Retail Leverage » "How To" Get Leverage

How To Maxx Out Retail er Leverage (With Unwilling Help From Apple’s IPAD)

Ben Smith — Fri, 19 Nov 2010 07:01:44 +0000

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:

Product Specification: A Shield in the Battle Against Private Label at Retail

admin — Wed, 12 May 2010 07:01:26 +0000

By Vincent Young

As long as I can remember, only two brands of toothpaste have mattered – Crest and Colgate. I use Crest. Why do I use Crest, you ask? Because, as a very young child, our family dentist used Crest during my annual check-up and he then gave it a tacit recommendation that we should be using it too when he gave me a sample tube of Crest (along with floss and a new toothbrush). From that moment on, my Mother would look for the Crest brand of toothpaste for our family to use.

When a brand is either directly or indirectly specified as “appropriate for optimal effectiveness” by an expert or by a complimentary good, then your brand’s ability to wield assortment, pricing, and promotional power at retail increase significantly. Sounds like a recipe for Retail Leverage (or inoculation against private label).

So how do you protect yourself and build Retail Leverage?

BUILD A SHIELD THROUGH PRODUCT SPECIFICATION:

Leveraging the power of specification should be seriously considered as a part of the product commercialization strategy of all national brands, if retail is your path-to-market of choice. Rather than setting aside monies for “launch” efforts that are anchored by the traditional advertising campaign or national consumer promotions, it may make sense to plow those same funds into sampling, co-packing, or buying favor with key sources of product specification that can be leveraged with retail to support your desired assortment or positioning strategy. If your budgets are tight, then seriously consider barter or putting free product samples in the hands of key, relevant specifiers as a way to establish your brand as a “call brand” prior to entering the world of retail.

While there are many ways to approach product specification as a means to gaining leverage at retail, there are three sources of product specification that seem to give brands the greatest advantage at retail.

THREE SOURCES OF PRODUCT SPECIFICATION:

Product Specification Source #1 – Schools: When the school specifies “Elmer’s Glue” on its school supplies list, then we, as usually very logical parents, would never consider buying any other brand of something as generic as glue. The power that Elmer’s has at retail to minimize the threat of retail substitutes or private label is greatly enhanced by being specified on most elementary school supply lists. If your product is one that participates in a category that is relevant to teachers of students, then you should devise a strategy to become a specified brand by schools before approaching retail with your next new product or line extension.

Product Specification Source #2 – Physicians/Veterinarians: In addition to the aforementioned example of toothpaste, consider the power that various dog food brands and contact lens solutions providers have at retail given their sampling and specification footprint with the medical professional industry. Brands ranging from Science Diet and Eukanuba Dog Foods to Ciba-Vision and Johnson and Johnson have a tremendous advantage at retail given the reluctance of most consumers to switch away from the brand recommended by their trusted medical experts.

Product Specification Source #3 – Complimentary Goods further Up the Value Chain: One of the best examples of product specification as a form of retail leverage is represented by Avery Dennison. At its peak, Avery commanded as high as 88% market share in the “inkjet and laser labels” category at retail. In addition to offering a broad variety of relatively easy-to-use products (identified by name and template number), the Avery brand name and its label templates were pre-specified in the “Labels and Envelopes” function within Microsoft Office software. Avery’s product and brand specification model through its integration with Microsoft makes Avery Dennison virtually untouchable at retail As a result, Avery has long maintained its position as the dominant brand of labels within the mass, office supplies, and education channels.

RETAIL LEVERAGE TAKEAWAYS:

The next time your new product approaches the commercialization phase of product launch, it may be worth your while to gather your team together to create a “specifier’s map” as part of your brand’s go-to-market strategy/plan. Determining a path to becoming specified by credible sources of influence may be far more important than optimizing the traditional media mix or even securing a celebrity endorsement when selling through retail.

Want To Gain Big Dollar and Lots of Leverage In General At Retail? Look Closely To Find The Answer.

Ben Smith — Mon, 03 May 2010 03:04:39 +0000

By Ben Smith

Retail leverage comes in many forms. In its purest form, it may be attainable only by those brands in a position to dictate terms to their customers. For many brands it can be as simple as decreasing their reliance on existing customers. I demonstrated this concept of decreasing reliance on existing customers in an article I recently wrote about “Blue Ocean” retail strategies, which highlighted the pursuit of alternative channels as a way to gain Retail Leverage.

I offered my own definition for “Alternative Channels,” which is means of distribution outside of those you’d traditionally expect for a given product / service to reach customers. I provided examples of Alternative Channel successes such as Nintendo Wii Fit in Sports Authority, or OfficeMax branded office supplies in Safeway grocery stores. Pursuing alternative channel opportunities might be difficult and cause extra work, but I doubt they cause any brand marketers move out of their comfort zone, or to lose sleep at night over risking the perception of their brands by the company they keep.

This article explores pushing the boundaries of your own retail comfort level and looking at channels that aren’t necessary alternative, because they are already selling products from your category. I’ve got 2 great examples of retailers in this story – and as the title suggests – they might hold the key to big dollar and lots of leverage in general!

HOW FAR ARE YOU WILLING TO GO TO FIND THE ANSWER?

Signing up for extra work and the challenge of going where others haven’t gone before is one thing. Good for you if you take the challenge on. Can I suggest another strategy that involves going somewhere that is in plain sight but that you’ve probably avoided going before? The answer is right in front of you.

Let’s face it – in the current environment more power has shifted to retailers, in part due to consolidation, but also due to the big names pursuing and/or expanding private label in their stores. At the same time, these same conditions have allowed other retailers to raise their profile by improving the company they keep. These retailers have been welcoming bigger brands with open arms – brands that in some cases that would have looked at those retailers as last resort options in the past. Two prime examples of retailers in plain sight that can help you gain Retail Leverage are hidden in the title of this article: Dollar General and Big Lots!

BIG LOTS!

Big Lots! has done a great job of positioning themselves as the top of mind outlet that manufacturers must turn to if they “accidentally” make too much of their own goods. Breaking news – just like the merchandise sold at outlet mall stores, what they sell isn’t always there by accident. The proud results of your treasure hunt are likely just some marketing / sales executive’s channel strategy. So even though you and I know the truth, but let’s not spoil the consumers fun. Nothing illustrates the message they are sending consumers better than this 2008 Big Lots! tv commercial I’m sure you will recall seeing:

RECESSION & RECOVERY MEAN BEST OF BOTH WORLDS FOR BIG LOTS!

It’s not hard to imagine how the recession can help retailers with a value/discount positioning. However this recent article in the Wall Street Journal illustrates why a recovery isn’t the end of the boom for Big Lots!:

“While the recession has played right into Big Lots’ business model of helping manufacturers clear their warehouses of discounted and overproduced goods, Cooper said a strong economy is also an inducement for consumers to come through its doors. ”A better economy means better [product] availability,” Cooper said. “Manufacturers are more prone to change,” to get new goods out to consumers, and Big Lots benefits by getting more merchandise. At the same time, Big Lots is well positioned because it carries mostly discretionary merchandise and consumers are going to remain cautious even as economic conditions get better, Cooper said. “There has been a shift towards value and we believe that shift is permanent.”

DOLLAR GENERAL:

One reason that retailers like Dollar General fly under the radar (beyond the fact they are often in “flyover country”) is that few sales and marketing executives have probably been in the store, let alone shop there. I’m sure Walmart was that way for many of us back in the 80’s or even 90’s for some. But Dollar General – that is one of those stores where the poor rural people shop right? Can I say that – were we considered poor and rural in Sturgis, Kentucky (pop 2,030)?

Today it is increasingly hard to argue with any retailer that continues to chug through the recession, posting sales gains. In their own words, here is how Dollar General describes itself on their website: “With more than 8,800 stores in 35 states, Dollar General has more retail locations than any retailer in America. In addition to high quality private brands, Dollar General sells products from America’s most-trusted manufacturers such as Procter & Gamble, Kimberly-Clark, Unilever, Kellogg’s, General Mills, Nabisco, Hanes, PepsiCo and Coca-Cola.”

In many ways Dollar General feels like a cousin of Walmart, in a Hot Tub Time Machine sort of way. Go back 15-20 years, and take a retailer that is delivering strong results with discount positioning. Start polishing the assortment by increasingly adding name brands, and as more manufacturers look for growth the brands keep getting better. Seemingly overnight (again, 15-20 years), the retailer’s brand has improved in part due to the company it keeps. So maybe it is a little early to put Dollar General on equal footing with Walmart in terms of perceived brand and a place where people are willing to shop – but the current recession sure hasn’t hurt that.

RETAIL LEVERAGE TAKEAWAYS:

I could have easily written this article about other similar retailers in sectors that don’t have the same appeal that the mainstream players have. Dollar General and Big Lots simply served a purpose to illustrate the idea that you can gain Retail Leverage by showing a willingness to do what others aren’t willing to do, or go where others aren’t willing to go. Of course this article assumes that you will find a business model that works for retailers beyond where your current distribution is today. Once you take a walk down those “strange” aisles, upon closer inspection, you’ll often find that one of your competitors has already figured out a way to make it work

The current recession has shown a shift (or expansion) in how and where consumers shop – with potentially long term impact. Aptly put by Mike Duff of BNET, “Scarred by the Great Recession and embracing frugality, the new consumer is different from the one retailers knew and loved way back in, oh, 2006.” Consumers have re-examined their shopping strategies. Don’t immediately write off retailers because you’ve never sold there or it failed in the past. I encourage you to take another look at where you COULD be selling today.

RELATED READING / RESOURCES:

The Retail Leverage Principle of Physics – When Two Opposing Brands Are Better Than One

admin — Mon, 19 Apr 2010 07:01:14 +0000

By Vincent Young

Most categories at retail have room for a “good-better-best” stratification of category players. In today’s culture at retail, the retailer is predisposed to seek ownership of the “good” position by introducing an opening price-point category alternative under a private label or house brand. As a result, branded suppliers typically feel compelled to justify a position in either the “better” or “best” lanes within a category in order to survive on shelf long-term.

Herein lies the opportunity for a paradigm shift for branded suppliers at retail – why not offer both? In order for branded suppliers to have greater control over the rules of category engagement, many branded suppliers at retail have realized that the key to success is to offer branded solutions for both “Better and Best” simultaneously to the retail marketplace. How do some do it – by expanding their own brand portfolio and purposely introducing and managing a new category competitor through licensing agreements?

THE RETAIL LEVERAGE PRINCIPLE OF PHYSICS:

The concept of protecting your own brand by purposely creating a new category competitor through licensing may sound counterintuitive to a discussion about how to improve your company’s brand presence at retail until you consider the following: the discipline of Physics teaches us that objects in opposition create friction and from friction, energy is created. Today, many successful brand strategists understand how to apply this basic principle of matter to create a form of leverage against retailers and to dominate a category at the same time.

Here are a few examples of how some branded suppliers have been able to gain greater control over a category at retail by applying the Retail Leverage Principle of Physics:

Office Supplies Category

For many years, the Office Paper category has operated like a commodity with too many paper mills, too much production capacity, and too little pricing discipline. Retail private labels now make up over 1/3 of all office paper sales, thus putting many national paper mill brands out of business at retail. Today, however, International Paper, owners of the “Hammermill” brand of office paper since 1987, has the ability to significantly influence the rules of engagement in the office paper category at retail by complimenting its Hammermill brand with an offering of a full portfolio of hp-branded office papers (through a licensing arrangement). By offering and managing a seeming competitor along with its own brand, International Paper is now able to control the rules of engagement for both “Better” and “Best”, thus increasing their ability to protect the positioning of the two brands in the marketplace – especially its own brand Hammermill.

Consumer Electronics Category

Western Digital (WD) competes in the growing, yet very competitive segment of external hard drives/storage at retail. Recently, WD has complimented its branded portfolio at retail by adding a licensed set of hp-branded external hard drives. By offering both brands together, WD now has the ability to provide retailers with a more complete category solution while also providing some category guiderails within which the WD branded products can live and thrive long-term.

Toy/Game Category

For many years, toy-maker Bandai America has successfully secured “master licensor” status for many popular kids properties/programs in America. By complimenting its portfolio of Bandai-branded games and toys with the exclusive rights to offer a full-suite of licensed toys (eg. Power Rangers, Roady the Race Car, and others), Bandai is able to maintain a certain level of category and retailer control/ influence over the extent to which the Bandai brand is represented in each participating category.

SUMMARY: TO GAIN CONTROL YOU HAVE TO LOSE CONTROL:

All manufacturers want to own the brand names associated with the goods and services that they sell. Why? Because there is greater profit, personal pride, and control over a company’s long-term fate if every time a customer is created and satisfied, positive equity is assigned to the company’s brand and stored as a reference point for future consumer purchases. There are times, however, when, in order to establish your company’s brand value proposition within a category over the long haul, it may make sense to create (and control) a new category competitor in order to gain leverage in the retail marketplace.

Home Depot Builds Something Too Big To Ignore

Ben Smith — Mon, 22 Mar 2010 04:01:30 +0000

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:

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)
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)
FSI / gift guide: these dedicated pieces allow you to fully tell your story, and create a multiplier effect in conjunction with your circular presence.
Traditional Broadcast Media (tv/radio – if it makes sense given your $ scale)
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:

RELATED RESOURCES / ADDITIONAL READING:

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What Is The Retail Blue Ocean Sales Strategy?

Ben Smith — Wed, 10 Mar 2010 04:01:52 +0000

By Ben Smith

Growth makes the world go round. The market demands it, the CEO and CFO expect it, and the managers chase it. To provide retail perspective on the old quote - “if you aren’t growing, you’re dying” – we do believe you are growing in a less desirable sense – that is growing more reliant on your existing customers.

Being realistic, unless you are a start-up or regional player, your brands products are probably already in the expected channels for your category(s). Of course you could and should be trying to grow in your existing channels – but you’re probably in trench warfare now, fighting over the same turf as your key competitors, not to mention your partner retailer’s private label products.

I don’t know if I’m suggesting something as radical as the authors of the book “Blue Ocean Strategy” would suggest – I’m merely advocating you change the channel by looking beyond your existing business. That being said, pursuing new channels does have some similarities to the core philosophies shared in “Blue Ocean Strategy”. Think about your existing retail channels in context of the Red Ocean Strategy below, and then look at the Blue Ocean Strategy. It makes a Blue Ocean Strategy in retail seem worth a shot.

WHAT ARE ALTERNATIVE CHANNELS:

So a “Blue Ocean Strategy” in retail is what we are affectionately calling here “Alternative Channels”. What exactly are “Alternative Channels? I don’t mean alternative channels in the 1990’s or satellite radio sense. The simplest definition I can offer is that “Alternative Channels” are means of distribution outside of those you’d traditionally expect for a given product / service to reach customers. This means they probably require modifying how you go to market. This impacts everything from the margins and programs you offer, to how you reach customers and present yourself at the point of purchase.

Agencies and vendors take note – pursuing sales via alternative channels often creates new growth opportunities for you too. Additional marketing budgets for somebody’s special initiative. Targeted messaging. Custom displays. Special packaging. New types of promotions.

RECENT EXAMPLES OF ALTERNATIVE CHANNEL PLAYS TO GET YOUR IMAGINATION GOING:

P&G expansion at BabiesRUS

During 2009, P&G moved from Pampers & Dreft at Babies R US to a broader assortment of consumables. Given that Babies R US tends to be a destination for parents on a mission for diapers or formula, they are providing convenience that perhaps reduces a separate trip to pick up these other essentials.

Nintendo Wii at Sports Authority

Nintendo’s Wii Fit has shown up in other places such as Babies R US, but the biggest example is their showcase in Sports Authority stores. They have the opportunity to solution sell the wide range of fitness accessories that can go hand in hand with Wii Fit sales.

Dell’s Kiosks at over 140 Malls (RIP 2008)

Note – Dell’s mall kiosks served as a transitional tool for the direct marketer to dip its toes in the retail waters. In 2008 Dell shuttered its mall kiosks and opened up retail distribution in leading computer retailers such as Best Buy, Walmart and Staples.

Taking OfficeMax Branded Products Outside Their Own Stores

Officemax has been selling branded products at Safeway since 1998 and announced recently they were expanding to Food Lion, as well as other unnamed mass and grocery retailers.

BENEFITS OF ALTERNATIVE CHANNELS:

Ultimately, the purpose of growing outside of your existing book of business is to drive growth for your business. You gain leverage with your existing customers, even if they don’t know it / acknowledge it, by having alternatives.

Key Benefits To Pursuing An “Alternative Channel” Strategy:

If you successfully develop new customers, you lessen your dependance on existing customers
Experience serves as a “Learning Lab” where you can test new ideas & apply learnings in your existing channels
Opportunity to create new demand for your product by positioning it for specific applications / uses
Growing sales in new channels may help lessen impact of seasonality in your existing channels
Buyers / merchants tend to stay within the retail industry – your new friends may pop up in your existing channels down the road.

CAVEAT:

You always have to be aware of the potential impact to your existing business. It is much easier to find alternative channel success stories than it is to find people willing to tell you how they got their hands slapped by existing customers, or even worse, lost business as a result. While your management probably won’t accept a printed copy of this article as a get out of jail free card, you are welcome to try.Take heart though – as the retail market has consolidated, ironically we believe there is less threat to pursuing sales via alternative channels than ever before. In the past retailers used to obsess that someone else was getting a better deal than they were. If you were living on the edge, every Sunday you held your breath knowing your buyer was ready to play a game of gotcha / you’re busted with the circulars as evidence.

Perhaps the abundance of price comparison websites/services means that nobody is really going to be able to offer a significantly better deal, so that threat has passed. Perhaps retailers feel guilty about increasing competing against the brands they built their businesses on with their own private label goods. The net is we believe the coast is clear as long as you are fair in your offerings. If there isn’t anything you’d be ashamed of your existing customers to see, no worries.

ADDITIONAL RESOURCES / RELATED READING:

Note – resources on alternative channels are few and far between.

STAINMASTER Carpet Goes Wall-to-Wall at Lowe’s

Vincent Young — Mon, 01 Mar 2010 04:01:09 +0000

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

You Can Be Skeptical of MagicJack – But Not How They Got Retail Leverage

Ben Smith — Thu, 07 Jan 2010 03:34:45 +0000

By Ben Smith

HOW TO GET 250,000 NEW CUSTOMERS A MONTH – OVERNIGHT

I guarantee that if you haven’t seen / heard of MagicJack by now – you must have given up cable and are avoiding retail. How many other consumer electronics products have gained distribution in over 10,000 stores in the last 12 months? In fact they aren’t far from being on the shelves in 20,000 stores. While it isn’t a cultural phenomenon like Snuggie, MagicJack has pulled off something that any brand marketer worth their salt has to respect – let alone a challenger brand marketer desperate to break through.

Behind MajicJack is a privately held company largely driven by the efforts of a handful of men with roots in the telecom industry. Remember the 10-10 dialaround numbers? That was one of the founders early successes. Little is known about the company besides the fact that they’ve built a proprietary network that runs MagicJack – probably how their cost structure is able to work. It is also hard to get a handle on their finances, but I’ve seen articles projecting over $100 million in revenue in 2009, based on estimates on their install base and quoted sales of over 250,000 new customers a month.

I won’t bore you with the details of “what is” MagicJack beyond saying it is something similar to Vonage, or other voice over IP (VOIP) services out there. There are some technology and business model differences, but the end result is you are getting phone service via your high speed internet. It is legitimate, and even Consumer Reports has weighed in on MagicJack, as is one of the most searched terms on their site.

The hook to MagicJack is the pricing – Under $40 the first year, and under $20 each additional year. Do the math (or they’ll do it for you) – that’s under $2 per month for phone service. Compare that to what you pay monthly today – if you are lucky $33 via a triple play bundle from your cableco, or $40ish from AT&T. You can pretty quickly see the value prop.

So the essence of this article is to discuss how MagicJack got to where it is today – and provide inspiration that illustrates potential paths for others to follow. Challenger brand marketers / agency strategists – take note. While the path they have taken isn’t necessarily glamorous – it does make sense for the story that they had to tell. Follow along with us.

FROM HUMBLE BEGINNINGS:

2007: Launched via Drive Response TV (aka infomercials):

Late nights / early mornings. MagicJack came up on TV the hard way – without Billy Mays or Anthony Sullivan. Instead all they had to rely on was their value proposition. You’ve got to start somewhere, and for a consumer electronics / technology related product you don’t just call up 1-800-2BestBuy, sweet talk the receptionist to get thru to the buyer, and bam – your product is on shelves across the country. They had a story to tell and they used one of the best mediums to tell it. Direct Response. Direct Response is even better if you don’t have an ego to get over.

2008: Gained 2^nd Tier Retail Distribution:

Radio Shack has its place in the world and they do certain things right. This is the kind of product you’d expect to find at RadioShack. With 5000 locations they can put a product in front of lots of people and add retail credibility. So it is no surprise that a product like this made its first tangible appearance at retail at The Shack.

GOING BIG TIME – HOW MAGICJACK LANDED THE BIG BOXES

Not sure whose phone rang first, but here’s how we think it went down:

MagicJack Salesman: Your customers are already asking about my product, and I sold 2 million units alone in 2008. I ran over $10 million in DRTV ads last year – perhaps you’ve seen it once or a hundred times? I’ll tag my infomercials telling customers they can now find my product at your store.

Retailer Buyer: I’m thinking about taking a chance and listing this MagicJack thing that everybody’s talking about. Growth is hard to come by, especially in this environment. It’s a risk but there is lots of upside …

Note – Risk is the enemy of the retail buyer. Minimizing that risk in the buyer’s mind if your key job if you are trying to get over the hump. MagicJack did a great job of minimizing the buyer’s risk.

2009: Gained 1^st Tier Retail Distribution via DRTV tagging.

Best Buy started carrying the product early in 2009. Almost simultaneously the traditional magicjack infomercials morphed to a version that tagged Best Buy where the normal call to action would appear. MagicJack was sending its customers to Best Buy stores (or customers could still figure out they could go direct to MagicJack.com). Note – Without having tangible sell thru data, I have to guess that the product has done okay at Best Buy. MagicJack has 126 reviews on Bestbuy.com, with 3.6 out of 5 stars. The fact that it is still on shelf after almost a year is proof enough for me.

In methodical fashion throughout the rest of the year, MagicJack has appeared in retail at Walmart, Staples, OfficeDepot, Walgreens, and CVS. I’ve seen Walmart, Staples and OfficeDepot tagged in similar fashion as Best Buy.

[youtube=http://www.youtube.com/watch?v=cIRcWKa8CG8&hl=en_US&fs=1&]

MAGICJACK: RETAIL AND DIRECT IN PERFECT HARMONY:

So you might ask yourself wasn’t MagicJack giving up something by tagging retailers, effectively pointing potential customers to stores?

Well they can start dialing back their Direct Response spend, or at least keep it flat. Plus after 2-3 years of hitting the airwaves hard with the same product, there are diminishing margins of return on the number of people who will buy your product direct. Chances are they saw the ad – if they were going to buy it direct they would have done so already.

Retail represents an untapped market. There are people who won’t buy direct, or maybe never even saw it on TV. And there is a good chance the retail margin they’ll pay is probably close to the cost per order to sell direct (media costs + fulfillment.

LESSONS LEARNED:

1A) Infomercials are a great vehicle for telling a story and building demand at retail.

1B) Marketers with a holier than thou attitude towards Direct Response TV (DRTV) are ignoring a viable tactic.

2) Take risk away from the retail buyer. This makes it easier for them to list / support your product. MagicJack wouldn’t be at retail if they didn’t have a success story from their direct experience, as well as ongoing aircover in the form of their DRTV spots they continue to run that in effect are ads for their retail placements.

3) There is less risk in balancing a direct and retail strategy than ever before. The battle lines have been blurred by retail consolidation, and the growth of private label. I don’t think the retail buyer spends much time worrying about where you are selling your product, as long as it is selling well in their stores. We spend way too much time worrying about who we compete against, versus just selling.

Will Your Brand Be Up To The Challenge At Best Buy?

Ben Smith — Tue, 15 Dec 2009 03:48:46 +0000

By Ben Smith

The basis of Retail Leverage “the blog” is Challenger Brand Strategy. While we continue to find ways to illustrate the concept of Retail Leverage, we love when somebody provides a teaching example that is directly relevant, such as the recent BusinessWeek article about “Why Tech Bows To Best Buy”. The article provides an inside perspective of what Best Buy looks like in the post-apocalyptic environment after the demise of Circuit City. I have a great deal of respect for Best Buy’s CEO, Brian Dunn, featured in the article, who seems reasonable and straight forward – which you’d expect somebody that worked their way up from Blue Shirt to CEO. The essence of the article is that while Walmart and Amazon are worthy foes, Best Buy is the only large national consumer electronics player left standing and they plan on capitalizing on what makes them different. However important Best Buy was before as part of the buying process – regardless of the final point of purchase – Best Buy is now ready to take advantage of its position.

If you are a challenger brand marketer (or an agency working with one) there are lots of takeaways. I hope you read the article but the highlights from a Retail Leverage perspective are below:

1. If you aren’t collaborating with Best Buy on product development you are behind. The earlier you involve Best Buy in the process the better. They already are with your competitors.

Rather than waiting for electronics makers to ship Best Buy the same products that its rivals get, Dunn’s lieutenants are walking factory floors with executives from companies such as Hewlett-Packard and Toshiba, influencing product development and design.

2. Demonstrating (or demonstratability) of your product is increasing in importance. This means you need to re-evaluate your in-aisle strategy to ensure your story is being told.

“We want to become a digital playground where people come in, experience it, try it, and find out how all these things can work together around their life,” says Dunn.

3. If Best Buy isn’t already competing with you, make the assumption they will be soon. If not, your category probably isn’t a priority for them anyway.

“The company is already selling certain products in competition with suppliers, and will likely push other products off store shelves to make room for gear it’s developing. Best Buy’s new role makes it a kingmaker for companies that play along and a serious threat for those that refuse. Executives at several major consumer electronics companies worry privately about Best Buy’s growing influence. They’re concerned that Dunn and his team could block them from getting innovative products in front of customers or favor Best Buy-backed goods over their own.”

4. Pulling out of Best Buy is always an option. Yeah right. Maybe Apple could get away with it. Maybe. Anybody else – good luck. I wish HP would try – ha! Realizing this, know that even the strongest competitors in your category realize the power that Best Buy has and go great lengths to accomodate them. You need to be willing to go farther.

“Apple, Sony, and other manufacturers could retaliate if they feel Best Buy is getting too heavy-handed, although they would think long and hard before doing so. They could pull products out of the retailer’s stores or forge closer relationships with rivals such as Wal-Mart.”

5. Reiterating the importance of product demonstratability / comparisons at Best Buy:

Dunn strolled into a store in Union Square to check out the company’s new “discovery zones.” In the Best Buy Mobile zone, for instance, dozens of customers were checking out how Motorola’s new Droid smartphone stacks up against Apple’s iPhone. Although it’s too early to tell whether the strategy that lets users try out multiple brands in one place will goose sales and create a more loyal following, Dunn nods approvingly. “What we’re able to do is show how all these things can work together,” he says. “Convergence is actually here now, and all those roads will lead through the center of our store.”

6. Start embracing Best Buy as a technology company – as a partner and competitor. This isn’t just a fad like customer centricity. Buzz Jill and Ray were useful but “partnering” is a strategy with much larger ramifications. It means they’ll either get what they need from you, your competitor, or just make it Private Label. They have more leverage than ever before.

“The job of knowing just how far Best Buy can push before manufacturing partners push back falls in large part to Kal Patel, executive vice-president for emerging business. Former CEO Anderson hired Patel away from the consulting firm Strategos in 2003 to direct the retailer’s strategy, and Dunn has given him broad leeway to transform Best Buy into a technology company. Patel suggests, unapologetically, that Best Buy and its partners will have to get used to a new relationship. “If you’re in the technology business, we’re going to have to learn to deal with constant conflict,” he says.”

7. If you have an annuity stream strongly consider using it as leverage to let Best Buy make you a king like Kaspersky. Just be careful that you don’t make a deal that doesn’t allow you to live once they decide to make someone else king.

“PC makers are concerned the retailer is trying to grab more of their scant profit pool. They may be right. One unusual deal Best Buy has struck is with the antivirus company Kaspersky Lab. The Moscow-based company agreed to let Best Buy manage its software and subscription program in exchange for more prominent placement in stores, says Randy Drawas, Kaspersky’s chief marketing officer. “We get a broader footprint within Best Buy and are seen as a premium brand,” he says. Best Buy salesmen promote Kaspersky’s software, and the retailer gets a slice of the revenues when customers use it. PC makers, though, may lose out on revenues as software from rivals such as McAfee are stripped off machines.”

8. You may be able to get leverage in your category by making Best Buy’s new in-store media network a priority for a chunk of your marketing dollars. I don’t think it has ever hurt with the buyer to support a retailer’s key initiatives – especially those around getting you to shift some of your marketing dollars to their programs.

Best Buy plans to launch its own advertising business early next year. The company will let movie studios, PC makers, and other companies run trailers, songs, or commercials on the thousands of televisions, PCs, and cell phones within its stores. Sony, Toshiba, and Samsung have already signed on to advertise.

SUMMARY:

All in all, Best Buy is more important than ever before – regardless of where the consumer actually purchases the product. Best Buy will still make money on the traditional one-time sale of your product. Now they will ensure they get a piece of any annuity, and they also are covering their bets by monetizing the advertising and showroom experience – so that even if the consumer buys elsewhere, they still get their cut. They are doubling down on the digital playground experience as this is one of the few vectors that would be hard for Walmart to beat them on, because they will never win on price vs. Walmart.

If you are in consumer electronics you need to be able to win at Best Buy before you can think of winning at Walmart. Otherwise you simply aren’t relevant. If you want to learn about how to gain Retail Leverage in an environment like Best Buy, we suggest you check out some of our ideas here, and then start following us so you can get our latest and greatest.

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