The economy is in recession, consumer confidence is low and austerity measures have become so much part of the world's psyche that the phrase 'squeezed middle' was voted the 'word' of the year by the Oxford English Dictionary. So how is the 'squeezed middle' reacting to the gloom? How do they make their, relatively smaller, monthly budget work? The mortgage is probably as low as it's going to get, utility bills are going up not down and tax cuts don't seem to be on the agenda. The answer has to be the other big monthly expense - Consumer Products. Even this, though, is not an easy option with inflation running at 3.5%. So what choices are being made and how can these be influenced?
Consumers are doing a number of things to make their money work harder, including:
- Delaying or avoiding big purchases (or looking at longer term credit options)
- Nights in instead of nights out- making use of deals such as the M&S Dine in for £10
- 'Trading-down' from standard to value products
- Shopping around for the best value (including the internet)
- Buying more on promotion
- Trying to reduce in-home waste
Now, put yourself in the shoes of a Retailer Buyer or a National Account Manager (NAM). Your company (and the City) hasn't relaxed its growth targets on both volume and margin and most of the consumer behaviour above is running in the face of one or both of those targets. Surely, they should also be considered the squeezed middle- this isn't going to be an easy year!
The 1st thing that you're going to want is some help from your marketing colleagues. Engaging consumers or satisfying an untapped consumer need creates demand which in turn drives full value sales. There is nothing so satisfying as a NAM or buyer as when true innovation or an effective marketing campaign hits the market. In my day- the Kit Kat Chunky launch and Yorkie's 'Not for Girls' campaign were 2 such examples that made my targets that much easier to deliver.
However, transformational marketing activity doesn't happen every year in every category - ruthless prioritisation of the NPD pipeline will reduce cost along the way but there needs to be greater focus on developing the insights that drive the most effective campaigns. Also, a trend in recent years is pushing advertising investment towards highlighting deep cut promotions and price-cutting initiatives as supermarkets compete with each other for footfall. This helps the consumer's pocket but doesn't necessarily engage them or address their needs. Equally for buyers or NAMs, it may increase volume in the short-term but margins will be diluted as a consequence.
Maximise your spelling space
So what's next on the list - space - the biggest influence on full value sales is improving the selling space your products have: gaining more space on fixture; improving the quality of space on fixture; highlighting your space through display; gaining off-shelf display space; getting space in more stores; increasing the amount of space in store; making it easier for shoppers to find your space; getting the right space in online stores. The list goes on. Space is an industry within an industry and getting it right brings big rewards but at a cost- both through overheads (category teams, merchandising teams, field marketing teams, space management teams, assortment teams) and investment (listing fees, gondola end fees, category captaincy fees etc). Everyone is playing in this 'space' but competition and cost is reducing the rewards.
Collaborate on promotional planning
The final thing to look at is promotions, surely there can't be more mileage in promotions - we've already broken the taboos of my NAM negotiation training- better than half price and Buy 1 get 2 free. However, while most promotions are not brand building, they drive incremental sales and if done collaboratively, can be bring additional cash profit for both retailer and supplier. The tricky bit in that last sentence, however, is collaborative. When times get tough, being collaborative is the last thing on most NAMs and buyers minds and especially when dealing with something as sensitive as profitability. I'm not suggesting swapping P&Ls but there are now tools available, such as SAP TPO, which can model promotional scenarios using EPOS data. Certain views from this could be used together to identify the optimal promotional plan for both retailer and supplier both in terms of volume and profit. Discussing both sides of the profit equation over an annual promotional plan will enable objectives to be shared and taken into consideration and the optimal plan for everyone to be developed.
Combined with initiatives from marketing and category, there is still hope that those stretching targets could be achieved- together.