how to spend your dollars.  Do I smell a 2 week media flight of 30 second ads, and they said something about “activating” people via social media?  Well you can probably rest assured you won’t have to worry about any trampling incidents at your store on Black Friday if that is the case.

HOW TO BUILD AN ATOMIC BLACK FRIDAY PROMO:

Shut the conference room door, dim the lights, and make sure the skittish managers aren’t within earshot.  Now that it is safe, let’s talk about the most sacred of cows, offering a discount on something that is never on sale, expensive, possibly overpriced, yet on everybody’s shopping list. No, I’m not talking about discounting printer ink (you get fired for that).

How about the holy grail of pricing, even by Apple standards: The hot, irresistible IPAD?  What if you carved $1 Million dollars from whatever drek you were going to run to advertise the same boring me-too Black Friday offers, and poured that into a true retail exclusive, an IPAD for only $399, savings of $100 off. The largest savings on the hottest item of the last 2 years. The math is pretty simple:

MARKETING BUDGET:
Take the $1 Million you were going to dedicate to Black Friday advertising / PR / promotions and plow that into offering subsidizing the IPADS.  By the way, this could easily be scaled.  I used $1 Million to make it easy and relatively painless for any brand playing in big box retail.

SUBSIDIZED PRICING:
If you just quietly started acquiring the $499 model IPADS from various authorized resellers, there’d be no discount + an average of 8% sales tax. High end, you’re looking at paying $540. Of course, if you are able to find somebody willing & able to move volume, without alienating Apple or them knowing about it, then you might get a break. Let’s say you get 5% discount, but still have to pay sales tax. Low end you’re in for $513. Split the difference and it is approx. $525/unit. You’ve got to hit a magic price point + high optic of savings, so $100 off it is, to hit $399.
NET SUBSIDY = $125/unit.

NUMBER OF STORES:
You have 900 Stores. Run it in 50% of them. You don’t have to put it in every store – most markets will have more than 1 store, and people are willing to hunt for treasure like this.
Net = 450 stores.

NET IMPACT:
8,000 IPADS ($1M / $125/unit subsidy)
17 IPADS per store (8000 units / 450 stores)

That is a honest to goodness Black Friday promo if I’ve ever seen one, and I don’t care if it is sold out before Black Friday.  Read the fine print in your Best Buy insert this Thursday while you are waiting for your turkey. For some hot products you are lucky to get 10 per store. So 17 per store isn’t out of the question.  And for the nerds who might read this, yes I do know it was supposedly in some Marshalls stores too (owned by same parent company).  Just spread the same units over a larger number of stores, or increase the budget.  Regardless, this is a viable but different promo.

HOW TO MAKE IT GO NUCLEAR:

Well, you gave everybody something to talk about.  You must have been in a cave if you are involved in retail and didn’t hear about this today.

And to push things over the edge, you poked the King. Steve Jobs responded, or at least it sounds like he did. Which got even more people talking.  It doesn’t matter who they got them from, or how they got them, but even commenting on the issue lets you know that this is a big deal.

And whether or not you agree with the adage, there is no such thing as bad press / pr, in this case, you can definitely guarantee TJ Maxx will be on more people’s minds come this Black Friday & Holiday Season than before.  And inside of TJ Maxx, somebody’s career will forever be referenced as Before IPAD, and After IPAD.

FROM THE HORSE’S MOUTH (posted on TJ Maxx’s website):

We have received many inquiries about a particular item recently sold in our stores. A small number of T.J.Maxx and Marshalls stores received a very limited quantity of electronic tablets this week. These were first quality goods sourced from a retailer. They sold out in one day, and they were not advertised in the media.

This speaks to the excitement of our business model to deliver ‘wows’ this season and always. You never know what unexpected deals, designers or hot items you will find as part of the more than 10,000 new items that arrive at every store each week!

Check out their twitter feed:

RETAIL LEVERAGE TAKEAWAYS:

The worst thing is to blend into the crowd of me-too’s, unless you are the market leader.  By definition, since the majority of the market in most cases is not the leader, I am continually amazed that brand marketers and retailers continually anniversary the same promos, or iterate the latest trend.  If you aren’t the leader, rarely will you ever beat the big guys at their own game.  That is why you have to change the game.  We salute you, Mr or Mrs TJ Maxx Black Friday discounted IPAD idea guy/gal, for showing everybody involved in retail how you gain Retail Leverage!

RELATED READING:

• Engadget was all over the story and got evidence early on it was true
• Fortune thinks that TJ Maxx just lost their shot at ever selling Apple products (if that matters)
• The supposed response from Steve Jobs to a consumer who emailed him directly to ask if it was true, from 9 to 5 Mac
• Opinion piece from 9 to 5 Mac with all sorts of conspiracy theories on how $399 Ipads wound up at TJMaxx and what it means to Apple

By Vincent Young

A Monster Strategy:

The strategy is nothing short of genius – find a high-demand, high dollar consumer electronic product category and profit by selling the low-cost, high-margin accessories that complement the device and make it actually work.  The key, however, is to market the accessory as “premium” because, after all, when you spend top dollar on electronic equipment, what’s a few extra dollars to get optimal performance out of the thing? That’s basically the bottled-water-like business model and marketing strategy of Monster Cable.  In 1978, Monster Cable pioneered the model by marketing so-called “high-end” speaker wire to stereo retailers.

By the early-mid 2000’s, Monster Cable had evolved beyond premium stereo speaker wire and was the undisputed market leader in the “boutique” cable market  that served as a substantial source of revenue for retailers of electronics such as DVD players, stereo systems and TVs. Since the profit margins of DVD players and TVs were relatively low, the profit margins of Monster Cable products provided supplemental revenue for these retailers. Employees of consumer electronics retailers were all trained to market and bundle Monster Cable and similar products in order to boost retailer profitability. Monster Cable was everywhere!

And then, it happened. The so-called retail “partners” of Monster Cable realized two very important things: 1. Greed is good. There simply was too much profit associated with boutique cables to allow Monster to have it all; and 2. The retailer actually owned and controlled the most important part of Monster’s business success – the retailer sales associate who convinced inexperienced, naive video and audiophiles like me that spending top dollar on these cables was absolutely necessary.  Soon, Monster Cable was basically undercut by their retail partners and replaced by lower-priced private label offerings and the store employees were incentivized to push their own house brands.

Do It To Me One More Time:

So what did Monster do? They learned that simply representing a hefty source of profit for a retailer is not enough to have any type of leverage against the retailer who is predisposed to want to take a cut of profits under a house brand – the key for Monster to continue its business model was to continue to sell high-margin accessories for growing hardware categories, but to do it by building a “call brand” that was so strong that it would be nearly impossible for a retail store associate to switch the consumer over to a lesser-known private label.

By the late 2000’s, portable music players (MP3s, IPODS, etc) represented a large and growing category of consumer electronics. Therefore, the complimentary headphone market was exploding! Players such as Bose, SkullCandy, Koss, Sony, Altec Lansing, and JVC were all competing in the headphone space and driving prices down in a battle for market share. Monster entered the market and completely changed the category experience by forming licensing partnership with hop-hop producer Dr. Dre. “Beats by Dre” were introduced as a premium headphone offering that promised that people could hear their music the way a producer hears it in the recording studio (the Monster brand name was minimized to that of a manufacturer’s credit). Because of this approach, Beats by Dre entered a price-depressed category at a $399 price-point, nearly 8x the category average (over 80% of headphone skus at bestbuy.com are under $100 with most itemized as “under $50”). Based on the success of Beats by Dre, Monster extended its very successful  headphone offering earlier this year by introducing line extensions via partnerships with record producer Sean “P-Diddy” Combs (Diddy Beats) and recording artist Lady Gaga (Heartbeats by Lady Gaga).

Today, Monster is back to being everywhere and now they have substantial leverage against the retailers who nearly “private labeled” Monster out of business just a few years ago. Each of Monster’s product lines are supported by numerous displays inside each Best Buy store. Monster has recently expanded its portable audio product offering by also introducing a line of amateur DJ equipment under the Beats franchise.  In a large number of Best Buy stores, there is now a dedicated area called “Club Beats” which serves as the Monster-exclusive showcase for the latest recording artists, DJs and products that support the live entertainment experience (now that’s retail leverage)!

Key Takeaway:

As brand marketers, the moral of the Monster Cable story is simple – if a retailer can switch your consumer (and profit stream) to a house brand alternative, they will! The only defense is to build (or borrow) a national brand that is simply “unswitchable.”

Editor’s Note:

This case also proves the power of marketing – how else can you explain people shedding their small modernistic “earbud” style headphones for 1970’s huge style headphones like Beats By Dr Dre?  In other news, look out for the next trend in LCD TV’s – the cabinet style.

By Ben Smith

I wanted to provide an update to Vince Young’s prior coverage of Stainmaster carpet’s move to Lowe’s and share an article by Chris Burritt that just appeared in Business Week detailing how the dust has settled.

“Martha Stewart can thank a move by Invista’s Stainmaster unit for her good fortune. Stainmaster had been a major Home Depot carpet brand since 1996. Invista recently dumped the leading home improvement retailer to boost its sales through No. 2-ranked Lowe’s and a string of smaller distributors. Home Depot managers figure Stainmaster was under pressure by its independent carpet dealers, who had trouble competing with the big box retailer’s low prices. “We were selling a lot of carpet at very good prices,” says Gordon Erickson, Home Depot’s senior vice-president for decor. “We were a bit surprised.”

The net is that Martha Stewart now has the featured brand of carpet at the #1 carpet retailer in the US, Home Depot.

Retail Leverage Notes:

In today’s environment it is rare that a brand drops a major retailer. Once the shock wears off, you can see how major moves by competitors, particularly exclusive deals, can create retail leverage opportunities.

The void left by Stainmaster at Home Depot created the opportunity that Martha Stewart (via Shaw Industries) capitalized on. As the old quote goes, “Luck is what happens when preparation meets opportunity.” I’m guessing that both Home Depot, Shaw, and maybe even MSO had thought about this possibility before, although Home Depot was obviously shocked by Stainmaster’s move.

One has to wonder how much better business terms Stainmaster got from Lowes to move there. In addition, Stainmaster must expect to gain a greater share of Lowes carpet business than they had at Home Depot, the #1 carpet retailer.

I expect the case was they offered tangible growth to Lowes, who was eager to steal Stainmaster away from their rival in their own bid for leverage. In turn Lowes is probably doing everything short of guaranteeing a certain percentage of their business. This can be done via shelf space and ad features. That combined with more favorable terms and you can see why Stainmaster would take the leap.

What will be interesting is if the Martha Stewart brand does extend well to carpet at Home Depot. While Stainmaster must be considered more of a “sure thing” in carpet, one could argue there may be upside for Home Depot and Martha Stewart. For now, it is just one more extension of the Martha Stewart brand at Home Depot.

Related Reading:

• http://www.businessweek.com/magazine/content/10_29/b4187020881895.htm
• http://www.bloomberg.com/news/2010-07-01/home-depot-adds-martha-stewart-carpeting-as-stainmaster-pulls-out-of-chain.html
• http://retailleverage.com/2010/03/01/lowes-stainmaster/

By Ben Smith

WATCH & LEARN – HOME DEPOT DECLARES BLACK FRIDAY IN APRIL:

The fight for Retail Leverage doesn’t end with brands duking it out in the aisles.   Retailers take it outside, fighting their own battles.  If you think unemployment, the real estate market, and tight credit has hurt sales for your brand, imagine how that rolls up to create a desperate environment for the retailer.  While the home improvement sector in retail is still fragmented, the two resounding leaders are Home Depot and Lowes.

Home Depot, in a bid for some Retail Leverage of its own, and in an effort to drive year over year sales growth, has declared “Black Friday Is Back”, creating their own retail big event.  Craig Menear, executive vice president of merchandising for Home Depot, was quoted in BusinessWeek saying that Home Depot will increase its marketing through newspaper circulars, online promotions and other advertising to draw consumers during its busiest season.

HOME DEPOT MANUFACTURES ITS OWN SUCCESS AND GAINS RETAIL LEVERAGE:

Home Depot is following the retail leverage playbook, creating their own “Can’t Ignore” / “Too Big To Ignore” event.  I love what Home Depot is doing, and it would still be a great idea even if it wasn’t during their peak season.  To start a fire you need oxygen and sometimes when everybody else is screaming “fire” it sucks all they oxygen out of the room.  What might get lost in November may have a better chance of standing out during other times of the year.  While timing isn’t the motivating factor, it does work out well if there is stronger seasonality at play, and that is definitely the case here.

HOW CAN YOU “DO IT YOURSELF?” (apologies for the Home Improvement channel puns)

Don’t get hung up on the fact that it was a retailer doing this, and not just a brand.  As I mentioned before, everybody looks for opportunities to gain leverage against their competition – retailers are the same.  And the same goes for scale –  it’s all relative to the pond you are swimming in, and there are levers that any brand marketer can pull to make your own “Too Big To Ignore” event.  I’ll provide a list of basic “tools” we recommend (I’m on a roll with the puns today)

List of Tools To Build Your Own “Too Big To Ignore” Event:

1. Promotion: it all starts with a strong promotion that will maximize participation among your retail partners (something they don’t want to be left out from)
2. Circular Ads: align circular ads across all your retailer partners for one week / period (again, they don’t want to be left out of this one)
3. FSI / gift guide: these dedicated pieces allow you to fully tell your story, and create a multiplier effect in conjunction with your circular presence.
4. Traditional Broadcast Media (tv/radio – if it makes sense given your $ scale)
5. Demo/sampling events (if it makes sense given your product)

The list is by no means exhaustive – depending on your capabilities and resources there are other arrows you can pull from your quiver.  Some brands have a strong social media presence & connection with their customers.  By all means – give your connections marching orders to visit participating retailers during your event.  If PR is a major component of your strategy, please do engage with those wizards who have mastered making something “look bigger than it really is”.  The net is – align as many resources as you can to amplify your message, create your own big bang and stand out from the crowd (wow 3 buzz phrases in a row).  If you succeed your only problem will be figuring out how you “Do It Yourself – Again!”

RETAIL LEVERAGE CONCEPT(S) COVERED:

• Have Something So Big “They” Can’t Ignore
• Retailers don’t care about your brand’s battles – they only care about their own

RELATED RESOURCES / ADDITIONAL READING:

• Retailwire discussion about FSI’s growing popularity (with comments from Retail Leverage on how you can leverage them)
• BusinessWeek article covering Home Depot’s “Black Friday Is Back” promotion, including executive quotes

By Ben Smith

WATCH THE BIG BOYS:

The next big thing in TV’s, the largest category in Consumer Electronics, isn’t going to be 3D.  So put the dorky glasses down and think about what recent moves by the big boys signify.

• Walmart buys VuDu (streaming movies) (credit: ZatzNotFunny)
  • Walmart spent over $100M to buy the whole cow
• Best Buy Bankrolls Tivo’s Marketing (credit: Davis Freeberg’s Digital Connection)
  • Tivo’s market cap is $1 billion, so Best Buy is renting the cow for now.  They are spending $20M to promote Tivo this year … Tivo itself only spent $5M last year.

THE NEXT BIG THING:

The next battleground for hearts, minds and wallets of consumers will be connected / internet TV.  Don’t get hung up on the idea that these moves by BBY and WMT are solely focused on the consumer demand for the added features that connected TV’s provide.  Here’s how we see things playing out:

Short term: the need to address consumers growing desire for streaming video is important.  Walmart and Best Buy are gaining access to existing relationships & infrastructures to offer their customers access to their own branded digital video services.

Near term: Walmart and Best Buy are already the leading retailer of TV’s.  Best Buy has an obvious opportunity to integrate Tivo capabilities & connectivity into their own Insignia line of TV’s.  It is not a stretch to think that both Walmart and Best Buy persuade leading TV vendors to integrate these services into TV’s for sale in their respective stores.

Long term: the bigger picture of these moves is about more closely connecting the retailer to the consumer in their home.  In a fragmented media world where it is increasingly difficult to reach consumers via traditional means, Walmart and Best Buy are hard wiring themselves to their consumers.  These new platforms enable a retailer to not only offer the obvious of streaming movies & other digital downloads, but also positions them to take advantage of future advances in connectivity and digital offerings, including ones geared around shopping at home.

For more speculation on retailers connected TV & on demand services, check out these articles:

• “Wal-Mart enters the battle of TV vs. the Internet.” (credit: Fortune)
• “Best Buy Betting Big on Tivo” (credit: NewTeeVee blog)

Now that is about as far as I can go without staying from the mission of Retail Leverage. We know that our readers value that we help keep them informed on big picture news that has retail impact, but we aren’t really focused on the product or technology.  The reason I share this article with you is that you don’t have to be selling TVs or set top boxes to walk away with ideas that you can apply in your own brand/business.

HOW CAN YOU ADVANTAGE A PARTICULAR RETAILER?

The key lesson here in the pursuit of Retail Leverage is to ask (and answer) the question – “How can I advantage a particular retailer versus their competition?”

Look at the lengths that Walmart and Best Buy are going to position themselves against each other in the connected TV space.  Walmart’s strategy involves acquiring a company (VuDu), and Best Buy’s strategy involves entering into an exclusive relationship (Tivo).

The real story is the retailers fight against each other.  Get over the battle you are fighting against other brands – THE RETAILER DOESN’T CARE.

Fortunately though, you don’t have to be in a category that is in the cross-hairs of retailer corporate strategy teams to be able to employ the “advantage” strategy.  Simply put, If you want to get the buyer’s attention, bring something to them that strengthens their hand versus their competition.

As assortments narrow and the tentacles of private label expand, brands are being forced to make bigger bets on specific retailers, product lines, and skus. Too often, people wait to make tough decisions until their hand is forced, and sometimes it is too late.  While the “advantage” strategy might not be right for you at this time, you can learn a great deal from the exercise.  Good luck!

By Vincent Young

Kudos to Wichita, Kansas-based INVISTA who recently announced that Lowe’s will become the only major home improvement retailer to offer STAINMASTER(R) carpet — North America’s most recognized carpet brand. The new deal with Lowe’s gives the STAINMASTER Carpet brand access to Lowe’s nearly 14 million shoppers every week.

While the STAINMASTER brand has considerable equity in the home furnishings and flooring industries, the team at INVISTA was able to gain distribution at the world’s second largest DIY/Hardware chain by thinking like a challenger brand and adopting two key strategies to gain Retail Leverage.

Retail Leverage Principle #1: Bring Pent-up Demand to Stores

Since its introduction in 1986, STAINMASTER(R) carpet has revolutionized the industry with its stain and soil protection technology. Historically, however, STAINMASTER(R) carpet styles have only been offered by local STAINMASTER(R) Flooring Centers and aligned dealers in the U.S. and Canada. As a result of this new arrangement, Lowe’s will now become the exclusive DIY Home Supply Retail Chain to carry STAINMASTER branded carpet.

Retail Leverage Principle #2: Offer Product or Program Exclusivity

Under the multi-year agreement, the strategic alliance with INVISTA will deliver to Lowe’s customers more innovative, stain-resistant flooring options that are both stylish and durable under the STAINMASTER Brand. Quality-conscious, value-seeking consumers looking for the well-known brand will soon find an expanded selection of STAINMASTER(R) carpet in the more than 1,700 Lowe’s stores across the United States and Canada. In today’s economic climate, carpet remains an affordable flooring option, and with 89 percent aided brand awareness, STAINMASTER(R) is the brand most often recognized by consumers.  In addition, INVISTA expects the alliance will continue to enhance the STAINMASTER(R) brand as a result of Lowe’s targeted advertising, merchandising and promotions.

“This is a ‘win-win’ situation for consumers, INVISTA and Lowe’s,” said Steve Griffith, vice president of INVISTA’s residential flooring segment. “Today’s consumers are seeking products and retailers that deliver exceptional value, as well as brands that they know, love and trust. Our high-quality products and trusted STAINMASTER(R) brand is a great fit with Lowe’s commitment to its customers.”

“When shopping for carpet, customers look for products that deliver durability, repellency and soil resistance features,” said Patti Price, Lowe’s senior vice president of merchandising. “When our customers choose STAINMASTER(R) carpet, they know the product will perform in their active household. To further help customers, Lowe’s will feature a STAINMASTER(R) Carpet Gallery to help them choose the right carpet and simplify the shopping experience.”

The STAINMASTER/LOWE’S marriage is a wonderful example of how supplier brands can gain retail leverage by helping the retailer achieve its growth goals (by drawing new, incremental foot traffic into stores that were previously inaccessible by the retailer). Well done INVISTA!

SOURCE:

Press Release on the partnership between Lowes & Invista

By Ben Smith

I’m won’t be the first or last blogger to write about Coca Cola’s new “Freestyle” fountain system.  What’s been written so far covers a wide range, from marveling at the technology, to the variety it offers customers, to the financial impact.  But no one has really looked at it from the angle of the potential leverage this gives Coke with its retail customers – that is, until now.

Full disclosure (as you may have picked up in my Coke/Costco article), I’m a big Coke fan.  Ever since Matthew Modine made it clear in “Gross Anatomy” that he wasn’t just ordering a generic coke, but a Coca-Cola Classic, something clicked in my head and I have never looked back.  So the lens I view things through is one that believes that Coke tastes best at McDonald’s (combo of the wide straws, and the perfect mix of concentrate/carbonation), will drink water if Pepsi is the only choice, and wanted the groom’s cake at my wedding to be in the shape of a classic little 8 ounce Coke bottle.

A KILLER APP FOR RETAIL LEVERAGE:

Coke’s Freestyle system hits on a couple of our 5 points in how to gain Retail Leverage.

#1 Have The Hot Product With No Substitutes

While you can’t call Freestyle “hot” yet, it definitely doesn’t have any similar substitutes.  Freestyle allows the retailer to offer something to their customers that offers unparalleled choice (100 drink combinations), as well as unique drink formulations (there is a cherry, vanilla, orange, or zero of pretty much everything) that can’t be found anywhere else.  A manager at the Wendy’s near my house where I found the Freestyle went on and on about repeat customers they are seeing who rave about the product.  As we were talking, I saw a teenager create a concoction of multiple flavors for his Sprite zero.  It doesn’t take a great leap of faith to imagine that it could be a differentiator – for those who care.

Freestyle also gives Coke an edge on future product development, insight into usage, and pretty much anything else they’ll be able to glean from all the usage data that they can download from the machines back to the offices at North Avenue in Atlanta.  Coming from a printer industry background, it was invaluable to know which customers were the best, where they bought from, how often the purchased, what they printed, etc.  Coke has an opportunity to respond with more localized offerings, plus stay on top of key seasonal demand.

By the way, after using the machine, I can see other possibilities, such as for loyal customers, where they can scan a card or punch a code in and have it deliver their own special blend.  The current machine didn’t have that capability, but with all the technology packed into this thing already, they’d just need to add an easy way to scan/input the customer’s info.

#3 Be A Top Revenue Vendor

Okay – I’m sure Coke is already a top revenue vendor at their existing customers.  This provides an opportunity to further cement that.  And they have a pretty strong proposition to walk into potential customers with, showing how they can offer better financials that their existing provider.  How can they do this?  The answer is part technology, and part customer behavior.

On the  customer side, there are already reports of double-digit increases in beverage revenue from Freestyle in the test stores. I’m willing to bet there are a couple of slides in the Coke sales rep’s powerpoint deck that show the increased number of visits from existing customers, new customers drawn in by the existence of Freestyle, plus customers upgrading their drink size.  Not to mention, the retailer could increase their drink prices based on the premium that Freestyle offers, although that lever probably hasn’t been pulled yet.

On the tech side, from what I’ve learned, once you get past the high cost of the hardware, the cost of the consumables (primarily the concentrate) are significantly improved.  Those 100 flavors are based off several brand platforms (coke, sprite, fanta, powerade) and then the options come from all the variations you can do by flavoring (cherry, vanilla, orange, etc) and sugar substitute (whatever makes it regular, diet, or zero).   So this modular system allows them to reduce inventory, speed turns, and reduce out of stocks.  When you start multiplying these savings by 100’s or thousands of outlets, those savings have to add up.  There is enough profit freed up to improve margins to the retailer, while improving Coke’s bottom line also.

So when Pepsi or the generic fountain vendor comes in to pitch against Coke’s offering, unless they are willing to significantly cut their margins, I’m not sure they have a story to tell the retailer how they can help them make more money than Coke’s Freestyle will.

OTHER INTANGIBLES:

Currently Coke has approximately 50 test stores for Freestyle, across a wide swath of customers.   Now Coke could offer this to all customers, across all verticals (fast food & sub-segments, casual dining, cinemas, etc.  Or they could selectively offer customers exclusives in their own class (ie offer to Subway, but not Quiznos, Jersey Mike’s, Blimpie, etc).   I don’t know that this would be in their best interest, given they have pretty wide distribution already.  The real fear they want to play on from the retailer’s perspective is that if they aren’t able to offer this, their customers could choose to go elsewhere.  Could this be the silver bullet to put Coke into Yum Brand’s (Taco Bell, KFC, Pizza Hut)?  I know they aren’t officially owned by Pepsico anymore, but I’m sure there are still quite a few strings attached.

The net is, Coke is onto something that potentially everyone with a fountain could HAVE to have.  If they don’t, and the guy across the street does, you can be sure that the franchisees will be raising a big stink.

TAKEAWAYS FOR ANY MARKETER:

1. No matter how big your brand is, you still need Retail Leverage
2. If the big guys need leverage, what does that say about the smaller challenger brands?
3. Figure out what you have to exploit that others don’t and leverage it.
4. If you don’t have something unique / different / better, then be prepared to move to the 6th, rarely spoken of, painful way to get Retail Leverage: Price.

FURTHER READING / SOURCES:

More reading on Freestyle, from multiple perspectives:

• Fast Company,talking about all the data Freestyle provides
• Coke’s Facebook Page for the Freestyle System (check out how bad some of these people want it)
• Freestyle plus some other crazy Coke machines out there
• Uhh – buy some stock in Plexus corp, who makes the Freestyle machine for Coke
• The guy who invented the Segway was involved with developing Freestyle
• Great overview of Freestyle + video in Orange County Register

UPDATES:

• 5/10/2010 Article in the Wall Street Journal: “Coke Goes High-Tech to Mix Its Sodas”

By Steve Marzio

In Vince Young’s previous article on RetailLeverage.com, he astutely points out that one of the great ways for up-and-coming challenger brands to unleash pent –up demand at retailers is to start by choosing a path to market such as a specialty/boutique retailer.  Mr. Young goes on in a subsequent article on RetailLeverage.com to give an example of Rosetta Stone, who used retail kiosks in mall and airports as an early channel of distribution.

Neat Goes to the Airport!

Neat Receipts is another example of this strategy working as a way to get their product ‘out there’, in a highly controllable channel (your own!) to raise awareness and generate demand.  The Neat Company, headquartered in Philadelphia, sells a line of products which include a $500 scanner equipped with some super slick, easy-to-use organization software.  This proprietary interface (and thus unique user experience) essentially digitizes and organizes your personal finances essentially giving you a digital file cabinet. Information can be then charted, graphed, tracked, retrieved and analyzed very easily.  I would imagine that many folks who thrive on tracking every dollar that the household or small business spends would indeed be impressed with this product.

According to their website, Neat Receipts now has 16 kiosks in 10 large airports in the US and Canada.  Having walked passed them myself many times, I often wondered, who in the world would buy a $500 scanner while on their way to their gate in an airport?  Then as I thought about it some more, 4 good reasons came to mind why Neat might want to sell a $500 scanner in an airport.  These are also good reasons why other startups may want to consider a similar strategy.

4 REASONS WHY AN AIRPORT KIOSK CAN MAKE SENSE

1. You have a story to tell. Your product essentially requires a demo to close the sale…particularly when your product is relatively unknown. Plopping a $500 scanner down with a piece of POP on a crowded Office Depot shelf will sway no one.  Dust will collect and you’ll scratch your head wondering what went wrong with your killer product that was so unique.  Next thing you know, you are slashing prices (see my previous article “The Dreaded P” on RetailLeverage.com).  Demos on TV infomercials are effective.  Demos in retail aisles are effective (aka “Theater in the Aisle.”  Retailers and manufacturers spend a lot of time, money and effort to create a demo experience in the aisles (see the Bose displays in Target! Actually see the Bose displays everywhere!)  Kiosks, staffed with your owned trained personnel  present a simply awesome opportunity to show off your wares in the most controllable experience…your own!
2. You need to raise awareness. Instead of buying a TV or radio spot, then closing your eyes and crossing your fingers and praying to your marketing gods that someone heard your message…I mean really heard your message, airport kiosks put your brand and your product in clear view of all the passer-by traffic.  Instead of a channel of distribution, think of it as a MARCOM vehicle.  Think of the sales as the extra benefit, not the primary benefit.  If and when they stop by for the full demo, then great, you’re in the bonus round!  At the Atlanta Hartsfield Jackson Airport alone, nearly 90M passengers were recorded to have passed through in 2008.  This probably explains why the Neat Company has invested in 4 kiosks in that airport alone.
3. You have a relatively unique product that deserves a higher price point. Instead of being forced onto a shelf with other scanners priced at $99 and below, a kiosk allows you to stand on your own terms.  NeatDesk is a unique user experience and one that is vastly different than other “scanners” on the market as their demo will clearly show…when given the chance.  $500 looks way overpriced when sitting next to a $99 scanner.  Isolate yourself from other price points from products that may look a bit similar to yours.
4. The kiosk locations are where your target customers frequent. Neat really nailed this one.  I am willing to bet my dwindling 401k that no one ever bought a $500 scanner in an airport before Neat arrived however Neat’s target customer, the business, well-educated, financially conscious consumer who needs help organizing their thousands of receipts and business cards, can certainly be found en masse in the nation’s largest airports.  And as a bonus, they are often bored looking for something to do to pass the time between flights! Name recognition, demos and customer interaction are at your fingertips.

THE PAYOFF

According to CEO and founder Les Spero, “The product gained traction through direct sales, and then…climbed the retail ladder. It works because each retailer relies on the fact of your success at a previous retailer.” (Philadelphia Business Journal) Since you need to start somewhere, make your first retailer your own channel.  This gives you the best chance to succeed.  Today, Neat’s products are found on the shelves of the largest Office Superstore chains  – Staples, Office Depot and Office Max, many regional retailers and on the websites of such behemoths as Amazon.com.

As a long-term strategy as a sole source of distribution, the costs associated with airport kiosks between leasing and staffing alone probably do not make smart business sense.  But for a brand and product getting a name for itself, getting to demo its superior qualities and to not get pigeon-holed into being an over-priced scanner, I give kudos to Neat Receipts for finding a direct channel that enabled them to accomplish their objectives.  I have always implored marketers to OWN SOMETHING.  In this case, Neat Receipts did just that – they owned their own channel (a highly unlikely one for a scanner) and in doing so, turned what others may have viewed as a channel of distribution, into a powerful advertising and awareness vehicle to notch some pent-up demand.  Les Spero goes on to simply state in the Philadelphia Business Journal, “It’s all about the kiosks.”

By Ben Smith

WHAT IS POWERMAT?

Everybody has cursed a charging cable at some point.  Either you left it at home / in the hotel room / at the office, or you simply lost it.  In turn, I don’t think it is a stretch to think that in this wireless age, you could dream of wireless charging.  I vaguely recall hearing about the power induction technology behind Powermat at CES 2009 but never gave it a second thought.

Then today’s article in Ad Age set off my Retail Leverage radar and provided a perfect opportunity to frame some retail leverage concepts around a hot new product.  Be sure to play the TV spot below.

[youtube=http://www.youtube.com/watch?v=fiCb4l1Hzcw&hl=en&fs=1&autoplay=1]

Have you seen or heard about Powermat yet? If you haven’t yet, you will soon.  You won’t necessarily see the commercial, although they will be running ads like this one.  Where I’m confident you will see it will be in the top retailers in their respective categories.

POWERMAT GETS RETAIL LEVERAGE:

When you start breaking down Powermat’s launch strategy, you’ll realize they are using a hybrid of retail leverage strategies. More importantly, they are doing it on a scale much more relevant to challenger brand marketers used to dealing with 7 figure budgets.

1) Offer Program or Product Exclusivity (sort of)

While I can’t call their launch an retailer exclusive strategy- it is not far from it, as they are focusing their launch efforts in Best Buy and Target.  Best Buy and Target tend to serve different customer types.  On the male / female spectrum they are about as far apart as you can get for consumer electronics purchases.  They both also provide best-in-class opportunities to tell your story to consumers.  Note – we love the power of Walmart and I’m sure Powermat has them in their future plans – but Walmart makes more sense down the line, once this new class of product is better established with consumers.

2) Have Something So Big “They” Can’t Ignore

Albeit on a more modest scale (see financial estimates below)-  they are employing the “Something So Big It Can’t Be Ignored” strategy.  First of all, by concentrating your retail distribution your marketing efforts at those 2 retailers go farther, and in turn the sales are concentrated.  PowerMat will feel BIG to the Best Buy and Target, even if their overall impact at retail is not large.  Secondly, according to Beth Harrison Meyer of Powermat (as quoted in Ad Age),  ”You will not be able to walk into these retailers and miss Powermat.” This is a clear signal that you will see those concentrated dollars in the form of endcaps, special signage, and probably demos too.

Powermat will feel big to the consumers when they are most engaged – in the store on a shopping trip.  Finally, they have to be banking on capturing the attention of buyers at other retailers who will feel like they are missing out on something big.  After all – a buyer can only take so many consumer requests, store requests, and more important – demands from the boss that they get this product in-store ASAP in 2010.

MORE DETAILS ON POWERMAT’S LAUNCH:

From the Ad Age article: “The push breaks in the U.S., U.K. and Italy on Oct. 5, with an integrated campaign that includes everything from airport signage and installations to a four-page insert in Wired magazine and full-page print ads in other publications, and a series of humorous 15- and 30-second commercials intended to show people’s reactions to the new technology.”  The article also estimated their spend for the first phase of the launch campaign to be between $10M and $15M.

POWERMAT(H) – BREAKING DOWN THEIR BUDGET:

I’d like to give you a better idea of how I think their budget breaks down, to get it to numbers that marketers focused on the US market can relate to from their own budgets.  They mentioned a range of $10M – $15M for their launch budget for the initial phase, which I assume is Q4 (Oct – Dec).  They referenced launching in US, UK and Italy.    I’m betting a 60/30/10 split between US, UK and Italy.    Let’s assume for round numbers that the launch campaign is $10M, and the launch period is Q4 (Oct – Dec).    Let’s zero in on the US.  How far does that $6M go?  (note – even if I was on the low side assuming $6M for the US and it turns out to be $9M, you’d just add 50% to each of the estimates above).

BUDGET ESTIMATE BY LAUNCH COMPONENT:

TV: $3M (50% of total)

That covers production and a modest TV campaign.  Here’s hoping the production is a lot closer to $500K than $1M.  A $2M campaign hardly makes a dent, so expect something concentrated and on cable.  Interestingly  & from personal experience – if they went the infomercial route which could have also been a viable strategy, that same spend would feel HUGE.

In-Store / Retailer Marketing: $2.4M (40% of total)

You could easily spend $1M+ on premium shelf space, incremental displays and fixturing between Best Buy and Target for Q4 alone.  Then add a demo program that ramps up the last 6 weeks and you could burn another $1M.  Demos are highly effective but expensive (600 stores, 15 days of demos/training, 4 hours per event, $30 per hour = 7 figures).

Print Media, Airport Ads, PR: $600K (10% of total)

Who knows about the mix here – or cares for that matter.  I probably am under-estimating the spend here but I feel like these levers are more strategic and also smells of the dreaded 360 campaign compulsion.  They probably got a recommendation to spread their dollars across multiple vehicles and to target business travelers or something like that.  I do think their PR budget should go a long way as they shouldn’t have to fan the flames too hard to get coverage of this product.  As Vince from Shamwow would say, “It sells itself.”  No word if the Germans make it – cause you know they make good stuff.

TAKEAWAYS:

Once you start to zero in on Powermat’s launch strategy you can see a pretty focused “looks bigger than it really is” type of program.  I’m not sure how much the TV campaign will get them outside of the buyer’s meeting, but for starting out in only 2 retailers they are launching with a bang.  With over 40 years of challenger brand marketing experience, the crew here at Retail Leverage is used to doing more with less so that is why Powermat’s launch is so interesting to us.  Anytime you have the ability to launch a brand new product and brand for that matter, you are starting with the proverbial clean slate.  An exercise that Retail Leverage advocates is to think like a start-up, imagine you’ve just been given several million dollars and start ideating on what you’d do.  Priorities can emerge pretty quickly when you are forced to allocate the dollars.  With limited dollars, it is clear that Powermat started with the end in mind, which is in-store at the point of sale.  They worked backward from there doing what it takes to get 2 leading retailers to buy-in and support their launch.  In effect, they are launching with Retail Leverage.  That is a great place to be as long as the sales back up the expectations.  If Q4 is a success, you can bet they will expand their leverage to other retailers,  If they fail, you could say they BLEEPED up by putting all their eggs in just a few baskets.  We’ll check back in once we get an indication of their results!

By Ben Smith

I found some great material that supports our previous example of how Nikon gained Retail Leverage with “Something So Big It Can’t Be Ignored” (the Ashton Kutcher campaign).

Nikon’s agency, McCann Erickson, provided some great details in the form of their entry in the 2009 effie awards, for which they subsequently won silver.  Here is a link to the complete document – it is fascinating to me from an “inside baseball” perspective.

HIGHLIGHTS:

1) Nikon’s share in November 2007 (pre-Ashton) – an all time low of 5.5%.

2 This next piece, provide some of the “why” they went with the “Something So Big” strategy. I have to quote this word for word, because it sounds like it was written by the folks here at Retail Leverage:

“Nikon COOLPIX was competing against consumer electronic giants. The point and shoot category was cluttered with brands vying for consumers’ attention. Consumer electronics giants such as Sony, Panasonic, Canon and Samsung had vastly more money to invest in marketing and their retail clout gave them an advantage in-store. Critically, these brands were able to secure multiple facings at display by selling their cameras in as part of larger portfolios including flat screen TV’s, camcorders, DVD players, etc. Nikon, as a camera manufacturer only, did not have this advantage and struggled to get the facings they needed. In order to compete, Nikon needed a campaign that would break through the category clutter and motivate young prospects to go into the big box retailers seeking Nikon.”

We couldn’t have written it better ourselves.

3) Their goal was to reverse share erosion (shocking) and they had a target of almost doubling to a 10% share.

THEY HIT 14.6% BY AUGUST 2008.

4) Another word for word requote – my observation here is that I found it interesting that that they were surprised by the unexpected attention they got from retailers. If you’ve been on Retail Leverage for more than a minute or two you know that capturing the attention of the retailer and leveraging that is our primary motivation.

“And beyond our objectives, we were able to unexpectedly capture the attention of retailers. Due to the campaign, Nikon was having phenomenal success with the big boxes. Retailers were impressed by the campaign and by Nikon’s increasing support of the COOLPIX brand. This resulted in Nikon receiving two additional posts in Best Buy, allowing them to increase the number of cameras on display and ultimately sell more cameras.”

For Nikon / McCann Erickson gaining Retail Leverage was seemingly an easter egg. That being said, I bet once they knew they had Retail Leverage, one of the primary stated purposes of additional waves of the Ashton campaign is to fan the flames at their retail partners. Once you’ve got Retail Leverage, you do everything you can to keep it.

TAKEAWAYS:

It is great to see from start to finish an example of an agency and a brand that “got it”.  I’m not sure who drove the strategy – did McCann Erickson convince the Nikon to go “all-in” with Ashton?  Or did Nikon charge them with building “Something So Big” from the start and McCann just hit a home run on the concept + creative?  Regardless, it was clear that Nikon was competing in a category with bigger brands with cross category reach and deeper pockets, so they were able to exploit a strategy where they focused their resources on one thing that enabled them to stand out from the crowd.  Brands all too often spread themselves to thin with a 360 degree focus on checking off all the marketing levers.   Nikon owned something – and now they own the 18-34 demograhic, additional posts on camera bars across retail, and the other guys are trying to figure out their next move.

Speaking of that next move – have you seen Samsung’s ads for their new line of cameras with a 2nd LCD on the front?  Looks like they are taking a page out of Nikon’s playbook.  Not sure if it will succeed in the same way, but this looks to be the first counter-offensive in a maturing category.