Stop Wasting Money on Ineffective Promotions

(c) Can Stock Photo / iqoncept

(c) Can Stock Photo / iqoncept

On August 3rd, 2017, my wife, Simonetta, died of a brain tumour. She left behind 3 sons all aged under 11. In the year that followed two senior politicians; John McCain (AZ) and Tessa Jowell (United Kingdom) both succumbed to the same condition. All three suffered from an incurable brain cancer known as glioblastoma multiforme (GBM). But what does this have to do with ineffective promotions?

Every year up to US$ 210 billion is wasted on ineffective promotions – enough to fund 1000 years of brain cancer research

In our book “The Shopper Marketing Revolution” Mike Anthony and I estimate that every year the top 250 companies in the consumer goods industry spend over US$300bn on promotions. This equates to just over US$40 for every man woman and child on the planet. According to Deloitte, this is almost equivalent to the amount these companies make in profit each year. We also show that nearly 70% of this money is wasted on activities that deliver no economic return suggesting that every year somewhere in the region of US$ 210 billion is wasted on ineffective promotions.

Let’s compare this to the amounts invested in research into brain cancer. Brain Tumour Research, a charity, published figures suggesting that the UK invests US$10.5 m per year in brain cancer research if global brain cancer research investment were 20 times this, the annual wastage in the consumer goods industry would be enough to fund brain cancer research for 1000 years.

It’s time to stop wasting money on ineffective promotions

Companies promote for several reasons; they believe it will drive sales; they believe if they don’t promote, competitors will; or, they are compelled to do so by overly aggressive retailers. However, the fact that so much promotions expenditure leads to losses, forces me to conclude that continuing down this path is unsustainable.  Enough is now known about the behaviour of shoppers to be able to clearly identify activities that drive sales, protect from competition and satisfy retailers whilst breaking even or better.

If companies invested in effective activities, and just broke even on these, they could almost double their profits. This alone could return tax revenue of nearly US$40 billion annually (assuming companies pay 20% tax on profits) some of which would fund cancer research.

Choose to stop wasting money

Finding which activities to invest in is not rocket science, it just requires reasonable due diligence: If every retail activity were evaluated diligently, those which break even, or better, soon become apparent. Further, diverting a tiny proportion of promotions funds into shopper research gives companies the information to develop new activities that might be more effective in the future. Finally working with retailers with this data, showing them that investment in their businesses could work better for all leads to better implementation and closer joint working.

Or just donate to brain cancer research!

Alternatively, if all that sounds like too much, how about just running one less activity a year and donating the funds to do good? If every company did this, it could unlock an annual fund of US$25bn. US$25bn channelled every year into almost any cancer research would have a significant and long-term impact. This is likely to be well received by retailers and shoppers alike; it would make companies’ financial performance look way better than it does currently and; in donating money to brain cancer research, companies could build CSR credentials too.

Act now!

Whatever you choose to do, please don’t just continue wasting money.

Here are three things you could do now:

  1. Share this article with your CEO, your CMO, and your Sales director and ask them to support an initiative to make more from your promotions activities.
  2. Learn how to build more effective promotions activities.
  3. Contact me if you’d like to work on building this into a campaign we could work on together.

Online availability – the key digital opportunity

online-availability-img

I recently wrote this blog on online availability for www.shoppermarketingexperts.com

You can listen to the podcast version here:

As more and more shoppers move their purchases from regular store to online platforms, brands are in a bind – how do you cut through in a world of unending ranges? For me, this is the key digital opportunity and nothing should be more important than ensuring your brand’s online availability.

Even the world’s biggest brands are struggling with online availability.  Let me give you a real example; I checked out three online grocery stores (Sainsbury.co.uk; Tesco.com and Ocado.com) and searched ‘soft drinks’. Sainsbury prompted me to choose a sub-category, Tesco gave me Vimto and Mountain Dew and Ocado gave me a list of products based on my favorites – what binds all this together? The world’s biggest soft drink brand Coke did not appear on any of the first page results!

Online_-availability_1

Bizarre.

So, I tried searching ‘Coke’ on all three sites instead. Ocado and Sainsbury were amazing – a great representation of Coke in all its varieties with great messaging and graphics but on Tesco I got diet coke the caffeine free coke then two variants of Schweppes lemonade in the first line.

Online_-availability_2

What does this tell us? Well whilst Coke rules the offline fixture (its red packaging is used as a guide to finding soft drinks by many shoppers) online, its strength is far from assured.

This is a huge problem and one which a lot of the hype around so-called ‘digital shopper marketing’ seems to miss. For decades on-shelf availability has been the key mission of the sales team. Major companies have built massive expertise in getting right in the right stores. But the concept of online availability is still a novelty to these teams (as it is to many retailers).

The issue is that an online store can, in theory, hold everything – an unlimited range. But online shoppers, just like regular shoppers can’t mange that volume of information so they rely on search terms to get them where they need to go.

For most normal shoppers they want the process of selecting a product to be quick and easy. They prefer to browse one page (maybe 15 products) rather than trawling through many pages until they find the right one. So, what happens to brands like Coke in these circumstances? A mum who searches ‘soft drinks’ might be tempted to by something else – maybe something that is perceived to be healthier or a direct competitor. Perhaps a banner ad will catch her eye (for example, I tried searching soft drinks on Amazon.co.uk and got a great banner for Pepsi Max). Or maybe, in that split second when she pauses for thought, she decides the kids would be better off with water.

As shoppers spend more time online brands need to get way sharper on creating availability. So here are a few tips:

1. Make online availability the number one priority.

For years ensuring the availability of a brand has been the number priority in regular stores. This is the same online. It’s key to ensuring that your brand is immediately visible to shoppers that want it and in-stock. So, get everyone focussed on this and make online availability a KPI so teams measure it.

2. Get to grips with search terms.

Search is now important to brand managers, shopper marketers, trade marketing teams and key accounts managers. These teams must begin to take ownership. It’s important to define which search terms are key to your brands, research how shoppers search for your products and ensure that your brands and core SKUs get placement against these terms

3. Get targeted

Pages differ for each user based on their preferences and their purchase history. As algorithms improve this is going to get more complicated. As more people buy online the number of page variations will explode exponentially. As this happens, the need for clearly targeting shopper segments becomes greater. Brands should work with retail teams to agree on shopper segments that are important to both parties and collaborate to determine that parameters of the range that’s presented to these segments

4. Get disruptive

The world of online grocery shopping is still open territory. If Pepsi Max can stick a banner on a page full of Coke product so can anyone! If you don’t dominate a search term for key shoppers, find a way to use the page to draw attention and win triallists.

5. Get serious!

Shopping has changed forever, shoppers are switching channels and traditional channels like supermarket are only going to lose traffic over time. Commercial teams must now recognise that they must win shoppers online. It’s no longer a niche area and it’s no longer an area that can be ignored. It’s time to invest in getting to grips with analytics and creating agile teams that can hunt down and capture opportunities as they arise. This is going to take investment in capability and creativity.

 

There’s a lot for marketers to think about here but if I’m going to close with a key message it’s this: Online shopping is now mainstream so companies need to embrace this with a mainstream approach. In regular stores the number one priority has always been availability – this has to be the case online too.

If you’ve enjoyed this blog, please subscribe here and to Shopper Marketing Experts for more great content and if you have a specific question why not drop me a line?

Tough Times Ahead for UK Sales Teams

Tough Times for UK Sales Teams

A new study by Engage Management Consultants suggests that UK sales teams will face significant challenges ahead. 5 key trends conspire to make delivering sales results even harder.

Retail re-structuring puts pressure on sales teams

Most UK brands rely on supermarkets and larger hypermarkets for over 70% of their sales today. However, the rise of discounters, category specialists, convenience retail, online grocers, recipe boxes and subscriptions are rapidly eating into this core business. As a result, over the coming years, the growth of supermarkets and hypermarkets is set to stall and probably decline.

Many sales teams pin their hopes on replacing this lost growth in emerging channels. But, for most brands, this is likely to be tough. Discounters and convenience stores favour limited ranges so offer little respite for brands not already distributed there. Online sales may well seem to be the panacea for many. But successfully converting brand awareness in an online grocery store is proving to be much harder than many sales managers had imagined.

We have worked with a number of teams who are considering this shift and, on average, their brands are predicted to lose between 5 and 10 per cent of their market share if they do not make swift and significant adjustments to their strategies over time.

Changing shopper behaviour challenges sales teams

As a new cohort of shoppers enters the market en masse and as existing shoppers begin to experiment with new ways of buying, our assumptions about how people behave are being upended.

As shoppers spread their purchases across numerous retail platforms, sales teams face several challenges. For instance: When considering recipe boxes, how important is the brand within a curated meal solution? With online grocery shopping, how skilled are current sales teams in securing first-page visibility for their brands? When shoppers switch to discounters or convenience retail, can sales teams ensure brand distribution? And, if footfall declines in supermarkets, how do sales teams manage that decline?

These are all significant problems that may see lead to the further erosion of market share if not aggressively addressed.

Retail consolidation

The first two macro-trends affect a brand’s topline growth but in the UK retail consolidation is likely to hammer the bottom line too. Assuming the Sainsbury / Asda merger is concluded; over 60% of the UK’s grocery sales may be concentrated in the hands of the new group and Tesco.

Sales teams in the UK will have to manage significant challenges in trade terms negotiations; similar mergers have seen a loss of up to 1.5% of margin which is likely to hurt.

Increased financial pressure from retail

In the long term, all supermarket retailers will feel the pinch of retail restructuring and use aggressive pricing to entice shoppers back into their stores. Concurrently price pressure from discounted brands and from online retailers will increase the pressure on retail prices.

At a time of currency devaluation along with the rise in input costs, grocery brands are likely to suffer a major constriction. But this is not the only issue arising from retail. Globally retailers are destocking and cutting the number of products they hold; as well as reducing inventory. These factors may well also lead to a further decline in grocery sales. Sales teams will also almost certainly feel further pressure as retailers also seek to pay slower.

All in all, these pressures from retailers could put brands in considerable and escalating financial difficulty over the coming years.

Talent shortages

Whilst the UK boasts of its low unemployment, there is a marked shortage of knowledge workers generally. In times past, FMCG companies were attractive employers offering good working conditions, training and remuneration. However, as employers, the CPG industry has been long-eclipsed by the financial sector and the tech sector, which has drained much of the new talent from the market.

Young sales managers in the industry are impatient at the slow rate of development they perceive in consumer goods and many leave in the hope of better prospects elsewhere. This puts huge pressure on the incumbent sales teams to just look after the day-to-day delivery of targets, let alone consider the strategic development of a brand’s future. As a result, the overall capability of many consumer goods companies is in decline.

So what does this all mean for sales teams?

For many managers, these trends may seem quite abstract; the effects distant, even remote. However, collectively, they will combine to have an immediate impact on all members of customer-focused cross-functional teams in the industry, both now and over the coming years:

Finance teams will see a net decline in cash flow as retailers destock and pay slower: making ready cash flow management harder and forcing some tough decisions that are likely to be unpopular.

If brand shares decline, budgets will be slashed or shifted to faster-growing markets. Furthermore, the pressure to justify expenditure as well as to account for ROI will intensify.

For sales teams, things will get even tougher: expect hard negotiations with customers; greater pressure on your performance in the short term; and lower bonuses in the future.

Industry leaders respond

The leading lights in the industry are rapidly taking proactive steps to mitigate risk and even prosper from the opportunities that this new environment presents. Many are currently taking steps to better understand the fast-evolving UK retail landscape, to reassess retail channel priorities as well as to redefine and crystallise future sources of revenue growth.

This is leading to a concerted multi-functional effort across commercial functions, as combined teams collectively reconsider customer priorities, build more integrated brand and customer plans and determine a vision for the ‘store of the future’.

Many are taking the opportunity to assemble real and virtual customer-focused teams with the aim of blending the best resource to deliver against cross-functional initiatives which will underpin future sustainable growth.

These businesses are well placed to weather the storm; however, they represent only a small minority of the UK’s branded manufacturers. Many of the others are struggling to identify where to start and how to engage cross-functionally to formulate a response.

Accessible solutions at hand

To support leaders and managers in the industry during these tempestuous times, Engage has partnered with a team of UK and Global industry experts in order to build a roadmap that describes the key actions that companies should be planning for the future as well as helping them to identify immediate opportunities to begin working together ever more closely as a team.

Both the roadmap and Engage’s findings are freely available to managers in the consumer goods sector. If you would like us to share these with you, please email toby@engageconsultants.com today.

New Buying Behaviour Threatens UK Brands

veg-subscribe-1024x502

A study by Engage Management Consultants has revealed new trends in buying behaviour. These will almost certainly have an impact on the future performance of brands in the UK. The study which looks at behavioural trends of shoppers worldwide suggests that the one-stop shopping may be in long-term decline. One stop shopping has been the dominant driver of the growth of supermarkets worldwide. This could well mean bad news for brands in the UK market.

The one-stop shop

Since the foundation of the first supermarkets in the 1920s and 30s, the almost inexorable rise of the one-stop shop has been the dominant trend in buying behaviour. In the last 60 years, shoppers’ desire to buy everything under one roof has given rise to huge retail conglomerates such as WalMart and Tesco. However, data uncovered by Engage indicates that our love affair with this long-standing format may well be coming to an end.

Globally, footfall in supermarkets and hypermarkets is in decline and innovative new ways of shopping are emerging.

A whole new world of buying behaviour

In many developed economies, the rise in relative incomes has meant that grocery shopping is no longer as important a part of the household budget as it once used to be. For a long time shoppers have complained that grocery shopping is, at best, a necessary evil and, at worst, down-right boring. It’s no surprise, therefore, that, as new ways of buying emerge, shoppers will continually seek improved ways to fill their store cupboards.

Perhaps the most visible changes are in the emergence of online channels. But this space, once considered to be the sole purview of Amazon and online grocery stores, has rapidly developed into a vast array of shopping opportunities. We’ve discussed in the past link the emergence of and of hyper-specialist sites dedicated to single categories. However, in the last two years, we’ve seen an explosion of investment in recipe box operators like Gousto and Hello Fresh as well as the exploitation of IOT (internet of things) opportunities in the form of Alexa and Amazon Dash.

But it’s not just online developments that are changing buying behaviour: Discounters have exploded globally and re-positioned themselves as highly credible alternatives to supermarkets. Further, our love of convenience has led to the global expansion of these types of stores. Other new formats continue to emerge, particularly as online brands move offline. All of this means that now no one single retail format can claim dominance of a shopper’s heart as supermarkets were once able to. This has profound implications for the one-stop shop

Fragmentation of the grocery basket

Overall this leads to one significant global trend – the fragmentation of the grocery basket. Whereas at one time the consumer goods industry might have assumed that the shopping basket was likely to be filled during one stop at a supermarket, it must now consider that the grocery basket is likely to be filled from multiple environments. Many of these spaces may be unfamiliar to brand owners or, worse, simply not conducive to brand sales at all.

It is here where the greatest source of threat to UK brand managers lies. Most UK brands depend on supermarkets and hypermarkets for up to 70% of their sales. The wide ranges displayed on supermarket shelves help brands to encourage shoppers to try new variants, tempt shoppers to sample new products and give marketers the opportunity to entice shoppers to switch brands.

Brands perform less well in discount stores which shun major brands in the main. They also struggle to break through in convenience stores where limited ranges lead to a focus on only the biggest of brand names. Online, many brands are battling to secure cut through. Whilst an infinite range might appear to be a panacea, few shoppers venture beyond a single page of products. Many shoppers rely on predefined shopping lists to drive their weekly shop. All in all, therefore, growth in these emerging retail environments does not necessarily lead to growth for the UK brands.

Engage’s study examines the possibility that for many brands this could lead to a major collapse in growth this year, in 2019 and beyond. The study also suggests that, on average, a brand in the UK could see market share decline by 5 percentage points in the coming years with smaller brands coming off much worse in the future.

Already many brands have cut growth forecasts for the UK over the next 5 years, with even some of the largest brand names planning on a decline. This has led to a reduction in brand budgets with many brand managers and insights teams finding their investment plans curtailed or cut altogether.

Industry leaders respond

The leading lights in the industry are rapidly taking proactive steps to mitigate risk and even prosper from the countless opportunities that this new environment presents. Many of the largest players are taking action to better understand the fast-evolving UK retail landscape, to reassess retail channel priorities as well as to redefine and crystallise future sources of brand growth.

This is leading to a concerted multi-functional effort across consumer marketing, customer marketing, and sales, as these combined teams collectively reconsider customer priorities, build more integrated brand and customer plans and determine a vision for the ‘store of the future’. Many of these leaders are taking the opportunity to assemble real and virtual customer-focused teams across all relevant commercial, financial, operational as well as human capital development functions. This with the aim of blending the best resources to deliver against cross-functional initiatives which will underpin future sustainable growth.

These businesses are well placed to weather the storm, however, they represent only a small minority of the UK’s branded manufacturers. Many of the others are struggling to identify where to start and how to engage cross-functionally to formulate a response.

Accessible solutions at hand

To support leaders and managers in the industry during these tempestuous times, Engage has partnered with a team of UK and Global industry experts in order to build a roadmap that describes the key actions that companies should be planning for the future as well as helping them to identify immediate opportunities to begin working together ever more closely as a team.

Both the roadmap and Engage’s findings are freely available to managers in the consumer goods sector. If you would like our experts to share these with you as well as taking the opportunity to discuss some of the specific issues that you face, then please don’t hesitate to contact me by emailing toby@engageconsultants.com today.

 

 

UK Brands Face Financial Crisis

Financial crisisEngage Management Consultants have recently concluded a study that suggests UK brands face a potential financial crisis in the short term. Whilst the UK manufacturing industry as a whole faces slow growth rates and rising input costs driven by currency devaluation, the UK’s consumer brands face a unique set of financial pressures arising from the actions of their retail customers. Here I look at these unique pressures and look into some of the actions that leading brands are taking to mitigate the worst effects.

For decades brands have depended on the supermarket trade for much of their sales but Engage’s study shows the supermarket industry to be in systemic decline. Supermarkets and larger hypermarkets together currently deliver over 70% of brand sales for many manufacturers, therefore, this decline is not only bad news for brand growth but it is also likely to undermine the financial health of UK brands.

UK Brands and Retailers are Poor Bedfellows

Major supermarket retailers have become effective at encouraging investment from brand manufacturers. By demonstrating the value of their shopper base and using price promotions to build this base further, they have secured greater levels of funding. This has never been an easy relationship: UK brands and retailers often have conflicting goals and retailers have driven a hard bargain. Already, many manufacturers find that, in the UK, they spend up to 15% of gross sales to support their brands in supermarkets and hypermarkets.

In today’s environment, supermarkets are seeing footfall decline as shoppers turn to new retail environments for grocery purchases and this is leading to new, more aggressive trading strategies that will erode brands’ financial performance potentially provoking a financial crisis for some UK brands.

Retail Consolidation

The UK grocery sector has long been dominated by large players however, the newly concluded merger between Tesco and Booker and the forthcoming merger of Sainsbury and Asda will make the UK grocery sector one of the most consolidated in the world, with potentially more than 60% of the market’s sales in the hands of just two players.

Mergers of this scale are bad news for sales teams. They force sales teams to renegotiate. Often historic deals that are fraught with discrepancies which teams must unpick. but also the newly-created entity demands both readjustment and recognition of its larger trading status. Recent similar mergers in other markets, for instance, Thailand, have led to a reduction of margins in the order of 1.5%, which is significant in an industry who’s average margins had fallen to just under 10% by 2015 (according to Deloitte).

Retail Price Competition Stresses UK Brands

As the supermarket industry declines and the number of players reduces, competition is set to increase. Incumbent players will seek to drive greater market share even before the Sainsbury / Asda merger goes through. Naturally, they will do this by driving retail prices down in their stores with the cost of these price reductions largely being passed on to manufacturers.

At a time of increased cost pressure and growing uncertainty about the impact of Brexit this will also inevitably lead to lower trading margins for brands in the UK, both this year and within 2019. But price competition and changes in shopper behaviour are also likely to impinge on the return on capital employed that retailers enjoy which means they will take further action that will impact on their suppliers.

Retail business model restructuring

Retailers depend on returning high levels of cash to underpin the low operating margins they make. This high level of liquidity enables supermarket retailers to deliver attractive returns on capital to their investors. Engage’s research has uncovered that major global players like Tesco and WalMart have seen a consistent decline in their returns over the last five years. As a result, both retailers have taken two significant steps to address this.

Firstly retailers are reducing the inventory they hold by cutting the number of brands they stock and by holding lower inventory of the remaining brands on their shelves. As a result the total sales that a brand enjoys from retailers taking such action reduce, on average, by close to 2%.

Secondly, retailers are simply paying more slowly. In Tesco’s case bills are paid 10 days slower on average than they were 5 years ago, reducing some UK brands’ ready cash flow by over 3% per annum.

Tough choice to avert a financial crisis

All this means that Finance teams in the UK are now making tough calls on their businesses. In our conversations with functional heads across Sales, Marketing, Insights, and HR, we are consistently hearing that budgets are being slashed. This means that bonuses are smaller and harder to come by, above and below-the-line activity budgets are being reduced or ring-fenced, research plans are being pared back or canceled and employee development initiatives are being shelved.

Industry leaders respond

The leading lights in the industry are doing just this: rapidly taking proactive steps to mitigate risk and even prosper from the countless opportunities that this new environment presents. Many of the largest players are currently taking steps to better understand the fast-evolving UK retail landscape, to reassess retail channel priorities as well as to redefine and crystallise future sources of brand growth.

This is leading to a concerted multi-functional effort across consumer marketing, customer marketing, and sales, as these combined teams collectively reconsider customer priorities, build more integrated brand and customer plans and determine a vision for the ‘store of the future’. Many of these leaders are taking the opportunity to assemble real and virtual customer-focused teams across all relevant commercial, financial, operational as well human capital development functions, with the aim of blending the best resource to deliver against cross-functional initiatives which will underpin future sustainable growth.

These businesses are well placed to weather the storm, however, they represent only a small minority of the UK’s branded manufacturers. Many of the others are struggling to identify where to start and how to engage cross-functionally to formulate a response.

There are accessible resources available

To support leaders and managers in the industry during these tempestuous times, Engage has partnered with a team of UK and Global industry experts in order to build a roadmap that describes the key actions that companies should be planning for the future as well as helping them to identify immediate opportunities to begin working together ever more closely as a team.

Both the roadmap and Engage’s findings are freely available to managers in the consumer goods sector. If you would like our experts to share these with you as well as taking the opportunity to discuss some of the specific issues that you face, then please get in touch.