Meeting Retailer’s Objectives Profitably

As we have already seen, an effective shopper marketing program typically requires support from a retailer, and retailers are only likely to support programs which are beneficial to them. That doesn’t necessarily mean that every program needs to be profitable, however. As with manufacturers, retailers may have more strategic objectives: they may want to gain an edge over a competitor, or support a new store opening, or to encourage shoppers to buy across different categories. Either way, however, there will be a financial objective for the retailer in the same way that there is a financial objective for the manufacturer: so how do we measure financial impact on a retailer’s business?

In the same way as we saw with manufacturers, there are many ways of calculating a return. We can look at RoI as we did with suppliers, but more often than not, the investment from the retailer is small (as the majority of costs are covered by the manufacturer). So what retail measures should we consider?

What makes an effective shopper marketing program for a retailer

Which measures retailers consider depends on the retailer and the category, but typically there are two types of measures to consider:

Effective shopper marketing programs change shopper behavior

Retailers may be less concerned with consumption, but they are concerned with shopper behavior. Retailers may be looking to drive traffic to stores, or traffic to categories. They might be looking to drive basket size, by getting shoppers to buy across categories, by more in a category, or to buy more expensive products in a category. Understanding the retailer’s objectives, and then delivering against them, is key to creating an effective shopper marketing program.  

Incremental Sales and Profit

There are many retail measures we could consider, but the most important will be to look at incremental sales and profit. But of course the retailer will look at this differently to a supplier. The retailer will look beyond the incremental profit to the brand: the retailer will be considering the incremental sales and profit for the category at least. From the retailer’s point of view, an activity which drives the sales of one brand at the expense of another isn’t particularly valuable.

We also need to consider how retailers make profit. They make profit on the sales of the product, but also on any fees that they receive from a manufacturer. So a retailer will look at the incremental sales and profit from the sales of all the products in the category (allowing for any steal from other products or brands) plus any fees that they have received for the activity.

What level of return is the retailer looking for?

So what level of return is good from a retailer’s point of view? This will vary from retailer to retailer, and from category to category, but the retailer will certainly have a clear idea of what ‘effective’ means for their business. Retail buyers will know their category norms, and this will give them an idea of what they should expect. They also may be in competition (for example to gain access to a particular gondola end, a buyer may need to promise or bid a certain amount of incremental sales or profit).

Gaining retail support is critical to almost all shopper marketing programs. Delivering against the retailer’s objectives is critical to getting support in the first place and is key to being able to repeat activities in the future. A supplier with a track record of delivering what they promise is much more likely to see their activities received more favorably in the future.

Delivering on objectives can reduce the cost of activities

Further, activities which deliver against a retailer’s objectives (in terms of shopper behavior, or incremental category sales or profit) are highly sought after by retailers. Many activities don’t deliver incremental category sales or profit. Why do retailer’s run them? Because manufacturers pay for them. But if we can demonstrate that the activity delivers value in itself (by delivering incremental category sales or profit, for example), we have a much better chance of negotiating a reduction in fees. The higher the value the retailer sees in the activity, the better the chance of negotiating a better deal. And of course, reducing fees reduces the cost of the activity to the manufacturer, therefore improving their RoI, helping the activity deliver against the company’s financial objectives.

July 10, 2018