By Vincent Young

A Monster Strategy:

The strategy is nothing short of genius – find a high-demand, high dollar consumer electronic product category and profit by selling the low-cost, high-margin accessories that complement the device and make it actually work.  The key, however, is to market the accessory as “premium” because, after all, when you spend top dollar on electronic equipment, what’s a few extra dollars to get optimal performance out of the thing? That’s basically the bottled-water-like business model and marketing strategy of Monster Cable.  In 1978, Monster Cable pioneered the model by marketing so-called “high-end” speaker wire to stereo retailers.

By the early-mid 2000’s, Monster Cable had evolved beyond premium stereo speaker wire and was the undisputed market leader in the “boutique” cable market  that served as a substantial source of revenue for retailers of electronics such as DVD players, stereo systems and TVs. Since the profit margins of DVD players and TVs were relatively low, the profit margins of Monster Cable products provided supplemental revenue for these retailers. Employees of consumer electronics retailers were all trained to market and bundle Monster Cable and similar products in order to boost retailer profitability. Monster Cable was everywhere!

And then, it happened. The so-called retail “partners” of Monster Cable realized two very important things: 1. Greed is good. There simply was too much profit associated with boutique cables to allow Monster to have it all; and 2. The retailer actually owned and controlled the most important part of Monster’s business success – the retailer sales associate who convinced inexperienced, naive video and audiophiles like me that spending top dollar on these cables was absolutely necessary.  Soon, Monster Cable was basically undercut by their retail partners and replaced by lower-priced private label offerings and the store employees were incentivized to push their own house brands.

Do It To Me One More Time:

So what did Monster do? They learned that simply representing a hefty source of profit for a retailer is not enough to have any type of leverage against the retailer who is predisposed to want to take a cut of profits under a house brand – the key for Monster to continue its business model was to continue to sell high-margin accessories for growing hardware categories, but to do it by building a “call brand” that was so strong that it would be nearly impossible for a retail store associate to switch the consumer over to a lesser-known private label.

By the late 2000’s, portable music players (MP3s, IPODS, etc) represented a large and growing category of consumer electronics. Therefore, the complimentary headphone market was exploding! Players such as Bose, SkullCandy, Koss, Sony, Altec Lansing, and JVC were all competing in the headphone space and driving prices down in a battle for market share. Monster entered the market and completely changed the category experience by forming licensing partnership with hop-hop producer Dr. Dre. “Beats by Dre” were introduced as a premium headphone offering that promised that people could hear their music the way a producer hears it in the recording studio (the Monster brand name was minimized to that of a manufacturer’s credit). Because of this approach, Beats by Dre entered a price-depressed category at a $399 price-point, nearly 8x the category average (over 80% of headphone skus at bestbuy.com are under $100 with most itemized as “under $50”). Based on the success of Beats by Dre, Monster extended its very successful  headphone offering earlier this year by introducing line extensions via partnerships with record producer Sean “P-Diddy” Combs (Diddy Beats) and recording artist Lady Gaga (Heartbeats by Lady Gaga).

Today, Monster is back to being everywhere and now they have substantial leverage against the retailers who nearly “private labeled” Monster out of business just a few years ago. Each of Monster’s product lines are supported by numerous displays inside each Best Buy store. Monster has recently expanded its portable audio product offering by also introducing a line of amateur DJ equipment under the Beats franchise.  In a large number of Best Buy stores, there is now a dedicated area called “Club Beats” which serves as the Monster-exclusive showcase for the latest recording artists, DJs and products that support the live entertainment experience (now that’s retail leverage)!

Key Takeaway:

As brand marketers, the moral of the Monster Cable story is simple – if a retailer can switch your consumer (and profit stream) to a house brand alternative, they will! The only defense is to build (or borrow) a national brand that is simply “unswitchable.”

Editor’s Note:

This case also proves the power of marketing – how else can you explain people shedding their small modernistic “earbud” style headphones for 1970’s huge style headphones like Beats By Dr Dre?  In other news, look out for the next trend in LCD TV’s – the cabinet style.

By Ben Smith

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

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

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

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

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

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

BIG LOTS!

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

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

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

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

DOLLAR GENERAL:

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

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

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

RETAIL LEVERAGE TAKEAWAYS:

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

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

RELATED READING / RESOURCES:

• “Discounter Big Lots Expects Boon From Economy’s Recovery“
• “Portrait of the New Consumer: Smart and Scared”
• “Dollar General Looks For Big Growth This Year”
• “Dollar General Flexing Its Discount Muscle”

By Ben Smith

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

LOOK AT AMERICA’S GAME:

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

WHAT FUELED THE NFL’S GROWTH?  TV!

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

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

FOLLOW THE MONEY / DRIVEN BY GROWTH:

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

Increased The Value of Their Own Product

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

Expanded Distribution / Grew An Already Large Pie:

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

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

RETAIL LEVERAGE TAKEAWAYS:

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

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

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

Related Reading / Resources:

• Christopher Durham’s “My Private Brand” Blog – great resource for what retailers are doing with private brand
• Vincent Young’s previous article for Retail Leverage on licensing to gain control
• Wikipedia: NFL Network
• Wikipedia: NFL on TV

By Vincent Young

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

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

THE RETAIL LEVERAGE PRINCIPLE OF PHYSICS:

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

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

Office Supplies Category

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

Consumer Electronics Category

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

Toy/Game Category

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

SUMMARY: TO GAIN CONTROL YOU HAVE TO LOSE CONTROL:

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

Related Reading / Sites:

• “Licensing Love Triangle” roundup by New Market Builders – a must read and I swear it is safe for work

By Ben Smith

ORIGINAL ARTICLE:

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

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

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

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

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

RETAIL LEVERAGE TAKEAWAYS:

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

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

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

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

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

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

Additional Reading / Sources:

• Fort Worth Star Telegram article: RadioShack shares up on report of takeover or merger
• average Radio Shack store is 2,500 square feet
• average Best Buy store is in the 40,000 square foot range.
• average carphone warehouse is 800 square feet.

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

WHY MINNEAPOLIS?

For Retail Leverage purposes, 3M doesn’t stand for the company that gave us post-it notes.  In this case, it stands for Mobile Marketing In Minneapolis – where you should look for leadership in this rapidly expanding consumer touchpoint.  Target and Best Buy are retail leaders in different aspects of mobile marketing, and their leadership will impact adoption throughout the rest of the retail.  This article provides an overview of their mobile marketing efforts.  If you deal with Target or Best Buy, your antennae should be tuned to how you can incorporate / leverage mobile marketing in your business with them.

TARGET LEVERAGING MOBILE COUPONS

One point of differentiation between Target and Walmart has been that Target embraces coupons.  So it is no surprise that Target will become the first retailer to accept mobile coupons at all of its stores. Target’s program requires consumers to opt-in to receive text messages to their mobile phone, with links to mobile web pages with barcoded offers they can use at checkout.

I don’t have the data to prove it, but I’m willing to bet that Target’s customers have a higher adoption rate in smart phone usage, as well of general text messaging usage than Walmart’s customers.

Promoting the usage of coupons also helps Target in its quest to overcome the perception that customers don’t save as much when they choose to shop at Target over Walmart.  On a related note, I wonder if the mobilization of coupons will cause Walmart to warm up to them?

BEST BUY LEVERAGING SALES LEADERSHIP IN SMART PHONES

Best Buy demonstrated their mobile marketing leadership early by enabling consumers with mobile phones to get product info sent via text message.  They plaster the 7 digit code & instructions throughout their circular ads and in-store POS and got valuable learning from consumers use of the technology.  However, the text messaging was just a piece of their evolving mobile marketing strategy.

Best Buy’s unique position as the leading retailer of smart phones (and mobile phones in general) positions them at the front lines of the rapid growth / evolution of uses for Smart phones, including mobile commerce.  In a recent article appearing at www.mobilemarketer.com, Tracy Benson, senior director of interactive marketing and emerging media at Best Buy, shared the trends Best Buy sees in mobile commerce, as well as provided a peek into their mobile commerce results.

6 trends in Mobile Commerce that Best Buy discussed:

1. Increased Smartphone Sales And Usage
2. Dramatic Increase In Mobile Web Usage
3. Mobile Commerce Adoption Grows
4. Mobile Search Becoming Essential
5. Multichannel Marketing Mix Expanding
6. Market Fragmentation Continuing

Visible Impact to Best Buy online traffic:

3% traffic coming from mobile (and increasing as a percentage of total)

Significant Impact to Best Buy’s Conversion rate:

25% higher on mobile platform than wired website (and increasing as compared to wired website)

Ways Consumers Are Using Best Buy’s Mobile Platform:

• 30% are using for research
• 18% are using to check inventory
• 28% are using to make a purchase
• (In store pickup heavily used)

Where Best Buy’s Mobile Platform Is Used:

• 60% are accessing from home via their mobile device
• 14% are accessing while in store

TAKEAWAYS:

You already knew retailer dot-coms were increasing in importance.  It’s not like that internet thing is going away – but I’m not sure if everyone sees the mobile marketing tsunami silently rolling across the ocean.  The smart phone arms race will accelerate the mobile applications available and consumers understanding of how much power they have in their hands.  If you’re visited Retail Leverage before, I’m sure you’ve picked up the theme that your retailer’s priorities should be your priorities also.  So add mobile marketing to your retailer checklist and bone up on the latest applications that consumers will use when making decisions in the aisle.  The good news is that retailers dot coms can be a great equalizer for challenger brands versus the big guys.

Finally, here are 3 things brands can do to improve their mobile marketing efforts:

1. Optimize your brands website for mobile.  The goal is to help consumers find info about your products from their mobile phone, without regard for where they actually purchase it.
2. Improve / increase your presence on your retailers website.  If you have a brand showcase on a retailers website, investigate its mobile appearance / functionality.
3. Optimize search on the retailers website.  Yes you have to pay for this.  Others are already doing it.  It is only going to increase in importance.

RELATED READING / RESOURCES:

• Related Retail Leverage Article: “Buying BIllboards In Bentonville”
• Ad Age article (subscribers only) An App for That, Too: How Mobile Is Changing Shopping
• Mobile Marketing Watch article about the killer barcode scanning app from ScanLife – it’s being preloaded on millions of handsets sold by Sprint and others. Note – it can even read basic UPC’s on every product.
• Mobile Marketing Watch coverage on Target mobile coupon announcement
• Mobile Marketer article that shares Best Buy’s insight on mobile marketing

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 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!