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The Changing Retail Dynamic

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Finding the Ideal Equilibrium Among Brands, Retailers and Consumers.

By Matt Baker, AMD

I think we've all had our share of look alike trends reports–usually very topical and statistic-heavy but generally leaving us with more questions than we had when we started reading. Going forward from the crossroads in this disruptive time in marketing, where we're seeing a shift to at retail marketing, and a concurrent shift from organizing supply to organizing demand, we need to reexamine the dynamic relationship between three principle stake holders at retail; brands, retailers and consumers. These players are inextricably bound and mutually dependent but never exert equal influence over the direction of the market at any given time. When you consider trends, cause and effect reveals itself in the struggle for control between the players. It is a poker game. At any moment in time a player may be up or down and plays his hand according to his tolerance for risk. Those with the biggest stack of chips in front of them usually call the shots.

Before reading any industry tea leaves, let's look at how the balance of power between stake holders looks these days.

Brands

The brands have been taking a beating for several years now and there's little relief in sight. Unfortunately most of these players have been a good two steps behind major socio-economic changes and now look like opportunists as they struggle clumsily to join the conversations that inform the shopping behaviors of so many of today's consumers. In their book, Communities Dominate Brands, Ahonen and Moore put it well; "…the structured order of our familiar industrial age has come to an end and it's dying as days do, gasping for every last ray of light."

Though the writing has been on the wall for over a decade now about the fragmentation of traditional mass media and how retail consolidation has offered a more effective consumer touch point, most brands have continued spending only "push dollars" at retail and their "pull dollars" on TV. While they have fed big Retail's hunger for supply side economies, their brands have lost significant equity crying wolf over price promotions and EDLP that they co-conspired on. The emergence of viable private label offerings as acceptable alternatives to national brands further complicates this situation. The brands continue hawking their products, for which consumers perceive numerous equivalent alternatives to, on network broadcasts that audiences Tivo through an hour later because they were busy seeking product endorsements from trusted community advisers online. The explosion of choice available to today's digitally connected shopper has made weaklings of many brands as they have failed to capture the consumer's limited attention in any meaningful way. Few brands have made effective use of the digital space either, with online executions that look like the afterthoughts they were. Many brands continue to plan from the inside out prioritizing their own profit and volume objectives over consumer needs and will continue sending the messages they want to deliver rather than responding to what customers want to hear. They fail to see how their products fit within the consumer's larger life context and miss real opportunities to collaborate with other brands in ways the shopper would find helpful. I would expect over time a major restructuring of brand hierarchies between those who get it and those who don't. As Alan Mitchell points out in his book, Right Side Up, "We are entering a new era where the most influential businesses organize demand rather than supply…where the dominant form of marketing revolves around helping buyers to buy rather than sellers to sell". Traditional methods of mass marketing are ineffective in serving this objective. I am not sure I understand the continued brand disconnect at retail, perhaps the very best place for marketer's to differentiate their offerings and help shoppers make informed buying decisions. A strong brand is what provides leverage for manufacturers. Regretfully, brands have been losing their potency over time.

Retailers

If big retail could just get out of its own way, they could really dominate the game. Retail continues to consolidate–but maybe now for slightly different reasons. It's not so much about the big box behemoths driving smaller concerns out of existence as it is about several major players losing touch with their customer base. The category killers are starting to turn on each other and some venerable retail brands will become casualties as a result. With all that said, retail continues to gain leverage over brand marketers and their demands to these "partners" are growing as a result. Large chains are using technology to better organize and make the supply chain more efficient so they can use the everyday low price model to drive volume through the stores. Private label brands have grown in popularity and are now used as additional leverage against the national brands. As the stores begin to see themselves as more than simply a place of retail distribution, and now a valuable and measurable touchpoint for consumer marketing, they will assert themselves even more in terms of advertising and sales promotion. Some view themselves as a legitimate mass medium and expect the brands to spend a larger share of their brand advertising budget in store. Though very few retailers are providing an engaging and relevant shopper experience with their own digital signage networks, some still expect brand manufacturers to support these initiatives to help them drive category growth. Digital signage aside, retailers are expecting the brands to provide more customized merchandising solutions that fit their own retail brand and floor policies, clean or otherwise. Retailers have gotten considerably better at online marketing but still lack in providing their customers the seamless experience they seek between online and offline touches. Despite the importance of social 2.0 networking, most retailers have yet to leverage significant advantage from the possibilities of word of mouth in building brand share against competitors. Even more than the brands, the retailer's marketing decisions are too siloed to really integrate across these platforms.

Consumers

Never before have consumers enjoyed as much influence over how brand manufacturers and retailers go to market. No longer isolated but now socially connected and armed with information from the Internet, today's empowered consumers are freely expressing their preference for intimate and honest dialog over prepackaged and manipulative advertising messages. As former Secretary of Labor Robert Reich tells us in The Future of Success; "We have entered the age of the terrific Deal, where choices are almost limitless and it's easy to switch to something better". The market disciplines all players and the Internet amplifies the voice of all sellers to emphasize the available alternatives to any brand solution. In this scenario, economies of trust trump economies of scale as consumers seek brand advice more from trusted associates than commercial mass media solicitations. The consumer, now freed from the conformity of mass opinion develops his or her own shopping roadmap and finds new power as manufacturers and retailers scurry to respond. Spirited consumer generated content on the large social networking sites can elevate or bury brands overnight. In a very real way consumers are reminding us all the time that the value in our brands is in their hands and that attempts to influence equity had better be transparent. The emerging economy gives them great power to get what they want but the overwhelming noise and visual clutter in the system may favor brand solutions provided those brands have established a position of trust with buyers. This is particularly true of older consumers whose brand loyalty is a bit more calcified. Brand marketers and retailers serve the mercurial mistress of the market economy. The extent to which they satisfy the wishes of consumers will determine their fortunes.

Okay, so how does all this impact the Marketing at Retail sandbox we all play in?

First let's dare to agree that the customer should be at the epicenter of everything we do and that the economic value of our branded property whether products or real estate is mostly their call. Also let's agree that in an age of almost limitless choice, gaining and nurturing the shopper's trust is paramount to success. Marketing communications based on the mass media model are bottlenecks for growth because the mass media are shrinking in their reach and influence. As a result we turn to the store as medium and seek to understand how we can use this space for both brand building and sales promotion. Reaching eyeballs is no problem as we see Wal-Mart boasting 134 million weekly shoppers and Kroger another 64 million. But, how do we communicate our brand messages at retail? How consumers use the internet inspires our choices here as we see how useful this medium is in helping consumers buy rather than sellers sell – the new name of the game in marketing. Larry Weber in Marketing to the Social Web offers this advice; "Instead of continuing as broadcasters, marketers should – will – become aggregators of customer communities….Rather than talking at customers, marketers should talk with them". There is no particular reason why brand loyal communities should remain a strictly online phenomenon not when you consider how the socialization of place has benefited some forward thinking retailers. Aggregating these customers in a place where they can make and execute immediate buying decisions is critical. In the clicks and bricks model, some retailers lose up to 50% of actual sales to their competitors when it was their own website that informed the purchase decision. Clearly real destination value in visiting the store was lacking. So how do we build bridges between online and in-store to meet customer's expectations? Brand/retailer collaboration provides both the motive and opportunity to build and nurture brand loyal shopper communities. Together these stake holders can achieve a customer relevant context that neither can achieve alone. Here is what needs to happen. We need to clean up the stores by minimizing what Kevin Kelly of Shook Kelly calls merchandising spam. Let's replace the cacophony of crowded aisles cluttered with ugly signage and inconsistent floor displays with something more consistent. In place of all the temporary promotional displays, let's establish a more permanent architecture that brands can tie in with that allows shoppers to share their love of products with other shoppers. In place of digital signage content that remains largely irrelevant to shoppers, let's provide more opt-in and interactive experiences that are visually rich but also educational and entertaining. Technology allows us to include real time ratings and brand rankings provided by the kind of people customers trust most, other customers. Imagine this experience: the customer is motivated to discover meal solutions, he approaches a kiosk featuring a high definition cooking demonstration by some well known chef. A strategic touch of the screen later and a recipe including a branded list of ingredients with associated aisle navigation prints out. He is then delighted to discover that this recipe was requested by more customers than any other recipe this week and that 3 of the ingredients are top brands with people just like him. Now, off he goes to build his basket with several unplanned purchases and the feeling that this shopping experience was a little better than average and certainly worth repeating. Link the experience he has in-store with a unique but complementary experience online to make this affiliation as mobile as he is and you've added more value and motivated him to share his experience virally.

The idea of real marketing collaboration between brands and retailers is not new though it may appear revolutionary in contrast to the usually divisive marketing at retail model we practice today. Like any other eco-system, ours is interconnected and thrives more when power is more evenly distributed among its constituents. Imagine how much more interesting the game would be if we all had equal table stakes?

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