Retail Leverage » retail

Sharp Quattron TV’s Add Yellow But Their Marketing Makes Me Blue

Ben Smith — Wed, 09 Jun 2010 01:56:27 +0000

We’re not fans of 360 marketing plans here at Retail Leverage – partly because the term is overused, and partly because the terminology leads you to believe that your plan is incomplete if you don’t cover all your bases, spreading your dollars around. For most of us, you have to choose – have a crappy 360 plan, or focus your dollars to own something.

You might think that the big players have seemingly unlimited funds that allow them to execute plans that cover the marketing spectrum, but that doesn’t mean their spend makes sense.

SHARP QUATTRON TV’S

Today we’re focusing on Sharp and the launch of their new line of TV’s branded as “Quattron”. Sharp likely had a big budget to launch – table stakes to market products in the television category are likely in the hundreds of millions. Still though – they aren’t going to out advertise Sony & Peyton Manning, or Samsung & the NFL sponsorship, and their budgets will never come close over multiple quarters.

MOVE OVER SHATTNER – THERE’S A NEW PITCHMAN IN TOWN

Sharp tried to launch with a big bang, most visibly with the TV ads featuring some guy from Star Trek (not the Priceline guy). Note to Star Trek geeks – I know his character was Sulu, and his name is George Takei, but I guess the point I’m making is that it wasn’t Peyton Manning. I’m thinking his Q rating isn’t that high, and for the purpose he serves in the commercials, the generic annoying “WOW” guy from the Staples ads probably works cheaper.

If you’ve seen the ad, hopefully you walked away understanding Sharp’s raison d’etre. If you haven’t seen the ad then the point that they won’t ever out-sony Sony rings true. Well Sharp’s key differentiator is that you supposedly see yellow better. They call the technology “Quad-Pixel”, whatever that means to customers. Of course since you don’t have a Sharp tv with this new technology, it’s kind of hard for them to demonstrate what you are / are not missing. The ads poke fun at this, but I don’t know if somebody outside of the circle of trust would necessarily get the joke.

So here’s what we’ve seen so far from Sharp in this campaign, including the TV ads that I just armchair quarterbacked.

TV ads
National FSI insert
Front page Retail Circulars ad
Full page Retail Circular ads
Web site
In-store displays
Demo days / staffing

I give them credit for consistent messaging and purpose throughout the campaign. It looks and feels very professional. They are upfront that their goal is to get people in the stores. I can’t argue with getting people in the stores – after all, regardless of the stat you choose to reference, a great deal of purchase decisions occur in the aisle. However – that is where I sour on their campaign.

SHARP MINDS, DULL STRATEGY

Let’s go back to where most decisions are made – particularly in this category. Even if it is not a fair comparison, have you ever watched people shopping for tv’s? Heads craned, scanning up and down the wall. They stare at TV’s that are all tuned to the same picture (on purpose), and customers and associates alike try to divine which “picture” they like better. The decision is made in-aisle.

My guess is they are spending all this money on TV ads that MIGHT drive some people in the stores. And maybe they lock up the Trekkies. What if there isn’t somebody there from Sharp to assist the sale. The customer has to find the Sharp TV’s and then most important – buy into this whole “I can see yellow” key differentiator. Otherwise, there is a decent shot that once customers get to the stores, they’ll walk out with another brand, or no purchase at all.

DULL & INVISIBLE

Sure Sharp said that demo days were part of their strategy. While they can check that box off on the 360 strategy chart, I’d be shocked if demos were the 2^nd or 3^rd highest line item in their budget. Focus group of 1, but I’ve yet to encounter a Sharp rep yet myself, and unfortunately I enjoy going to Best Buy multiple times per week, every week, just to see what’s going on in the aisles. Multiple stores. Different states.

CAN I SUGGEST AN ALTERNATIVE?

All I can think of is that all that money they spent on TV ads could be wasted. From an article in TWICE online, a Sharp representative is quoted saying that the ad budget “is in the tens of millions of dollars, and is consistent with campaigns we’ve run in the past.”

While it would be daring – if you have something that you think needs to be demonstrated in person, I’d sink the overwhelming majority of my dollars on demo staffing. Let’s assume they will spend $30M on TV ads between the mid-April launch and the end of the year (which by the way, pales in comparison to the multiples Sharp’s budget that Sony & Samsung spend). What kind of difference could you make in-store with $30M?

DEMOS ON STEROIDS

How about covering the top 800 Best Buy’s, along with 100 high volume HH Gregg’s/ Sears / BrandSmarts?

TOTAL: 900 high traffic retail stores.

How about covering them 40 hours per week, for 26 weeks (of the 36 remaining weeks they are on-shelf), and assume that you’ll pay a marketing firm an average of $32/hour for demo coverage.

TOTAL: $33,280 per store covered.

Side benefit – I think those Blue shirts / associates might pick up a little of Sharp’s selling story by osmosis. In basketball there is the 6^th man; for the Seattle Seahawks football there is the 12^th man; in retail, there is the demo rep. Their impact is felt beyond the time they actually spend in store. Not to mention it adds credibility when the retail associate can tell your story, versus the rep paid by the brand.

NET: $30,000,000. Mission accomplished.

RETAIL LEVERAGE TAKEAWAYS

From 30,000 feet:

While it was easy for me to re-route Sharp’s $30M (hypothetically estimated) ad budget, it wouldn’t be that easy in real life. Factors such as reliance on agencies for marketing strategy and 360 plan creation, as well as unwillingness of managers to make bold moves that break from past campaigns. Life is short though.

Begin your strategy with the End in Mind. When the dust settles, will the traditional 360 plan have made any significant impact. Will you out-sony your Sony? Peyton Manning isn’t walking through that door anytime soon.

On the flip side, what do you have to lose if you depart from the traditional 360 like strategy? Unless you were using the campaign as a band-aid to keep from getting thrown out, you probably won’t lose much. Leave the 360 plans to the big guys to inefficiently spend their fat budgets. Compete where you can win.

From the ground:

Beginning With The End in Mind is also relevant when you think about the consumer’s purchase. How are products sold in your category? Where does the consumer make their decision? Can they be swayed at point of purchase?

In the case of Sharp, so I’m saying you could cover the top selling Consumer Electronics stores, on the weekends and in the evenings, for all but the really slow weeks the rest of the year. You’d never see an ad, but you now have a shot at sniping the customers that are already in the stores shopping for TV’s, showing them something that nobody else can show them. Sowing those seeds of doubt that if they don’t choose your brand, somehow the picture just won’t look the same – especially in yellow.

WHAT DO YOU THINK?

What would you do if you were Sharp? Do you think you can win by driving customers to the stores alone? Or do you win by converting customers that are already in the store by locking down the aisle? How did Sharp get to their strategy? Do you disagree with my thoughts or can you add to them? I’m not looking to prove I’m right – I just wanted to show an alternative “Retail Leverage” path. Let me know. I’m posting this to our LinkedIn group and will be tweeting the article to solicit input. Add a comment below, email me at retailleverage@gmail.com, or tweet me @retailleverage . Thanks!

Related Reading / Sources:

Understand Retailer Private Brand Strategy By Watching Football

Ben Smith — Thu, 22 Apr 2010 03:45:11 +0000

By Ben Smith

I never pass up a good analogy to help myself understand a complicated story, and spice up a boring one. The growing use of private brands (or private label) by retailers has become the key story of this new era in retail marketing. There are so many different stories and perspectives floating around, I think what gets lost in the buzz is the underlying reason of why retailers have turned to private brands. So what does retailer’s private brand strategy have to do with the NFL? On the eve of the NFL draft, I will help you look at retailer’s private brand strategy from a new & more fun perspective.

LOOK AT AMERICA’S GAME:

In hindsight, the NFL probably truly became America’s game somewhere between the baseball strike (‘94) and the rise of online fantasy football leagues (‘99-01). Now of course the Superbowl has long been the dominant tv event, but as we all know, a large number of people tune in just for the commercials and the experience. Regardless of how it got there, the NFL rose to the top of american sports (and culture), and eventually found itself in a position that anybody who gets to the top of their field struggles with – staying #1, and continuing to grow.

WHAT FUELED THE NFL’S GROWTH? TV!

In the spirit of Michael Scott of “The Office”, I’ll quote Wikipedia – because if it is on Wikipedia it has to be true (and in this case it is): “The television rights to broadcast National Football League (NFL) games are the most lucrative and expensive rights of any American sport. It was television that brought Professional Football into prominence in the modern era of technology. Since then, NFL broadcasts have become among the most-watched programs on American television, and the fortunes of entire networks have rested on owning NFL broadcasting rights.”

WARNING – RETAIL PARALLEL COMING: Think about how the NFL’s relationship with its TV networks has similarities to Retailers relationships with the branded manufacturers whose goods they sell in their stores. Don’t get hung up on who makes & who sells – just stay with me here. Without the TV networks, or without the branded goods, neither the NFL or retailers would be in their positions of power – each needs the other. Would the NFL be where it is today without the TV networks? Would Walmart have gotten where they are today without finally breaking through the public’s perception that Walmart carried the same quality branded goods as other retailers?

FOLLOW THE MONEY / DRIVEN BY GROWTH:

Like anyone else who makes it to the top of their field, being #1 is not enough. Staying #1 is the challenge, and growth is the fuel that you need to do it. While I am sure the NFL was grateful for the various networks role in their success, they started thinking in the spirit of what have you done for me lately? In 2003 the NFL, in a dramatic step, launched the NFL Network, in effect the NFL’s own private brand. In one fell swoop, albeit over the last 7 years, the NFL Network has delivered growth to an already large pie, provided additional control and influence over their product, and increased their leverage for future broadcast contracts. Here are some examples:

Increased The Value of Their Own Product

Turned the NFL draft from an afterthought to an event, and starting this year, a prime time event, adding Thursday night and Friday night.
Creating something out of nothing by turning the NFL schedule release into an event.
Turned the season kickoff into a big Thursday event on NFL Network.
Flexible scheduling – more control over late season schedule also means they can deliver better games for NFL Network late season games.
Raised the stakes in the pre-game show arms race on all networks by securing top talent for their own pre-game coverage.
Ultimately turned the NFL into a 24/7/365 story. The other sports have 1 season. The NFL is year-round.

Expanded Distribution / Grew An Already Large Pie:

Added Thursday night football on NFL Network , now up to 8 games starting in early November.
Added a thanksgiving day game on NFL Network.
Expanded preseason games coverage.
Made NFL Network a must-have offering from cable providers, which they in turn have to pay NFL for
Created the NFL Redzone channel – an additional premium offering on game days, powered by content from the NFL / NFL Network

There is no denying the NFL Network has had a huge impact on fueling additional growth and success for the NFL. Obviously the NFL has total control over their product, but imagine if retailers can scratch the surface of what the NFL has done with the NFL Network – you can see why retailers are pursuing private brands with such vigor.

RETAIL LEVERAGE TAKEAWAYS:

A key principle that Retail Leverage advocates brand marketers understand that it is about the retailer’s fight, and not your own; the brands that win will be the ones who can offer the retailer financial growth, not a mere redistribution of the same amount dollars. The key reasons that retailers are increasingly leveraging private brands is that brands didn’t satisfy the retailer’s need for financial growth, and they got hung up on their own fights. So the retailers decided to take control.

The NFL apparently concluded that the opportunity for additional financial growth via the existing networks was not enough. The NFL saw opportunities to increase the distribution of their product, and improve the quality of their offering. The NFL Network has achieved both of those goals and continues to do so. At the same time, I believe the other networks have raised their game since the NFL Network came into existence. Thanks to the rising popularity of the NFL, fueled by TV, it is a WIN-WIN-WIN-WIN; for the NFL, for the original networks, for the cable/satellite providers, and for consumers/fans of the NFL. I thank you; my wife – not so much.

When I look at how the NFL used the NFL Network to gain leverage, I have a greater appreciation for how retailers are using private brand strategy to improve their own fortunes. If anything, it should make brand marketers work harder at providing value (and growth) to retailers – and the brands who get it have an opportunity to gain Retail Leverage in their own right. And perhaps the greatest point – the next time my wife complains about how much football I watch, I can just tell her I’m studying retail strategy!

Related Reading / Resources:

What If Radio Shack Becomes Best Buy Mobile?

Ben Smith — Fri, 26 Mar 2010 19:30:42 +0000

By Ben Smith

ORIGINAL ARTICLE:

So the rumor is out there – Radio Shack could be on the market, and Best Buy’s name has been tossed out as a suitor – we wanted to share our perspective on what it could mean. Best Buy and other retailers are known to be taking learnings from European Retail and applying them in the US. Best Buy’s own acquisition of Carphone Warehouse in the UK in 2008 could serve as a model for a potential acquisition of Radio Shack.

If Best Buy buys Radio Shack, they could convert Radio Shack stores to “Best Buy Mobile”. While there are approximately 61 Best Buy Mobile stand alone stores in the US today, there are over 6,000 Radio Shack locations when you combine company owned stores, franchies, and wireless kiosks.

Per TWICE 3/26/2010: RadioShack could be seen as an attractive asset thanks to aggressive cost-cutting measures by CEO Julian Day, solid cash flow, and its strong position in the growing wireless market. Its more than 4,000 small-format stores would also play into Best Buy’s mobile strategy of rolling out freestanding, mall-based wireless shops.

We live in a connected world, and Best Buy’s key differentiator is all of the value add they provide their customers – from educating them on new technology, providing advice on products, to being able to configure / install / fix the products they purchase. While Walmart and Amazon can match or beat them on price, Best Buy can win on service. Radio Shack locations can extend the reach in a more manageable, focused format.

Per Financial Times 3/26/2010: Best Buy said it was testing labour models and store design concepts aimed at demonstrating the “invisible” services in the centre of its stores, and that its first Best Buy stores in the UK, opening this Spring, would influence its remodelling efforts in the US … As part of the strategy, it is also continuing to roll out smaller Best Buy Mobile stores to malls and shopping plazas, and CPW’s Wireless World format, which sells computers alongside mobile phones.

RETAIL LEVERAGE TAKEAWAYS:

Frankly I’m just trying to wrap my head around this at the moment, and am sharing this as a service / food for thought for our readers. At a high level, retail consolidation puts more power in the remaining players, and Best Buy goes from leading the mobile phone market to OWNING it. With the kind of reach that thousands of additional locations provides, long long term you start to question the viability of stand alone brand cell phone stores (ie AT&T store). However you look at it, Best Buy would get larger increasing their own leverage versus the competition, but also with their vendors.

It is hard to say what impact there would be beyond the mobile phone + accessories category, as well as the brands/categories that are in Radio Shack today. The average Radio Shack store is 2,500 square feet, whereas the average Best Buy store is in the 40,000 square foot range. I’m not sure about the size of the typical Best Buy mobile section inside their US stores, but it is pretty small. The carphone warehouse stores they bought in the UK average 800 square feet. Just as their is additional computer / technology related merchandise in Radio Shack’s today, I’d assume there will be more than just mobile phones + accessories in a Best Buy Mobile store.

I’ll keep my eye out for additional thought / speculation floating out there from people we trust on this potential retail shake-up, and I’ll share – primarily via our twitter feed @retailleverage , which I highly encourage you to follow!

UPDATE #1: Note – shortly after hitting submit on my article, Brian Barrett of Gizmodo wrote a great article that blows out lots of the topics I discuss below. Check it out.

UPDATE #2: Tom Ryan at Retailwire started a discussion on the topic of “Best Buy Reportedly Exploring RadioShack Merger.” They currently have 20 comments from various retail industry contributors. One note – Retailwire contributors tend to come from the retailer perspective often. We hope to add more brand marketer perspective to the conversation in the future.

UPDATE #3: An article in the Minneapolis St. Paul Business Journal highlighted a nugget from a Best Buy job posting – that they plan on opening 50 Best Buy Mobile stores this year – in enclosed shopping malls. Obviously a great deal of Radio Shack stores are in shopping malls – buying Radio Shack would put this plan on steroids.

Additional Reading / Sources:

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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Best Buy Is Your Best Strategy To Gain Retail Leverage

Ben Smith — Tue, 09 Feb 2010 03:05:55 +0000

By Ben Smith

It’s hard to have a conversation about consumer electronics without making the discussion relative to Best Buy. While I assume most people know that Best Buy is the market leader, I don’t know if they understand their magnitude in the marketplace. With their longtime rival Circuit City closing in 2009 this provided a slight “reset” for the market and it is worth taking a look at how things shook out. I know that all the customers we met with had their own take / plans on how they were going after Circuit City’s market share. The general market consensus was that Best Buy would gain the most, but that Walmart and Amazon.com would also benefit.

Well the dust has settled and results from the Q4 holiday season are in. I realize that some of our readers are in the CE community and have ready access to retailer share. Note that I’m not quoting anything from NPD that I have access to for my job. I’m linking to a couple of public sources to point out that you can get a good idea of what is going on with a little digging (or you can get it from us)! The data I’m sharing is from consumer surveys conducted by 2 different firms, so take it with a grain of salt – it isn’t cash register data, but provides valuable perspective on where consumers look to purchase their electronics.

1) AD AGE ARTICLE SHOWS BEST BUY GAINING GROUND (WITH 33% SHARE)

Ad Age featured an article appropriately titled “Former Foes Gain Share From Shuttered Circuit City”.

Summary: Best Buy gained share last year and is up to approx. 33% consumer preference share. Walmart gained also, and is up to approx. 20% consumer preference share. They have further breakdowns in the article by customer’s income. Those under $50K/year, Best Buy and Walmart are neck and neck. But for those $50K & over, Best Buy is the overwhelming leader, over 40% share.

Store Dec. 2008 Dec. 2009 +/-

Best Buy 29.8% 33.1% 3.3
Walmart 17.0% 20.6% 3.7
Amazon 2.3% 3.6% 1.4
Target 2.1% 2.8% 0.6
Sears 1.6% 2.0% 0.4

Their data source: (data from BIG RESEARCH)

Notes: Of course they didn’t include Circuit City’s share in 2008, but I estimate it was between 8-10%. I estimate that brick & mortar Best Buy and Walmart probably split Circuit City’s share pretty evenly, with Walmart gaining a little more due to a larger number of store locations. Amazon.com gain’s were likely from Circuitcity.com’s absence, as Circuitcity was a strong dot com player (stronger than their retail presence in comparison).

2) RETREVO PULSE ARTICLE SAYS BEST BUY LOSING GROUND (BUT WITH 40% SHARE)

Retrevo Pulse featured an article titled “Best Buy Competitors Gained Ground This Year”.

Summary: Take it with a grain of salt that Best Buy lost ground in this survey, as they actually have an even larger share of preference in this one, at 40%. I’m not disputing the source, but as you’ll see in my notes, I think you can explain away some of the differences.

About Retrevo & their data source: The Retrevo Pulse is a data source from a CE shopping website that conducts its own surveys and publishes them. What I like about Retrevo is the simplicity of their reports.

Notes: This article shows Best Buy with a even larger share of preference than the Ad Age article, at 40% – but that it slipped over the last year. The article also makes it look like Amazon gained at Best Buy’s expense. Perhaps it boiled the results down too much, and again, we don’t see what Circuit City’s 2008 numbers were to gauge how much there was for competitors to take. They also show Walmart much smaller than the Ad Age survey. And conversely, Amazon looks huge here. Given that the survey was conducted online by Retrevo, a online shopping/comparison site, you can imagine that their population is probably more comfortable with relying on Amazon.com for their CE purchases.

TAKEAWAY: CONSUMER ELECTRONICS STILL REVOLVES AROUND BEST BUY

Best Buy is the dominant player in Consumer Electronics, a king maker that has influence with consumers beyond whatever its share actually is (33% – 40%). Even as Walmart and Amazon grow share in the CE space, it is ultimately because people get more comfortable NOT making their purchase at Best Buy. If you are a CE manufacturer, not having your products at Best Buy robs you of credibility with consumers and key influencers. If you are an agency with clients who sell products at Best Buy, you need to know as much about Best Buy as your clients because it is your best route to success. If the products you sell can’t succeed at Best Buy, you will have little leverage wherever else you go to peddle your wares. Conversely, succeeding at Best Buy paves the way for success in other channels. Best Buy does the heavy lifting for other retailers that sell consumer electronics. They just have to look at what Best Buy assorts as a baseline and start from there. So get it right in the first place and base your plans on success at Best Buy. Retail leverage will flow from there.

BONUS: NAME TO KEEP AN EYE ON IN CONSUMER ELECTRONICS:

If you don’t live in the midwest or south, you probably haven’t heard of HH Gregg. In the coming decade you will. They are a regional consumer electronics chain that has national ambition. Imagine the things that people liked about Circuit City (more experienced sales associates, ability to deal), but without the legacy burden’s that held Circuit City back. This article in the WSJ lays out HH Gregg’s ambitious expansion plans. While HH Gregg has a small footprint and is only roughly 10% of the size of Best Buy (127 stores), in many ways this is an advantage to them. They are ramping up expansion in a market where retail real estate has been decimated, including many former Circuit City locations that can easily be re-purposed.

How I Learned To Love Hi-Lo Pricing (And Get Better Circular Ads)

Steve Marzio — Thu, 04 Feb 2010 03:15:41 +0000

By Steve Marzio

Looking for ways to carry some more weight into your negotiations with your retail “partner” when it comes to securing more, bigger, better circular ad space during the biggest weeks of the year? Here’s a bit of advice…go Hi – Lo!

WHAT A GREAT DEAL!

We are all suckers for a deal. Let’s look at the parties involved. For the consumer, the “win” is obvious. How good do you feel when you buy your product that was only price reduced for that one week? Good for you for rushing out and grabbing that seemingly short-lived offer on something that you had to buy anyway (you know like that second GPS unit for your golf cart). For the retailer, “the deal” is deemed successful because the ad with the temporary, expiring deal generated a needed immediate lift to sluggish everyday sales. For the sales rep, “the deal” helps her hit her quota for the quarter….so she too is happy. Now for the marketer. Herein lies the issue. “The deal” is often an uncomfortable walk of shame that they had to price their beloved product so low…if even for just one week. (Often this is when the sales reps phone rings whereby the ivory tower marketer says “Well of course it sold well, it’s easy to give it away!”) However, it is the marketer’s fault to begin with, let’s explore.

5 HI-LO PRICING TACTICS TO TAKE TO HEART

As I wrote in an earlier article, “THE DREADED P” the price lever can often be an embarrassing one for any Top 20 educated MBA marketer. However, the problem isn’t in figuring out what the “right” price should be on a product, the problem is that marketers don’t embrace enough retail realities when devising their pricing strategy. In fact, too often, pricing strategy is often left to just pricing and no strategy. In other words, discounting levels, frequency and timing of promotions are more of an afterthought, a bad afterthought when it comes to your product’s selling price.

Put simply, everyone loves “the deal.” So utilize this consumer and retail psychology to your advantage. Marketers, hear me now, “Embrace HI-LO!”. I mean really embrace HI-LO from the beginning and you will sleep better at night, have better pro-formas and most importantly, retailers will love you (and so will your sales team if you care). Let’s take a look at 5 examples on how to embrace HI-LO and to develop a successful pricing strategy in selling a $99 product:

Launch high with instant rebate (sleeves out of your vest): Instead of launching your $99 widget at $99, (which you know is the right price from your 2 focus groups when you ate too many M&Ms behind the tinted glass)….launch it at $129 and give a $30 instant launch rebate. Do this especially when you are launching at a singular or smaller set of retailers to start. Consumers do not have any reference point on your new product at launch. Maybe some competitive products are similar, but with every new product, comes a new set of price tags and opportunity to create deals. Even though you know the right price is probably $99, there is no time like at launch for you to reap some extra dough. Who knows, maybe your excel sheets and those folks in the focus groups who wanted to spend an afternoon answering questions for $30 were wrong? Maybe you end up selling more at $129 than you thought you could. This is called “free money.” Go celebrate and buy your own M&Ms!
Price drop to original planned level (back to the future): When you make your eventual price move to $99 this could be your one chance at an ad WITHOUT a deal. Enjoy it, try to bank some more “free money.” Saying “PRICE DROP” in an ad can often be as effective as saying save $30 off this week. If you think you need more, read on to #3.
Price drop plus discount (price drop on steroids): If sales start out too sluggish and you need to make back some ground, do the famous DOUBLE DEAL. Make the price move and put a discount on top of that. Ask for more circ ad space for this because if consumers like a deal (price drop), they will love the DOUBLE DEAL (price drop + discount). Was $129, Now $99-$20=$79! This is a mirage of a $50 deal! Add in a cover spot location then go get some popcorn and sit back and watch for some monster unit sales numbers come through on the EDI feed. Remember, you were going to launch at $99 with a discount anyway so you are still no worse off under this scenario. And now you have something loud to talk about in ad!
Vary Level of Instant Savings Based On Opportunity (keep your powder dry): Vary your savings offer for different times of the year or different circular ad treatments. If the retailer will give you a cover spot, offer to take off $30 vs. just $10 for a small block on page 9. Save your bigger discounts for when retailers are craving for extra special offers. The problem many marketers make is they take off the maximum amount they are willing to live with, then 2 weeks later the retailer is soliciting offers for a huge Memorial Day ad with blockbuster deals. You get locked out because you offer them the same offer as the week before and the week after. You need to CREATE your own sense of good/better/best deal scenarios by varying your offer and the timing of which you offer them.
Never Ending Closeout (like the McRib, it keeps coming back): Finally, nothing screams a deal like a “CLOSEOUT.” Here’s an idea towards the end of life…run 3 or 4 closeout ads! Why limit it to just one? On my drive to Florida every year, I pass 8 or 9 T-Shirt/Souvenir shops that have been running “GOING OUT OF BUSINESS” sales for the last 5 years! Somehow these guys get it. (no offense to you going-out-of-business souvenir shop owners out there).

All of these tactics should be used to accomplish your various sales AND earnings goals for your product. Even the EDLP king, Walmart, is open to creative ways to show their loyal, and massive consumer base a “deal.” You just might have to disguise it more (hint #1: “ROLLBACK”, hint #2 “in/out special edition”.

KEY BENEFIT IS FLEXIBILITY:

Ours is a dynamic marketplace with many new variables getting thrown in daily. Setting and tweaking HI-LO promotions are levers to keep the ever unbalanced supply and demand forces just that much closer to each other. Short on supply due to welcomed overdemand, a manufacturing shortfall or late additional retailer coming on board? Just ratchet HI-LO back. Your boss just come storming into your office and demand more growth and lower invetories on your P&L? Then crank it up! EDLP is starting to sound a bit boring now isn’t it?

SUNDAY HOMEWORK:

So over coffee this Sunday, take a look at all those circulars, from green beans to LCD TVs to ergonomically designed pillows. See if you can spot the smart marketers embracing this consumer psychology and harnessing it to their own ends. The more you accept this principle, the more success you will have in your own financials and just as importantly, in your “leverage account” with the retailer.

FURTHER READING / SOURCES:

Rafi Mohammed’s Pricing Blog, “Pricing For Profit” (he provides lots of pricing strategies/ideas from a variety of industries)