Branding Strategy Insider

Manufacturers Losing Power To Retailers

You might have felt a slight rumble under your feet last November, and heard the faint but unmistakable sound of an unstoppable object coming into contact with an immovable force.

In the US, the epicentre of the collision, the noise must have been deafening. In a marketing version of Godzilla versus King Kong, bulk retailer Costco and Coca-Cola went to war.

For weeks, the two had been negotiating a new supply contract. Then in November, the talks broke down and Costco, the third-biggest retailer in the US, released a terse statement: 'At this time, Coca-Cola has not provided Costco with competitive pricing so that we may pass along the value our members deserve.' This means that Costco will no longer stock Coke, Sprite, Fanta, Powerade or Dasani until the matter is resolved.

Although it is impossible to be sure what took place behind closed doors, it is likely that the two parties approached the pricing discussion with conflicting outcomes in mind.

In the US, Coca-Cola is trying to increase prices to offset the gradual decline in volume sales, so it's possible it tried to ask for more money.

For Costco, facing stiff competition from other big discount players such as Sam's Club and Trader Joe's, the emphasis would have been on Coke dropping its prices. With Costco's profit margins already nerve-shreddingly thin at 3%, a price cut is the only way to ensure it can undercut its competitors. The two corporate behemoths were set on a collision course and the wait was on to see who would blink first.

5 Retail Marketing Trends for 2010

1) Inconspicuous Consumption

Consumers respond to the social moment by taking consumption into the closet. As when we talk about going to Fred's (in-store restaurant), not Barney's. Or, ask to have new purchases shipped, rather than be seen carrying a branded shopping bag. Or, decide to have shoes repaired and last year's jacket altered. Spending as a covert activity. No bragging rights.

2) The Dyslexic Dilemma

It's a "b." No. It's a "d." Consumers stall in their tracks, trying to figure out what to do, right now. Are we heading out of the woods, or perhaps a bit deeper into it. The moment to watch: What happens when unemployment hits 10 percent at the exact moment the Dow tops 10,000. That deer-in-the-headlights look on the consumers' face: Now or not yet? What is the real barometer of economic health? Dare I buy a peach?

3) Private Labeling

The number one brands thrive, innovating, advertising and product improving. But, the number 2s and 3s stop striving, unable to compete with performance advances or on price. Into the vacuum steps Private Label. No longer just "okay, available and cheap," these grocery aisle invaders are well-branded, feature rich and are oh-so-profitable for the stores. Say goodbye to familiar but moribund household names; say hello to snazzy new entrants that shave quarters off the check-out total without sacrifice. (Store brands in play at Walmart pictured above)

Brand Personality Inspiration

My dad always said, if you want to get ahead of the leader, don’t follow his tracks in the snow. If I owned my own jewelry store, this would be the mantra for everything I did. And my store would be truly different.
I think the greatest challenge we all face is avoiding the well-worn track. So, how do we avoid falling into step with everyone else? The trick is to find inspiration, not from your competitors, but from brands outside your own category of business.

Let’s imagine that Apple went into the jewelry business. Now let’s imagine how the Apple jewelry store might look. We all know Apple – a fundamental indicator in itself of the brand’s leadership. The Apple personality is well etched into our collective understanding of the brand. We could, therefore, imagine that the Apple jewelry store would proclaim itself in the street environment as a jewel itself. The façade would be sleek; the staff would be casually elegant, dressed in black shirts adorned with incisive, white-printed apothegms across their backs. The jewelry displays would be elegant – simple of line and perhaps using white as a theme. And the jewelry pieces would feature as the stars of a coordinated and well-design show. Each piece – and perhaps there’d be a select few on display, ensuring that the story behind each work had the space and time to express itself – would be a paragon of design. You’d be able to see them up close, examine their well-crafted detail and even touch them to fully appreciate their seamless craftsmanship. They’d be Apple pieces, sharing design characteristics that underline the Apple brand’s inherent mission, personality and values. They’d be individual expressions of each artist’s creativity yet united in their evocation of the Apple brand signature. In brilliant paradox, their individuality would reinforce a recognizable and unifying brand, leaving no doubt about the brand behind the products.

Creating The Brand Halo Effect

Marketing and psychology are closely related. If psychology is the systematic study of human behavior, then marketing is the systematic study of human behavior in the marketplace.

Good-looking people, for example, tend to be perceived as more intelligent, more successful and more popular.

That’s the halo effect in psychology.

The halo effect also works in marketing. What key product is behind the phenomenal success of Apple Computer? In a word, the iPod.

In fiscal year 2005, Apple Computer sales were up 68 percent over the previous year. Profits were up 384 percent. And the stock was up 177 percent. And Apple’s net profit margin increased from 3.3 percent to 9.6 percent, an astonishing jump.

The good news from Apple Computer wasn’t just the success of the iPod. As a matter of fact in 2005, the iPod and iTunes together accounted for only 39 percent of Apple’s sales. The other 61 percent of Apple (computers, software and services) also did well.

Apple’s computer and related businesses were up 27 percent in 2005 over the previous year. And, according to industry reports, Apple increased its share of the personal computer market from 3 to 4 percent. That’s the halo effect in marketing.

Why Retailers Call The Shots

The news that Microsoft has hired a senior Wal-Mart executive to spearhead a move into retail will not come as much of a shock. These days retailers run the world, and companies like Microsoft, which have typically supplied big retail, are now increasingly drawn to the idea of opening up for themselves. The marketing advantages are great.

First you keep the margins that retailers usually extract from you. You also gain access to a mass of consumer data in real time. It is worth remembering that big manufacturers such as Cadbury and Unilever have absolutely no idea who is buying their products. That data belongs to the retailer and it provides an enormous strategic advantage in the factious negotiations that occur between supplier and store.

When Procter & Gamble bought a stake in online retailer Ocado, it was the opportunity to access this kind of data that motivated the investment. Without it even the biggest, smartest manufacturers are flying blind.

Direct access to consumers also enables a company to build a stronger brand. It is hard to build and protect the brand equity of a consumer good when you are a small packet of powder on a shelf that someone else is ultimately in charge of. But retailers have it much easier. When consumers enter their store they enter a house whose every element can, and is, directly controlled by the retailer.

The people, the setting, the atmosphere, the products, the in-store promotions, the experience - all can be used to build brand to consumers.

Retailers have a huge advantage when it comes to branding. If you don't believe me take a look at Millward Brown's list of Britain's 10 most valuable brands. On first sight there are three retailers in the list: Marks & Spencer, Tesco and Asda. Look again and a stunning realisation dawns: all 10 brands sell directly to consumers through retail settings they control. Vodafone has its own network. So do HSBC, BP and Barclays. All of them are, effectively, retailers.