Nov 27, 2014 | Branding, Category, Change, Marketing, retail, Small business
A short while ago, I posted “10 strategies for SME’s to beat the supermarket gorillas at their own game” which generated quite a bit of comment and feedback. Amongst the feedback were a number of requests to go into more detail on each of the strategies, and so this is the first of the series, focussed on understanding the business model of the supermarkets.
I deliberately used the word “Gorillas” because of the extraordinarily concentrated nature of Australia’s supermarket retailers, with Coles and Woolworths between them holding over 70% of FMCG sales depending on the category, and whose numbers you believe.
You know the old question: “where do the 500kg gorillas sleep?”
Answer: “anywhere they bloody like”
That was the way it was, a comfy duopoly, however, more recently there have been some major strategy alterations by Coles which has dramatically lifted their financial performance, and Aldi has successfully carved out a growing niche as a third retail presence. In addition, there are still some very good independent retailers around operating out of the wholesaler Metcash, who also competes with some of their own and franchised retail outlets.
This mix, combined with the opportunities suppliers have to sell into food service and institutional markets and increasingly direct to consumers via the net and other means makes for an environment where the agile and insightful suppliers can be very successful despite the obstacles, but it is a very challenging environment.
The concept of business models is well known, in summary, it is the expression of how a business makes money. It always involves a matrix of revenue generated, the fixed and variable costs of generating that revenue, and the choices that the business makes about its customers and how they will be serviced, and the way they incur the costs of that servicing.
Supermarkets are a great example of a number of seemingly similar competitors that have slightly differing business models. At a macro level they have strong similarities, relying on volume, price, and shopper numbers to succeed, but everyone who shops knows that Woolworths is not Coles, is not Aldi.
However, they do have some common building blocks.
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- Revenue generation. Supermarkets generate revenue on both sides of the equation.
- Shoppers buy products, paying at the checkout.
- Suppliers “pay” for shelf space via a range of charges levied for every variable the retailers can dream up. Volume discounts, payment terms, promotional levies, preferred shelf positioning, promotional slots, access to sales information, and a host of others. Some are items for which suppliers receive an invoice, others are taken as discounts off the invoice price, increasingly applied automatically as a part of the trading term package.
- Cost management. Supermarkets work on very low percentage margins, relying on the volume to generate the cash margins.
- Fixed costs are a significant part of retailers total costs, made up of the provision of the retail floor space, the logistics infrastructure and personnel. Supermarkets attack their fixed cost base aggressively using their scale as negotiation tools with landlords and logistics suppliers, while keeping a very substantial proportion of front line retail staff as casuals rather than permanent employees so they can better adjust staff levels to match activity. The sorts of choices retailers make are between high density shopping centre locations Vs stand alone locations. There are costs and benefits to each which are considered as a part of their strategic decision making.
- The biggest variable cost is the cost of good sold, and they similarly use their scale to manage those costs downward. Tactics vary between retailers, but the core game is to maximise their margins while keeping prices as low as possible to attract the volume buyers. This is an extremely delicate balance.
- Transaction costs are usually pretty well hidden in most businesses, but are really significant in the case of supermarkets simply due to the number of transactions they make. For example, there is a cost to managing the buying relationship with a supplier, but the larger the supplier, the less is the total costs/unit of sale of managing that relationship. This has led to a dramatic reduction of the number of suppliers supermarkets have in any category over the last 15 years or so a trend further accelerated by the increasingly common strategy of limiting the number of proprietary brands in any category substituting house-branded products, and reducing the number of relationships to be managed. This has made negotiating shelf space increasingly hard, and because of scarcity, increasingly expensive for suppliers, in turn putting extreme pressure on small suppliers.
- Customer service and relationships. The retailers have each made choices about the pricing, location, ranging, and service strategies that sets them apart from each other, and more subtly, they have back office strategies that differ. However, their common aim is to have as much market share ass possible, as volume is the profit generator.
- As in any market, no retailer can be all things to all people, so each makes the choice of the “ideal” customer, and markets towards them, grateful for any overlap. Increasingly the marketing is being supported by customer loyalty cards and the data mining and personalised promotional opportunities that technology is delivering, but the fundamental measures of success remain unchanged: number of shoppers, share of wallet, and basket size.
- The two major retailers have very large marketing budgets which they spend in a wide variety of ways, across all channels of communication with customers and potential customers, and often in joint activity with their suppliers, which inevitably, the suppliers end up funding in return for volume. The smaller the retailer, the less “mass market” they are, so the tactics tend to differ, although strategically, finding willing supplier partners is a core part of every retailers marketing mix.
- Consumers generally want choice when they are in a supermarket, the more the better, in any category. Woolworths and Coles stores carry 12-20,000 Sku’s (Stock keeping unit) depending on the size and location of the store, a typical IGA might carry 8-10,000, while Aldi carry just over 1,000. The sku’s carried in any store also reflect of the demographic and cultural mix. The Woolworths store in Auburn in Sydney has a significantly different product mix to the Woolworths of a similar size in Double Bay.
- Every retailer uses some form of category management disciplines as a means to monitor, adjust and locate their inventory onto the sales face in the way that best meets their customers needs and maximises impulse pick-up. This is always a data intensive mix of the volume and margin of the individual Sku, (such as Ski strawberry yoghurt 200gm) group of similar Sku’s (all strawberry 200gm yoghurt) subcategory (all strawberry yoghurt) and category (all yoghurt) and between categories. They make choices about how many brands and types to keep in stock, where they put them, on shelf and in relation to other yogurts, and indeed other chilled products. A facing of yoghurt added is a facing of some other product gone, as the sides of the stores are not elastic. At the core of the category management activities is the need to best satisfy consumers, whilst competing effectively and delivering maximised margins.
Being agile, persistent, and prepared to experiment are about the best qualities a supplier to supermarkets can have.
Nov 20, 2014 | Communication, Customers, Marketing, Sales, Small business
Success these days is hard won, how do you go about winning your share?
Most progress of a sales prospect through the sales funnel happens with some sort of design in mind, rather than accident, even though the actual process is usually chaotic. As the one setting out to engage, there are things that need to be done to maximise the leverage that can be applied without exerting any “hard sell” pressure on a prospective customer, poison in this day of sales mobility.
There are three headline of questions that you can ask yourself, and then reflect the answers in the manner in which you communicate, in every way from the published ads, to the website, location signage, the words your staff use, and the way you follow up any contact.
What is your Share of Attention?
- The world we now live in is one where everyone is bombarded with messages almost every moment, from every imaginable device and location from the sophisticated and targeted offer on your own mobile phone to the ad on the back of the dunney door in the shopping centre. Those marketing their goods and services are in life and death competition just to get noticed, and extract the few seconds it takes for someone to skim a headline, and hopefully be sufficiently intrigued to take some action. Usually that action at the first point is just to read or listen to the rest of the message.
- Who is it for? Nothing can be for everyone, and but too often this simple and basic fact of marketing life is ignored. The targeted ad to a mobile phone number is way more challenging to assemble than the general ad in the dunney door which can only discriminate by gender. Gaining a share of attention of someone in the market for a new car has to involve recognising the personal circumstances of that person. Setting out to sell a two seater sports car to a lady with one child and another on the way is usually a waste of effort, better to focus on delivering a car that will meet her particular needs, more likely a 4 door sedan that fits her budget and preferences. The process of answering the question “who is it for” will always throw up uncomfortable choices. In days past, as someone who spent millions in advertising on the 80’s and 90’s, the typical target audience was something like ‘women 25-40, with children” It was about as good as we could do in those days, with a bit of U&A added. Nowadays, that broad description is so inadequate as to be laughable.
- How are you going to reach them, to create an awareness that you are in a position to meet their need or solve their problem, when and f it occurs. The tools of the web have been absolute game-changers here.
What is your Share or engagement?
- Why should a prospect be giving you some of their most valuable resource, their time? To be worthy of peoples time, you need to add value in some way to build a share of their brain, to get them to think about what it is you have to offer and how that offer can be of value to them.
- Why should they buy from you? In almost all cases, a buyer has options when it comes to buying something. Being clear about why the chosen vendor should be you is fundamental to getting the sale. To continue the analogy above, a car dealership that has some female sales personnel, and who have as a part of their marketing efforts a pick-up and delivery service from the local day-care centres is more likely to make the sale to our pregnant Mum than a dealership full of men emerging from the workshop with grease to the elbows, calling prospective female customers “Luv”.
- In sales with long lead time, there is a process that most prospects will go through, from initial awareness of a need through often several stages of engagement, before a sale can be made. Tactics vary through this sales funnel, but one thing remains consistent, the sale goes to those who are constantly working all points in the funnel, being available to the prospects, and . Perhaps the best salesman ever, Joe Girard who sold 13,001 new cars over a 12 year career in one dealership, a feat that sees him in the Guinness book of records. Joe not only never missed an opportunity to engage, and develop a relationship, and once you were on his radar, he created opportunities to speak to you, all in the days before the internet. Once you had bought a car from Joe, you got a post card about monthly from him, always thanking you for your business, congratulating you on a birthday or promotion at work, and offering help in some way. When it came time to buy Another car, Joe was the only salesman most people spoke to, as they knew him, trusted him, and understood he would be there for them.
What is your Share of Wallet?
- Share of wallet is an absolutely vital and often overlooked measure. When you have created a customer, ask yourself how much that customer buys over a period that you could supply. If they spend $1,000 dollars a year on products similar to yours, but you sell them only $200, your share of wallet is 20%. To continue the story of Joe Girard, he knew that the average time between new car purchases was about 3 years, so sales cycle his typical customers “wallet” was about $20,000 every three years, and he stayed in regular contact, so that when the purchase time came around, his share was high, I have been told as high as 60%. Given some people moved away, some died, and some just changed car brands for any number of reasons, that is an astonishing figure.
- Defining the wallet is usually a challenging exercise, what to include, what to exclude, and over what time frame. My advise is always to calculate the wallet over the average purchase cycle time, for cars, 3 years ago it was about 3 years, for refrigerators it may be 10 years, for womens fashion it may be a couple of months. A friend of mine, a professional woman shops almost exclusively at a particular retailer. They know her sizes and preferences, offer her an exclusive first look at anything new that comes in that they think she might like, deliver on a few minutes notice, collaborate with the shoe shop, and accessories retailers in the vicinity to ensure everything is matched, and do a number of other small things that ensure she simply has no reason to go anywhere else. I suspect their share of my friends considerable wallet is very high indeed, and they have defined it to include the things that go with their products, on which they make no money, but it adds to he service they provide.
None of this is easy, there are no formulas that work for every case, but there are general rules that can be applied. In addition, today, everything is measurable, every time you reach out to a customer or prospective customer you can measure the effectiveness of that action. Joe Girard would have been in hog heaven.
Nov 11, 2014 | Customers, Marketing, Social Media
The stupidity of the functional silos that deliberately separates an organisations capability to deliver value and service to their customers, and the way the customer experiences those services never ceases to amaze me.
A friend of mine has a mortgage on his home, and a cash flow problem.
The stupidity is being demonstrated again, as the bank concerned is sending him very nasty computer generated letters telling him of the dire consequences of not getting his payments back in order. His equity is around 99%, for 25 years the payments have been made on time and he has much of his other financial products through the bank.
Why would a responsible, customer responsive, innovative and customer oriented bank, which we know they are because they spend millions every year telling us this is so, set out to so terminally piss off a long standing, loyal customer?
He has options, few of which are beneficial for the bank, and he also has family and friends who are less than impressed, and now would not touch this bank with a bargepole, and they all communicate widely.
I pick on the bank because it is top of mind, but they are not alone. Corporations everywhere cling to the functional management system while consumers take delivery of their products and services cross functionally.
Failure to acknowledge and manage this intersection in an age of Social media and the ubiquity of information is marketing suicide. I guess the upside is that it leaves plenty of room for innovation for those not stuck in the C20, which has led to the rise and rise of Paypal, Uber, Airbnb, e-wallet, and thousands of others who manage the way they deliver to customers in the way customers experience the need to have a product or service delivered. Tom Fishburne put the Maths Vs Mad dilemma wonderfully simply in a cartoon this morning, pointing out the stupidity of just allowing the technology to take the place of common sense, marketing wisdom and customer intimacy.
Nov 10, 2014 | Communication, Marketing, Sales, Social Media
courtesy www.copyblogger.com
Much of Email marketing has become a bit like the electronic version of the letterbox stuffing junk mail. Marketers are aggressively and creatively finding ways to collect email addresses, then directing traffic to the addresses in the expectation that a few will be opened, and a few of them will then lead to a transaction.
However, this misses the essential point that email marketing has in its favour. An email can be personalised and directed, just like a snail mail letter from the “old days”, it is just that most do not do the hard work necessary that puts in place the “necessaries” to get them opened.
To improve your open rate success, there are six things you need to do:
- Add value. An email that is just seeking to extract value from the receiver will not get much time given, usually it will be deleted assuming it gets through the spam filters. On the other hand, an email that explicitly sets out to add value to the recipient will have a way better chance of being opened and acted up on in a meaningful way.
- Be optimised for however the receiver wants to see you. Mobile is growing exponentially, so ensuring you are mobile optimised is a must do.
- Be personalised. When was the last time you opened an email directed at “Dear Mr Andrew Bloggs” or even worse, “Dear customer”? Been a while right? The email has to be directed to the person as if it came from their best mate, not some automating system. We may all know it is automated, but knowing and having it demonstrated by a stupid salutation are two different things.
- Be contextual. A personalised email is good, but if it is of no interest to the receiver, it will be discarded. Recognising the interests of the reviver in the subject line is immensely important. However, being able to do that assumes you know a lot about them, their interests, habits and lives. Without wanting to be at all spooky, it is possible to collect information on individuals and reflect that in the subject lines of the email.
- Be focussed in the subject line. You get a split second of a receivers attention when they first see the email. Typically people look at the subject line, if it is of interest, they usually look at who it is from, and if it is still of interest, may open it, or perhaps put it aside for a better time. Miss out on either of these two things, “interest”, and “who”, in that split second, and you have probably lost them.
- Measure and improve. The analytic options available that enable continuous improvement in open rates are myriad, often free, and your competition is using them, so there really is no excuse.
Of course, once the email is opened, the marketing game begins. When you need help with that, get in touch to access the StrategyAudit experience.
Nov 5, 2014 | Marketing, Small business, Social Media
Courtesy http://tomfishburne.com/ Thanks Tom, love your work!
For many small business people, Social media is a mix of mystery, distraction, and something that at some level they feel they should know about. However, they have seen too many stupid cat videos, observed the stream of consciousness that can be twitter, seen their children leave an indelible image on facebook they would rather not have seen, lack any native sense of what it is about, and lack the time to find out, so they avoid it.
It is pretty common, but misses the essential point. Social media is where your customers are, where they gather their product and supplier intelligence, and pass on their experiences. Choosing to exclude your business from these experiences is akin to going to play golf, but believing you can still be competitive if you leave your clubs at home.
There are a number of pretty simple ways to start. Social media is by its nature both incremental when you choose it to be, whilst at the same time if you allow it, overwhelming. There are just a few simple things to remember:
- Nobody can know it all, even the experts. Anybody who tells you different is either a liar, delusional, or just after your money. In the end, like all business decisions, there is risk and reward, your job in business is to be on the positive side of the ledger, and to do that you must make decisions and take action.
- Anybody can become engaged, in a small way, become comfortable, gain some understanding, and take another step, or indeed, backtrack and take another route.
- Social Media is a combination of two words, “Social” and “Media”. Individually they mean different things, together they take on another persona. If you remember the “social” part, and behave on SM as you would face to face, there is very little that can go wrong, unless, just like it is in person, you act stupidly, without regard to consequences.
- You need a “map”. Navigating Social Media is no different to finding your way through any unfamiliar territory. You need to know where you are, where you want to end up, and then if you have a map, you can make choices along the way depending on the circumstances in which you find yourself.
- Know who you want to talk to, and find the e-places they congregate. The better you can define your target “receiver” the better you can focus your communication on their needs and wishes. Demographics are just a start, on top you need behavioural and contextual information, how they react in different circumstances. If you can describe your intended audience as a person walking through the door, you will have done well, as to get to that point, you will have to have made choices about who is in, and who is out.
- Social Media platforms are not alike, almost not at all. Whilst there are similarities, and overlap, it is both relatively simple and sensible to choose 2 or at most three platforms on which to engage, depending on who you want to talk to, what you want to talks about, what you want to say, and importantly, what you want them to do with the information you give.
- Leveraging social media commercially rather than using it as a simple place to “e-meet” requires that you assemble and find ways to leverage the “list” those who by signing up in some way give their permission for you to market to them. This is a concept first articulated by Seth Godin 20 years ago, and is probably more relevant now than it was then.
- Develop curiosity. The best way to get to get to understand and feel comfortable with social media is to play around with it, make a few mistakes, gain some confidence, and most importantly, be curious, and experimental. After a while, it becomes easier, and the easier it becomes, the more you will use it and in turn get better at using it.
To get started, shop around until you find someone in whom you have confidence, can demonstrate they know what they are talking about, and read widely to inform yourself, then just get on with it.
Nov 4, 2014 | Change, Marketing, Small business
In the 35 years I have been practising marketing, absolutely everything has changed.
Well, almost everything.
What has not changed are the foundations.
The recognition that delivering value to a customer is the “raison d’être” of marketing, and that seeing everything you do from the customers perspective is absolutely essential if you are to understand what “Value” really means in any given context.
It is a fact of life now that marketing is controlled by software.
Marketing was pretty late to the software game, but in the last 5 or 6 years, it has exploded. Now we can not only automate a whole lot of tasks previously taking up valuable time, and gain vast leverage from the automation, but we can measure the performance of activities, bringing a whole new world of accountability and reach to the practice of marketing.
What we cannot automate, and really only measure after the fact is the influence of creativity on the process, the ability to see what others cannot, to interpret a given set of numbers and circumstances through new eyes, to connect the unconnected dots.
This explosion of automation and tools has created a new “middleman” in marketing, he/she is called “Software”.
Like all middlemen, “Software” needs to be proactively managed. There are many choices of middleman that can be made, often more than one may be appropriate, but those chosen need to be managed, and these tasks require a whole new set of capabilities many businesses do not have, and smaller ones often think they cannot afford.
They also need a new way of working, a collaborative, and cross functional culture that encourages hypothesis generation and experimentation. It must be “failure tolerant”, simply because failure is not really failure, it is an opportunity to learn about your market, competitors and customers.
