By Ben Smith

In physics, momentum defined as the product of the mass and velocity of an object (p = mv).  In life, momentum is when things are going good and keep on getting better.  In sports, when teams go on a winning streak, it is often referred to as “The Big Mo”.  However you define it – once you’ve got it, you want to keep it.  And when you lose it, you may have to work twice as hard to regain it – if you are ever lucky enough to get momentum again.

WHAT IS RETAIL MOMENTUM?

Now look at momentum from a retail perspective.  Here at Retail Leverage, we’re defining Retail Momentum as when your sales velocity reaches critical mass. The definition works at all levels – it can occur in a single store, category, retailer, channel, or the entire market.  Of course getting your sales to a high level and sustaining them is easier said than done.

This is probably a good time to tell you this article isn’t about how to achieve a high level of sales and gain momentum.  It’s about understanding Retail Momentum and ideas to keep from losing momentum.

Note – this article is written through the lens of a consumer electronics marketer, and it proudly reflects the scars of insanely short lifecycles, ridiculous promotions, merciless partners, and painful paths to profit.  I think the concepts shared and ideas we are trying to generate will apply across multiple consumer segments, but I wanted you to know where they came from.

RETAIL MOMENTUM – USE IT OR LOSE IT:

Frankly at some point everybody and every brand has their moment in the sun.  There are enough levers you can pull that it is possible to get virtually any product to a high level of sales for a period of time.  That’s not the problem.  It’s not about being #1, it’s about sustaining it.  Well – that doesn’t tell the whole story.  So far everything I’ve said is from the brand perspective.  Me Me Me.  Us Us Us.  Here at Retail Leverage we continually argue that selling at retail is not about your own product or brand – it’s ultimately all about the retailer.  Them Them Them.

So what is the key thing you need to understand?

Your products are ultimately a profit delivery mechanism for the retailer. The sooner you recognize it, the better.  You are feeding a beast.  If you don’t feed the beast, somebody else will.  If you are feeding the beast successfully, and the beast wants more – you have to find a way to keep feeding it.  Even in the short term, you can gain Retail Leverage by helping the retailer become somewhat dependent on you.  As long as you keep feeding the beast.  As long as you keep the momentum.

If you could give some retail truth serum to a veteran of retail sales or marketing, I expect you’d be able to get an admission that one of their biggest regrets revolves around when whatever they were selling had momentum, but due to certain actions (or lack of) they lost that momentum.  Just for the sake of honesty, to get you to open up, I’ll admit that I’ve got my own personal list of 4 or 5 times where what I was selling/marketing had momentum and let it slip away.  I’m not sharing the specifics here because the who what when where aren’t important, but recognizing past failures is important to making sure you don’t repeat those same mistakes.  I’m pretty sure I’m not the only one reading this – I’m sure you can easily identify similar situations in your own retail life.

IDEAS TO KEEP (OR NOT LOSE) MOMENTUM AT RETAIL:

The 4P’s are as good of a place as any to start.  Here’s the list, with some background on each.

1. Keep exact PRODUCT alive as long as possible.
2. Keep your PRICING and PROMOTION consistent.
3. Keep in PLACE support for your existing distribution.

Keep exact PRODUCT alive as long as possible.

Imagine a product that has finally broken through at retail.  You got close with several previous products, but this time you have set your world on fire.  The stores can’t get seem to get enough, customers come in asking for it, and the store staff describe it with that classic line “it sells itself”.  So why would you want to stop a good thing?  Do you blindly follow the product roadmap (designed long before your product hit the shelves and then flew off them)?  If you still have the ability to keep the manufacturing lines going – do so.

You will likely know what you have on your hands well in advance of any critical decisions such as with manufacturing or retail resets.  Don’t you hate it when the old adage “a bird in the hand is worth two in the bush” is true.  In this case it can be.  The roadmap wouldn’t matter if the replacement was going to be late anyway, which is proof enough that you can try keeping the existing product going longer than initially planned.

Keep your PRICING and PROMOTION consistent.

Have you ever been in a car where the driver speeds up, then slams on the brakes. Speeds up again.  Slams the brakes again.  Or even worse, when the driver gets upset, they pull over to the side of the road, yank the keys out and throw them on the dash.  Now imagine this in retail terms.  If you use promotions to drive sales, and that is what has gotten you to the promised land where you have Retail Momentum, it doesn’t make sense to immediately turn them off.  Nothing leaves a buyer’s head spinning faster than the brand who used to come in slinging guns and then puts their hands up.  The buyer doesn’t care why you do what you do, as long as you do it and are consistent.  More to the point – the buyer doesn’t care if your pricing and promotions aren’t sustainable as long as you are driving sales for them.

Keep in PLACE support for your existing distribution.

Now is not the time to get greedy.  If you’ve ever heard the term “dance with the one who brought you”, think about that in retail terms.  So you’ve got this great product/brand that everybody wants a piece of.  That’s a great problem to have.  But remember where you came from and who got you there.  Focus on keeping the existing beast fed before you start to open up new retailers / channels.  Proceed with caution.  The less track record you have, the more important this ideas is.  I always wonder what is more memorable in a buyer’s mind – if your product sells but you supported them well; or if your product was hot but you always disappointed them with out of stocks, missed shipments.  Buyers have long memories, and they move around often.  So even if it might not come back to bite you in your current position, it could in the future.

CALL TO ACTION: SHARE YOUR IDEAS TO KEEP MOMENTUM AT RETAIL:

I got the conversation started, but since we’ve been so honest throughout this article, I kept it pretty basic.  The 4P’s are great for Marketing 101, but there are nuances to every category and segment of retail that you can’t wrap up with a pretty bow.  So I challenge our readers to share their ideas on how to keep momentum at retail.  I’ll compile the ideas I get via comments, tweets, and email and update this article in a few days.

By Vincent Young

WARNING: YOUR PRODUCT DEVELOPMENT PROCESS IS HARMFUL TO YOUR HEALTH

Your company/brand has spent many years attempting to honor a classic “product development” process. You have flowcharts in conference rooms and in PowerPoint decks that detail each of the steps (along with owners, stakeholders, approvers, etc). In many companies, that process has some variation of five steps or “stage gates” that the product marketing team tries to follow religiously:

5 Typical Product Development Stages / Gates:

1. Discovery/Scoping
2. Building the Business Case/Plan
3. Development
4. Testing & Validation
5. Product Launch

Each of these gates typically is completed when a series of deliverables, criteria, and outputs are defined by the collective meeting of the minds between Marketing and R&D.

THE TRAGIC FLAW:

This process has one major flaw if you are a brand whose business case is primarily built on accessing the consumer through the world of retail – the retailer is predisposed to prefer a private label solution to compete with your new product type or class.  In today’s product development process, the supplier brand diligently takes the retailer through all of the consumer insights upon which the new product is based, showcases the research & development capabilities of the company that make the new product possible, and shares the market research around all aspects of the new product ranging from the product name, packaging design and predictive demand models based on various price options and advertising/promotions investment levels.

Shortly after launch (assuming successful national brand sales), a funny thing happens – the retailer plans a private label derivative of your new product (without so much as a “thank you” for your efforts in hand-delivering them all of the upfront inputs that they need in order to launch a lower-cost version of your branded product). You didn’t account for such copy-cat behavior in Gate 2 (Building the Business Plan) of your product development process. So in the end, your branded unit sales, revenues, and gross margins are lower than anticipated and your advertising expense dollars are higher because you have to more aggressively compete against the very retail “partner” with whom you enthusiastically shared your new product marketing inputs in the first place.

Any Parallels To The Story of The Scorpion & The Frog?

In the story, a scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, “How do I know you won’t sting me?” The scorpion says, “Because if I do, I will die too.” The frog is satisfied, and they set out, but in midstream, the scorpion stings the frog. The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp “Why?” Replies the scorpion: “Its my nature…”

How could this be the fault of your company’s product development process? Because if a retail reseller model is your primary path to market, then you have the wrong people in the room as you are managing through the product development process as a supplier brand and you have the wrong requirements to move a product from gate to gate.

YOU MUST OWN THE CAPABILITY:

Today’s stage gate process breaks down for many consumer brands at retail between Stages 2 (Building the Business Plan) and Stage 3 (Development). For brands at retail, it is no longer good enough to defend your offerings against private label through product differentiation alone – your company must also “Own the Capability” around making the product or supporting it in the market while also being different in terms of feature and/or performance.

Brands at Retail must seek to “own the capability” associated with their new products in one of three ways:

1. Patent the Product/Process – If your brand is planning to launch a new flavor, color, or functionality to your line-up and your company cannot patent these differentiators, then odds are that you will never generate the profits from the R&D investment that you are anticipating. Adjust your future profit expectations downward or STOP the product from moving through the stage gate process to launch. Add your legal department as a key input to the development process to assess the level of legally defensible/ownable aspects to your new product while in Gate 2.
2. Control Production Capacity – If, between Stages 2 and 3, your company concludes that it has the ability to own and/or manage most of the production capacity required to make a product with your new features on a global basis, then you can also expect minimum private label threats. If not, then expect a private label derivative within months and adjust your outlook accordingly.
3. Dispense the “Kill Pill” – Some business models prevent private label or knock-off brand alternatives by building products that simply won’t work unless branded products are purchased. For example, many desktop inkjet printer companies build printers that simply won’t fire unless original equipment manufacturer cartridges are loaded.

RECAP:

If your brand depends on retail and your company cannot “own the capability” associated with making or supporting your new products based on one of these three methods, then DO NOT MOVE THE PRODUCT THROUGH THE STAGE GATE PROCESS. Your marketing insights, research and development, and marketing investments will only become inputs to a retailers’ new private label growth strategy.

By Steve Marzio

LOSE YOUR “DELUSIONS OF BRANDEUR” WHEN DEALING WITH RETAILERS (credit quote to Carol Spieckerman):

We get so wrapped up in the day-to-day business that is marketing and selling our wares to large, demanding, “the customer is always right” retailers, that we sometimes lose sight of some basic human nature principles which we could actually harness to gain some leverage in our negotiations with them.  Many marketers of even the large, well known brand names backed with multi-billion dollars of total corporate revenue and $100+ million dollar ad budgets, feel like the David in the David v. Goliath relationship when it comes to negotiating with one of these big national retailers.  This is because no matter what our brand scores may read from the market research studies or what our loyalty rates are, at the end of the day, the end consumer is not walking into our corporate offices to buy their syrup, computers or baby strollers, but rather into a retail outlet to spend their hard earned money.  Your consumer is ultimately the retailer’s consumer.  And every time they walk into our “partner’s” (and I lose that term loosely) well-lit, freshly painted, freshly mopped stores, they can choose to follow their brand loyalty OR they can easily get swayed to the competition OR opt to skip the purchase altogether.

READY, FIRE, AIM:

Put simply, what the end consumers see is simply the final decision of what that particular merchant decided to put out on that shelf, or on that endcap or in those checkout-lanes in that particular moment of time.  Sometimes that merchant is a newly appointed college graduate given a lot of responsibility and other times the day-to-day decision maker might be a seasoned buyer of 20+ years.  No matter who is choosing the placement, one thing is for sure.  Once those decisions are made and retailers move into execution mode of supply chain and store operations, gone are the powerpoint charts and the negotiating tables, hello POS!  Either your POS or someone else’s that is.   And once there is POS, future decisions to expand, contract or maintain will be the most powerful data a retailer will use to drive future decisions.

So the road to proving ourselves with POS actually starts in the meeting rooms trying to convince merchants that our product is indeed the best choice for that shelf, or that endcap or in those checkout lanes.  Most of our past 30+articles we have written and posted on here have focused on strategies and methods to increase your likelihood for expansion into big box retail.  This article is no different, but may be a little more controversial.  Some may consider this tactic….well….cheating.

BUYERS ARE PEOPLE TOO, GOSH DARN IT:

One of the most basic human nature principles is that there is absolutely no substitute for one’s personal experience.  Obviously, having lived through or being exposed to some event, condition or stimuli gives one a stronger conviction in their opinion on a particular matter vs. not getting exposed to that experience.  We tend to piece together many of our conclusions and opinions by piecing together tidbits of evidence that we have experienced or been exposed to in the marketplace….such as a marketing vehicle!

Here is something we often forget.  The buyer is human.  That’s right, no matter how old, how experienced or inexperienced, they have emotion and form opinions much like any other.  If he or she owns a particular product, they form an opinion about that product.  If he or she sees a TV commercial or a radio ad, he or she forms various opinions on those commercials (especially when it involves a product that they have some expertise in).  An opinion can be as positive as “Wow that was creative/funny/informative!” or could be negative in some way.  However, and perhaps more importantly than like vs. dislike of a particular marketing message, the buyer might simply takeaway the opinion that “Wow, that company is really out there marketing that product (i.e. creating consumer pull)”  Most merchants, even the inexperienced ones, know enough that even if a product or marketing campaign is not directed at their demographic in particular, marketing campaigns that are raising awareness and creating consumer pull from any demographic is, in general, a good thing for the retailer.

I would argue that some merchants even go so far as using exposure or lack of exposure to a particular marketing campaign to help them to justify a decision they made in the past.  When the buyer gets exposed to the marketing vehicles regularly in their personal life, this makes them feel that that they might be missing out on if they chose to not assort or promote that particular product.  “Am I missing out on an opportunity here?”  Or better yet, “is all this marketing going to drive customers to my competitor down the street that is listing that product?” (conversely if they see marketing and earlier chose to promote the product, this probably helps justify their decision)

WHY YOU SHOULD BUY BILLBOARDS IN BENTONVILLE (or the alliterative cousin, Mobile Marketing In Minneapolis):

If you have a marketing communications budget that is sizeable (i.e. over $100M), you probably don’t need to worry about this issue too much (since you most likely already have retailer support and plenty of coverage).  However, if you don’t have a lot to spend and you need retailer support, you may want to think about dialing up marketing activity in the headquarter city of the retailer you are trying to penetrate.  This may not help you in the short term if you are not on the shelves at all but could help you penetrate that retailer in the future.  So buy a billboard or two in Bentonville, try local radio in Minneapolis, beef up your TV media schedule in Chicago.  Ask your agency to come back with 10 cost-effective ways to blast a particular zip code to see what they come back with.  (By the way, even though you may feel vindictive, you may want to avoid tagging the targeted retailer’s competition in this “blast”.  Although one could argue sometimes dialing up the heat can get results!)

Dialing up your marketing efforts in retailer headquarter cities can be a relatively small investment to help bolster future success with that retailer and give you more chances to succeed in future discussions.  Imagine going back into “Round 2” discussions with a particular retailer, after having some POS success elsewhere AND having the buyer say “yeah I’ve seen your ads all the time! I had no idea you were going to do so much!”  Now that’s gaining some retail leverage!

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

For more background on Walmart sku reductions and the insight from a valuable community of retail contributors, read the Retail Wire article “Brands Hit By Wal-Mart’s SKU Reductions”. Here is Retail Leverage’s take:

It is extremely rare to find a national brand that actually has leverage at retail. The vast majority are in fact challenger brands and marketers of challenger brands often times fail to realize that FINANCIAL GROWTH POTENTIAL is the great equalizer between the all-powerful retailer and lesser yoked vendors.

In order to effectively compete, challenger brands must learn to package innovative product offerings together with marketing programs designed to represent at least one of the following four forms of retailer financial growth:

FOUR WAYS TO OFFER RETAILERS FINANCIAL GROWTH:

1. Increase overall category demand - Retailers are measured based on year-over-year growth, excluding new store openings. A challenger brand with a plan to increase consumer demand for a good will always have greater leverage than one who simply offers a more robust feature set than the market leader.
2. Increase the attach-rate of high-value complimentary items – Developing a product line and promotional strategy that has the ability to uniquely grow the market basket is sure to maximize the support that challenger brands receive from retailers.
3. Motivate a “trade-up” within the category – What is it about your brand or product line that is sure to entice consumers to give the retailer more of their money? If your answer is “very little,” then remember that retailer margin dollars also serve as trade-up motivation to the retailer when making category assortment decisions!
4. Help a given retailer win the war against another retailer – Successful challenger brands understand the importance of winning with key retailers. Anchoring a new product launch with a sub-set of exclusive products and/or industry-leading, retailer-specific promotions can generate an over-indexing share of category for the challenger brand.

The most difficult thing for brands like Glad and Hefty is viewing themselves as challenger brands when their histories have been more reflective of the rare “power” brand.

FURTHER READING / RESOURCES:

• Carol Spieckerman, of New Market Builders, with an article on “Art of Retail” with an interesting parallel to Glad’s situation (she’s a Retail expert)
• Follow Carol Spieckerman on Twitter, @retailxpert
• Chris Durham’s website, My Private Brand (he’s a Private Label expert).
• Follow Chris Durham on Twitter, @MYprivatebrand
• The ad age article that was sparked all these discussions and was fully discussed on Retail Wire.

By Vincent Young:

Whether you are the dominant brand player in your category or a challenger brand just trying to hold shelf position during a troubled economy, there are certain common realities that will bind us all in 2010. Some are current trends that will continue to increase in importance as the landscape of retail continues to evolve, while others reflect my humble opinion as an army of one.  So, without further adieu, I give you five Retail Leverage Predictions for 2010…

Five Retail Leverage Predictions for 2010:

1) The CMO Will Become the CCMO (Chief Customer Marketing Officer): It started years ago with opening price-point private labels, then we saw the premium positioning traditionally occupied by the leading national brands come under attack by the upscale “house-brand”- and then before any of us realized it, retailers themselves evolved from being simple margin-hungry supply houses to becoming incredibly influential consumer brand marketers themselves. With that change, marketing leaders (CMOs) of supplier brands to retail are forced to understand as much (if not more) about the retailers’ brand strategies as they know about their own stand-alone consumer brands. The implication here is huge – this means that, starting with the consumer and working backwards, brands who sell into retail will need to validate their consumer marketing strategies by proving that the supplier’s brand compliments and adds value to the overall brand goals of the retailer.

2) Creative Services Agencies Will Learn the Language of Retail: In 2010, a set of additional language will be added to the traditional “agency brief.” A description of the umbrella brand positioning & strategies of the key retailers that will sell your brand has to be relayed to the agency creative department as a way to insure that your messages, look, feel, and recommended programs not only support your individual brand architecture, but are also complimentary to the retailer’s overall brand approach. Creative agencies that fail to understand retail branding as the highest order of supplier brand hierarchy will lose billings to those who speak the language of retail.

3) It Will Take a Village to Make Social Networking a Relevant Marketing Tool for Retail Leverage: Let me give an example: I love sports, I love potato chips, I love beer, too! In the world of social networking, why do I then need to follow/track/keep-up with both Frito-Lay and Anhueser Bush in the world of Twitter and Facebook?  I shouldn’t have to – they should combine their efforts, partner with a national grocery chain and create ONE community for people looking for great tailgating ideas/new products/offers! Brands who partner with retailers to create and manage consumer “solution” based social networking strategies stand a much better chance of keeping consumers within the sprawling world of digital communities engaged. This will create totally new processes and paradigms for social networking administration, promotion, and advertising. But remember, the brand that gets it right and co-creates relevant sized social networking communities within partnership with retail gains a significant amount of leverage with the given retailer.

4) “Co-operative Planning” Content Will dominate Best Selling Marketing Publications: Currently, most marketing textbooks serve as roadmaps for how to build brand strategies and supporting marketing plans for the largely inexperienced.  The classic “Kotler” marketing instructions still apply and are sound for learning marketing in a pure environment. However, if your brand is a good or service sold via today’s world of retail where your brand is more like a building block that supports a retailer’s umbrella brand, then the classic approach will need a little tweaking. In 2010, the new “best seller” will be dedicated to providing strategic marketers with the tools, best practices, and measurement systems that allow for retail leverage strategies to become institutionalized within the standard marketing planning process.

5) The New “All-in-One” Brand Will Dominate the Retail Landscape: Historically, consumer brand managers had the ability to choose how to best position their brands within a given category – price, value, or premium were the traditional options available to brand marketers. In many cases today, retailers are looking to consolidate vendors while expanding their own brands across all of the traditional positioning lanes (not just opening price-point), thus driving national brands to become a niche player if its focus is only on one positioning segment. As a result, the new power brand will have to be able to generate volume across all three positioning segments in order to remain viable on-shelf. “Price-leading” national brands will be forced to become viable in higher-end segments, while historically premium national brands will be forced to make offerings within the lower-priced segments of most categories.

WRAP-UP:

We will revisit these predictions as the year progresses and hope to provide examples of brands who are successfully adapting their go-to-market strategies and programs to reflect the ever-changing realities of retail in 2010. Feel free to share your examples of how you plan to increase your leverage with retail in 2010 and what predictions you have that have guided your thinking!

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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.

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.

By Ben Smith

First 100 Days!

We have received tremendous response / reaction to our blog since we launched almost 100 days ago!  You’ve found us thru a variety of ways such as word of mouth, Linkedin, Google, Facebook, Twitter.  In this time, we’ve provided 18 articles covering a broad swath of topics we relate to our concept, Retail Leverage.  Virtually every article touches on strategies that can be used by challenger brands, and we’ve maintained a good balance between providing actionable ideas and examples of ideas that other brands have already employed.

What Makes Retail Leverage Tick?

Challenger brand marketers have to be more creative and do more with less.  Inspiration can be found anytime, anywhere.  We look for ideas in business and trade publications, store walk-thrus, weekly circulars, pop culture.   The 3 contributors behind Retail Leverage have lived this daily for a combined 40 years (and with challenger brands, there definitely is a “dog years” multiplier in terms of experience).   We hope that by sharing our ideas, inspiration and commentary we can help others – and we think we are.

What Does Retail Leverage Hope For?

We hope to become better about fostering conversations.  Perhaps it is the platform we are hosted on.  Perhaps it is the way we write our articles.  Perhaps we are just so right, there is nothing left to be said (we kid, we kid).  Whatever the reason, we are going to start optimizing everything about the articles and the site in order to better host conversations.

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By Vincent Young

Retail buyers hate risk. Their compensation and reputation are tied directly to how well their category performs versus corporate expectations, prior year sales, and growth relative to the balance of the retail market. However, the marketing strategies & programs that most lesser-known challenger brands bring to major retailers for new-to-the-world products essentially ask the retailer to take a big risk and “trust” that the challenger brand’s marketing plan will work.  When this happens, the risk-averse retailer is almost sure to trust their previous category experience and their own instincts over the challenger brand’s research-based marketing strategy. The result – the challenger brand has no leverage to bring its marketing plan to life in a way that is consistent with its stated brand positioning or business plan.

One of the most important lessons for challenger brands to learn when seeking leverage at major retailers is that “success breeds success.”  The more your product has proven itself to be a winner with consumers in the past, the more motivated the retailer becomes to support your marketing strategy in the future. Therefore, challenger brands should seek to gain marketing leverage with major retailers by adopting any of the following five approaches which establish a track record of success prior to engaging with the universe of major retailers.

Retail Leverage’s Five Ways To Unleash “Pent-up Demand”:

1. Over-invest in Trade Shows – This is a rare time for challenger brands to put forth as much sizzle as steak. Retail buyers attend trade shows to get a read on what will be the “must-have” products in the future. Maximize the confidence that retailers will have in your product and your brand’s positioning by letting them see everyone associated with the industry going gaa-gaa over what your product has to offer.
2. Seriously consider direct-response advertising – Brands such as Rosetta Stone, Bose, and Dell made strategic investments in direct-response advertising and today have successfully maintained their brand positioning within retail. Even the Sham-Wow and Magic Jack have been able to smoothly enter retail despite having  no prior record of retail success
3. Launch exclusively with specialty/boutique retailers – Most major retailers have little desire to simply transfer existing demand between current suppliers.  Major retail buyers believe that introducing new brands to the category that have been restricted to niche or specialty retailers may bring specialty channel shoppers into major retailers thus representing true incremental foot-traffic and category growth. Plus, smaller retailers are more likely to partner with challenger brand suppliers on marketing initiatives than major retailers
4. Build a “community” – Create a following for your product by using the most popular social networking tools (right now, they’re free).  Utilize Facebook and Twitter to populate the community of consumers who have an interest in the promise of your new product with industry experts, special user groups, trade show attendees, direct-response consumers, and early adopters.  The more, the merrier!
5. Launch exclusively with one major retailer – Nothing gets the attention of one retailer more than a successful product only available at another retailer. The offer of exclusivity gives you a form of leverage with the launch partner and successful performance will increase the desire that all other retailers have to replicate your marketing strategies within their environments.

Remember, very few strategies give your challenger brand more leverage at retail than the promise of bringing your successful past to the retailer’s risk-averse present.