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 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.

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:

1. If you successfully develop new customers, you lessen your dependance on existing customers
2. Experience serves as a “Learning Lab” where you can test new ideas & apply learnings in your existing channels
3. Opportunity to create new demand for your product by positioning it for specific applications / uses
4. Growing sales in new channels may help lessen impact of seasonality in your existing channels
5. 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.

• Amazon.com book page for “Blue Ocean Strategy”
• Blue Ocean Strategy community at 12Manage.com
• 2005 Article in DSN Retailing Today “Alternative channels gateway to better sales”
• 2003 article about alternate channel sales for furniture

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 Vincent Young

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

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

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

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

Retail Leverage Principle #2: Offer Product or Program Exclusivity

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

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

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

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

SOURCE:

Press Release on the partnership between Lowes & Invista

By 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 Ben Smith

EVEN GARMIN CAN FEEL LOST:

Who wants to be the first to admit they don’t have the answer to a problem?  What do you do when your product is becoming a commodity, and even worse, when others start giving it away for free?

Garmin, the maker of GPS systems, is getting hit with this double-whammy.  The majority of their problems center on their Automotive/Mobile business segment, which includes the main product that comes to mind for Garmin, the portable GPS for your car.  Just as Tivo has watched the cable / satellite companies erode their share with generic DVR’s, smart phones are poised to erode the stand-alone portable GPS business.  How big of a problem is this for Garmin?  Take a look at their business by segment:

Garmin’s business is built around 4 key segments:

• Automotive/Mobile, 73% of sales, 62% of profit
• Outdoor/Fitness, 12% of sales, 18% of profit
• Aviation, 9% of sales, 13% of profit
• Marine, 6%, 7% of profit

DENIAL IS NOT A RIVER IN EGYPT (OR GARMIN’S STRATEGY):

Look – It’s not that they don’t know that they have a problem and aren’t doing anything about it:

“As evidenced in our nüvifone line, Garmin intends always to be part of new markets, not be replaced by them. Garmin’s intuitive turn-by-turn directions can be delivered in many packages, whether a PND, a mobile phone or a yet-to-be-created device of the future.” -Garmin 2008 Annual Report

So their answer seems to be to develop their own Smart Phone, the nüvifone line (an extension of their popular nüvi GPS naming).  I’ll be the first to admit, I like Garmin and have relied on their products (portable GPS – loved it til it got stolen; GPS running watch – love it).  I bought those products for a dedicated purpose / application.  Unfortunately for Garmin and lots of other manufacturers, “there’s an app for that”.  Most smart phones provide GPS mapping capabilities, and most do it good enough to serve as substitutes.  In addition, they key benefit of smart phones, led by the iPhone are the wide variety of capabilities enabled by applications.  GPS is but yet one of many useful functions, albeit an important one.

Will consumers select a phone because it is the best at providing / integrating GPS functionality?  I don’t know.  I’m not hopeful.  Then again, I don’t think a Facebook phone would make much sense either (contrary to what this AdAge article suggests). Ultimately the market will decide.

WHERE DOES GARMIN GO FROM HERE?

The central question for Retail Leverage and our readers is “What can Garmin do to gain Retail Leverage with its nüvifone line?”

They’ve already launched their first nüvifone in the US as an exclusive via AT&T. Early results have not been promising.  I’m not sure if this is due to typical problems with a 1st generation product (lots of kinks to work out), or getting lost in the shuffle behind iPhone and Blackberry.  They recently announced new models that will be available soon in Europe, and the expectation is that they will make their way to the US in time for Holiday 2010.  I would expect that the new phones will offer typical 2nd generation improvements you expect from any product (key lesson from my dad – never buy the 1st of anything unless you can afford to buy the 2nd also).

THE ANSWER IS:

So I already admitted that I didn’t have the answer.  This article is our first attempt to get our heads around this problem.  Got ideas?  Share them with us.  See that comment section below – it’s open for business.  We welcome ideas from our fellow arm-chair marketers.  The real value in this exercise, and in Retail Leverage in general, is the continuing education you get from observing and thinking about challenges to marketing at retail.  We’ll revisit Garmin’s problem later after we’ve had a chance to crowd-source and refine some ideas.

FURTHER READING/SOURCES:

• The market not too optimistic about Garmin’s future
• Article about mobile phone GPS and future of location based services (it’s why they are giving you the maps for free)
• Speculation on Garmin nuviphone
• Garmin’s 2008 annual report (where I got my sales/profit data and insight into their strategy)
• Ad age article suggesting a Facebook phone would succeed (call me crazy but I disagree)

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

It’s the most wonderful time of the year – CES.  Before I get to the point and offer our invitation, I thought I’d share my non Powerpoint based preparations for CES.

Here is my CES Checklist:

Chapstick?  check (I recommend Burt’s Bee’s)

Why CES Is Important To Me:

This is my 9th CES, with a one year hiatus during my brief foray into the Clean Tech industry with Gridpoint.  Let’s just say the consumer energy saving products I was working on while there were, and still probably are, about 5 years too early. We killed them before they even got a chance to launch at a venue like CES.  So I missed the show in 2007.

Fast forward to this year – after moving from Biz Dev to Trade Marketing / Marcom, I almost missed CES 2010 due to budget issues.  Thankfully things worked out – a good thing since the day jobs for the braintrust here at Retail Leverage includes minor details like writing the CES presentations!  However let’s just say that I care enough about the total experience of CES that I had made plans to pay to go on my own.

For better or worse, going to CES is akin to the swallows returning to San Juan Capistrano.  It serves as a virtual reset for myself and many other CE marketers and merchants.  Sure we just met with you a couple of weeks ago, and yes, we’ll be scheduling follow-up meetings for mid to late January, but it serves a purpose.

Why Is CES Important For Retail Leverage?

Those CES meetings with your retail customers are important – one of the few (if you are lucky) opportunities during the year to look at the bigger picture, vs short-term listing / margins / execution issues.  If you’ve been with us for a while, you know we advocate 5 ways to gain Retail Leverage.  CES is a great time to present those kind of strategies to your customers.  If your CES meetings don’t set the tone for where you are going in the next year, and how you are going to advantage your customer, I don’t see much of a purpose for meeting.  I also believe picking up the general vibe on the show floor is important, as it provides a window to the same trends the retailers are already on, or will be soon.

The Point Is – You Are Invited To Gain Retail Leverage At CES

I also believe CES provides a one of a kind opportunity to maintain industry connections, and more importantly, forge new ones.

So this is our invitation if you want to connect with us, talk shop, and discuss Retail Leverage strategies (or play craps – or both at the same time).  When we have some downtime at the show, or after hours, the door is open. This invitation is to marketing and sales pros from CE brands, their agencies (PR, marketing, advertising, etc), and pretty much anybody looking to gain Retail Leverage.

The best way to contact us is via our twitter account (@retailleverage) or retailleverage@gmail.com .  We hope to see you there!

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.