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 Ben Smith

We introduced the primary concept that everybody who reads this blog would like to know, which is “How To Get It” – It being Retail Leverage.   We’ve come up with 5 strategies / paths / scenarios on how you get Retail Leverage.   This will start a series of posts that examine each of those 5 examples.

1.  “Have The Hot Product With No Substitutes”:

We all dream of being in this scenario.  You’ve got it.  Everybody wants it.  Not everybody is going to get it.  If you are Apple, this is a way of life.  If you are Ty (Beanie Babies) you had your 15 minutes of fame.

For the rest of us, it could be the first time in the drivers seat with retailers.  Nintendo’s launch of the Wii is a classic example of how the “Hot Product with No Substitutes” strategy leads to Retail Leverage.

HOT PRODUCT

Every year there seems to be a few products that go red-hot.  Companies get accused of limiting supply.  There are fights in store aisles onnews.   The product’s blackmarket price skyrockets on sites like ebay and craigslist.   And your kid(s) want one, or you promised them one  – god help you.  You could even wind up paying 400% markup to snag one from a guy in your office.  People are desperate to get your product.

NO SUBSTITUTES

A great example is when the Wii went red-hot during its launch a couple of holiday seasons ago.  Combine that with the reality that there were no Wii substitutes and they had the magic formula. One could argue that Playstation and Xbox were substitutes, but not in consumers eyes.   The lower tech Wii provided an new experience and physical interaction unlike anything on the market.   It was a must-have product for retailers.  The timing was perfect for Nintendo as their existing franchise were getting a little long in the tooth.  I would love to see a comparison of how quickly the average Nintendo sales reps calls were returned by the buyer before & after the Wii phenomenon exploded.

BIG BETS

This wasn’t all by chance though – Nintendo had to make big bets before it launched the product (an estimated $200 million marketing spend).  They invested in the Wii via a variety of marketing efforts to build demand before the product ever hit retail shelves, such as the Nintendo Fusion Tour and viral sampling events in cities across the country.  You might also remember the tv ads they unleashed featuring the two Japanese guys who showed up at homes across the country and say “Wii would like to play” with quirky Japanese music in the background.  The ads showed what made the Wii unique (with no substitutes) by demonstrating the motion sensing remote control.  So while Nintendo did have the right product at the right time in the right places, they made big bets that happened to come in.

FAST FORWARD TO TODAY

Nintendo is back in the game in a big way with the Wii serving as an instrumental piece of virtually every retailers gaming portfolio.  For Nintendo’s sake I hope they are working on the next big thing because as the Wii ages their leverage recedes too.  If they were going to market today with something new and sexy they would enjoy much more leverage than they had when they were making the initial sales calls for the Wii.

TAKEAWAYS

The Nintendo Wii example advocates channeling all of your resources into one product.  This is the highest risk strategy to gain Retail Leverage.  If you assume they understood the uniqueness the Wii would bring to the market you can start to rationalize their decision to go for broke.  The alternative – business as usual – spreading marketing dollars across your entire portfolio – will generally produce predictable results – and in Nintendo’s case – in an environment where they had little / no leverage.

For practical application to anyone working for challenger brand –Even if you don’t have $200 million such as Nintendo’s Hail Mary on the Wii, you do need to consider what type of big bets you can make.  Deep down you know you have a sense if your product has the potential to hit it big.

You’d like to think that when they were planning the Wii they knew they had something great on their hands.  Even with all the drooling focus groups and raving early reviews, I bet that Nintendo had to basically bet the company before it had the type of reassuring feedback that helps you sleep at night. The reality is that you likely don’t know until you hit the market.

So you put all this work in to try and get Retail Leverage – and you realize that the most important thing once you get it is to keep it.