Closing the Gap

Marketers' relationships with retailers have come a long way since the days when buyers were shown a form with the year's advertising and merchandising programs on it and were asked to place orders for ad periods and P-O-P materials. Today, more effort, time, communication and analysis go into developing programs that meet both supplier and retailer needs. Finding that perfect balance, based on specialized requirements and sales data, is sometimes a difficult process. But the results are proving to be worth the effort.Take, for example, the annual spring Sega Summit that was instituted by the electronics manufacturer a few years ago. During this event, the top marketing and merchandising executives from key retail chains visit the San Francisco headquarters of Sega of America Dreamcast Inc. to participate in a three-day meeting. (The meetings are split into two segments -- Monday to Wednesday and Wednesday to Friday -- so direct competitors don't attend at the same time.) At individual meetings throughout the summit, Sega executives meet with these movers and shakers to lay out their product line for the coming year, discuss their marketing plan for each product and listen to the retailers' own marketing plans for their stores."We show them the big picture of what we'd like to do in their stores, title by title, based on the plans I've put together for merchandising and channel-marketing development earlier in the year," explains Scott Lambrecht, director of channel marketing for Sega. The event brings together between 350 and 400 retailers -- from presidents, marketing vice presidents, merchandising vice presidents and merchandising directors, to regional merchandisers, buyers and merchandising-support people. (A few accounts are visited directly by Sega because they view the all-expenses-paid Summit as a gift that can't be accepted by their merchandising personnel.)"We invite whoever makes the decisions about getting things into the store and whoever has hands-on responsibility for ensuring that it happens," Lambrecht says. "This is our opportunity to meet with key executives and create a uniform message." The Summit is held prior to the E3 Convention in May to ensure that plans are locked up prior to the year's biggest trade show -- where much of this type of dealing used to be done.Such meetings aren't restricted to durable-goods retailing, either. Marketers at Nabisco Inc., East Hanover, N.J., soon will begin work on their 2002 programs, working hand-in-hand with key retailers, especially mass merchants. These personalized, in-depth programs were instituted about three years ago, explains Doug Haase, director of customer marketing for Nabisco who is based in Bentonville, Ark., home of Wal-Mart."We sit down with retailers in the first quarter of the year to brainstorm ideas for the next year," Haase explains. "At that meeting, we'll throw everything onto the table -- trade programs, marketing, merchandising pieces, in-store promotional pieces, sampling, etc. We'll talk about what's working and what's not, where we can do better, what the trends are, and so on. We have to take into account what our company's position is nationally and what the situation is for that account specifically."Those ideas are presented to the accounts in May or June, with the rest of the summer and early fall spent "bantering back and forth" to arrive at a program. "By the end of September, we're usually locked and loaded," Haase says. "Then we gather all of it as a full program and take it to them. We have found that these customer-marketing programs are really the wave of the future. I believe they'll become more frequent for us."Such close relationships require more time and effort, as well as more production costs to create individual programs within the overall marketing theme. But in these days of consolidation across retail, marketers and retailers are finding the programs are well worth the cost to each because the return on investment can be considerable. "Retailers have gained more power to call the shots, but they can back it up with more volume, so you give them what they want," says Sega's Lambrecht.New Opportunities AriseIn addition to better targeting retailers' market philosophies, these closer relationships often lead to additional opportunities. "In some cases where we've worked closely with the account, they'll offer us an opportunity that arises -- a new store opening, a fixture rearrangement or a spot in an upcoming ad where another supplier dropped out at the last minute," says Lambrecht. "They'll come to us and say, 'Do you want it?' It gives us another chance we hadn't expected."A key opportunity for Sega came recently when Best Buy's buyers offered the company a chance to be merchandised in the store's audio department as well as in its video game department. "That's where a personal relationship gave us the opportunity for a new opening," Lambrecht says. "But you can't be pushy to gain whatever you want. You just have to be flexible enough to respond when opportunities arise and work closely enough with retailers to gain those chances."Most ongoing conversations take place at the buyer-sales rep level, marketers agree, but they occasionally will involve higher management on both sides if the stakes are high enough. "If there's a significant cash contribution or investment required for a significant increase in business, the negotations will involve senior management talking to their vice president of merchandising," Lambrecht says.The most recent instance involving Sega came when Sears, Roebuck and Co. transferred its electronic games from its children's department to its Brand Central department. "We'd been encouraging that for some time, so we were happy to work with them," Lambrecht explains. "But they were asking for a substantial dollar contribution to help with refixturing, so we had to clear that through senior management to ensure that it was on everyone's radar."Focusing on the Big PictureEven at the buyer level, some say, the negotiations have become more managerial and less focused on pulling out the calculator first. "For us, the term 'sales rep' has become a misnomer," says Gary Slayton, director of marketing at Asics Tiger Corp., Irvine, Calif. "Today, those people work on all types of logistics issues, including selling and showing the product, working on marketing plans with buyers, communicating ideas and feedback back to us through our regional managers, and maintaining displays."Both marketers and buyers have realized there is more at stake than supplying the lowest possible price. "The attitude at retail has really evolved in the past five years," says Slayton. "It's far more businesslike and less down-and-dirty. We're both a lot smarter about the bottom line and not giving away the house -- now we're focused on overall value."In the old days, he continues, "The first thing a buyer would do is stick out his hand for his next ad campaign. Now, we spend the first half hour talking about business financials -- where they are with us and where we are with them. The numbers are still important, but velocity and the big picture are emphasized first."Offering FlexibilityThis approach is gaining importance as retailers become more specific about what they want in their stores and how it should relate to their customers. "We definitely try harder these days to understand what's important to their approach and provide those solutions for them," says Brian Cole, director of off-premise national accounts for The Boston Beer Co., Boston. "We don't set up a program and say everyone will use it. We've found the most effective approach is to fine-tune it to their merchandising philosophy and overall strategies."Those approaches typically work within a menu of options or ideas that the marketer knows will appeal to that retailer, based on the past experiences of working with the account, notes Jeff Slater, vice president of marketing for GoodMark Foods Inc., Raleigh, N.C. "We have an idea of what the buyer wants and plan our negotiations based on how that has evolved and what issues are hot."Indeed, buyer's uppermost interests tend to go through waves, switching on occasion when someone's 'hot button' is pushed, he says. "If the buyer is on a cost-cutting mission this time, they'll focus on value, but if they want the stores to be jazzier, they may be looking more at the sizzle. It depends on what's hot with them, and it can change. So we try to prepare different approaches that will meet their needs."In the case of cross-merchandising programs, the sales rep may have to make his case to two buyers, first convincing the usual contact about the value of the program and then convincing the other category buyer "Buyers can usually be talked into these programs if they're well thought out for them, because it sells more product in their category," says Boston Beer's Cole. "Hopefully, the other buyer will also see the value of directing beer buyers to their department for a second sale."But it's not a slam-dunk, he warns. "Chain buyers can be territorial about their departments. There has to be a real value for that second buyer to get into that department. Ideally, we'll sit down with both buyers at once to explain the program, but that's difficult because the buyers' time is so valuable."Discount OptionsThe package of marketing goods and services presented to the buyer often includes co-branding, cross-merchandising, value-added and customizing options. It also often includes a variety of price discounts and paybacks to encourage the deal. Slotting fees, co-op dollars, display allowances, market-development funds and other incentives can be included in the mix. "We work with them to determine how they want to spend their co-op, which we then get approved internally to ensure that the plan fits our own advertising program, shipment schedule and in-store programs," says Sega's Lambrecht. "And we have to be fair about it and offer the same program to all retailers so none are left out."Co-op dollars are the funds generated by the account through such programs as locally advertising the marketer's products. Today, some major accounts are trying to use these funds in creative ways. "When retailers are willing to use their co-op money as part of a promotional plan, it's easier for us to track," Lambrecht says.In many cases, the variety of programs available are spelled out on promotional sheets, such as those used by Jansport Inc. for its backpacks and luggage, says Rhonda Lewis, in-store merchandising manager for the Appleton, Wis.-based company. "Spiffs and other promotional elements are shown on the sell sheet, and this package is worked out with the buyer if the program is retail-specific," she says. "Our reps negotiate and brainstorm the program and feed that back to us so we can give the stores the specific approach they want.""Displays often provide a major incentive in that package," Lewis adds. "We don't pay for space in a store, but P-O-P is a key incentive and it helps to sell the products to the buyer." The company's display for its Airlift backpacks played a key role in the product's introduction. "It definitely helped, because we needed to get the backpacks off the wall and into the hands of the customers so they could feel the difference."The initial display rolled out last year to only 300 key stores. "It was a very exclusive launch because we wanted to create sizzle and demand for the product," says Lewis. This fall, it was extended to 1,400 stores.Prices Still DominatesWhile P-O-P and exciting marketing themes can serve as frosting, the cake is still baked with discounts and upfront incentives, says Holly Roper, retail marketing manager for Promo Edge, Mequon, Wis. "The buyer's job is to spend a few minutes with you and purchase your program. They still must face price first and if time allows, they'll discuss your merchandising plan."Robert Greenberg, vice president of marketing for Guiltless Gourmet, Austin, Texas, agrees. "The price of admission to the display dance floor is a reduced price," he says. That bottom-line need creates problems for the company's organic-chip products. "The consumer is not as price-sensitive about our products, and we've found that deep discounting doesn't drive incremental sales," he explains. "We have to convince the store buyers that they'll benefit more from generating more trial and exposure. When we can convince them, it lets us be more creative in using our promotional money."An example can be found in the company's current promotion with Kroger supermarkets, in which consumers receive a free bottle of Kroger's private-label bottled water with the purchase of two bags of chips. The promotion is highlighted with power wings of chips in the beverage department and power wings of water bottles in the snacks and chips department. "It gets us into two locations and provides a value-added promotion," Greenberg says.But that's atypical. "Usually, we publish a deal, we contract for ad and display space, and retailers give us a price reduction for so many weeks and display space for so many more weeks," he says. "We try to maintain the displays and keep them effective to gain some more visibility. If the display is successful, they'll leave it up longer and give us some rollover."Greenberg is hoping to convince more buyers of the value of focusing on more than lower prices. "Our ability to persuade buyers of this is critical for us, and it's not easy. There's a hesitancy by some buyers to try something new [besides price discounts]. We will continue to talk to them about redirecting money that usually would go directly against the cost of goods and apply it in a more creative way We don't want to just display at a lower price, so we try to provide a minimal discount and take other approaches. But some stores have rules about showcasing products without discounting them," he says.Slotting Fees ExaminedA key ingredient continues to be slotting fees. Initially, these were payments designed to gain the vendor a "slot" in the retailer's warehouse and have since come to mean fees paid to introduce a new product to the shelves. In a few cases, these are used as a "pay to stay" fee -- but they can cover other discounts as well. "Every retailer receives slotting fees in some way, they just call them different things," says Promo Edge's Roper.When used for their original "slotting" purpose, such fees are legitimate and appropriate, she stresses. "New products take a lot of effort and money to get into a store. There's a risk to taking space from existing products and giving it to new ones, and there's a cost for the labor involved in resetting the shelf, reprogramming the computer, making up new UPC labels, etc. Somebody has to pay to get that product onto the shelf and make it fit."The fees can be hefty, from $50 per store to $10,000 for a small chain, Roper notes. "But if you spent $3 million developing the product and have to be sure it gets seen, then that's cheap."But slotting fees and negotiated payments of all types may be growing too big, says Greg Gundlach, professor of marketing at the Mendoza College of Business at The University of Notre Dame, South Bend, Ind. Gundlach testified in September as well as last year before the Senate Subcommittee on Small Business during hearings on the impact of slotting fees on small businesses. The federal Trade Commission also recently held a two-day workshop on slotting fees and category-management practices."Discussing the trends with slotting fees is important to both suppliers and retailers because these fees are continuing to expand, but it's also important because they're beginning to receive a great deal of attention from policy makers," Gundlach says.He agrees that the term has come to include a variety of fees and payments and is used in different ways by different companies. He also stresses that some of those fees are legitimate. But the concern is that they may sometimes be used by both the retailer and the marketer to keep the playing field uneven and lock out innovation.Such fees were banned for marketers of alcoholic beverages by the Bureau of Alcohol, Tobacco and Firearms in 1995, Gundlach notes, but some evidence has shown that related practices have continued in that field. "We need to better understand these payments and how they occur so we'll know the best way to govern their use to protect consumers," he says. The BATF experience indicates that regulation may not be the most effective approach, he points out."It may make more sense to create a structure through case law or simply publicize their use through public forums. But at this point, we're still trying to get our hands around the nature of what a slotting fee really is and how they're used," Gundlach says. (For more information about slotting fees, see the sidebar on Page 36.)Wine and beer makers across the board say that such payments are not part of their negotiations today. They also face a multitude of state restrictions that vary widely on what promotions can be run where. As a result, they have to be even more flexible in creating a program that has enough incentive for buyers. "There definitely is some tweaking done to some of the program elements we present for each account," says Boston Beer's Cole. "Hopefully, when we go in, we have a good idea of what the program will be and how it matches the retailer's strategy. The most effective approach is to be as flexible and customer-focused as possible We've found that one-size-fits-all programs definitely don't work"According to Joseph Jones, director of brand promotions for Miller Brewing Co., Milwaukee, "The most popular programs are some type of cents-off promotions plus aggressive merchandising programs. But we are also focusing accounts more on our category expertise and ability to help manage the category. That way we can enhance both overall dollar volume and gross-profit contribution. Our best format is to be flexible in providing data analysis along with a wide array of merchandising."Laura Welch, senior marketing manager at Robert Mondavi, Napa, Calif., also sees flexibility as the key to success. "We design programs to be as flexible as possible so retailers can decide when to use them. It's unrealistic to think that a program will be executed across the country at the same time by all retailers. Retailers -- and the law -- mandate what we can use."At the same time, she says, retailers are cutting back on the amount of merchandising they allow, requiring programs to stand out from the crowd. "We focus on providing value-added items to consumers that support our brand positionings, whether that be recipes, cents-off coupons for food items, self-liquidating premiums or entertaining tips. Retailers are looking for innovative displays, so we try to be as creative as possible within the guidelines of the law."Balancing NeedsMeeting retailers' needs within the bounds of the marketer's own goals can be a delicate balance. "Buyers have as much at stake in ensuring a program is a success as the marketer does," says Asics Tiger's Slayton. "It's very typical for us to get them co-ventured into the program or involved in the risk, especially through added inventory. So we all end up working harder to get more out of the promotion.""Juggling our goals and their needs can be tough," agrees GoodMark's Slater. "It's a negotiation. The more we can educate them and explain the reasons behind why we are doing things as we are, the better we serve the consumer. In many cases, they may simply not understand why we do promotions the way we do, and we have to ensure that they see our perspective. But certain things do sometimes go too far, and then it takes some flexibility on both sides."Account-specific programs that create customized pieces are a key focus for many marketers and their retailers, all agree. But expenses and maintaining the overall marketing theme restrict how far marketers can go in creating unique promotions. "Customizing is an issue, because everybody wants something unique," says Sega's Lambrecht. "We have to be sure the volume is there before we create a specific program. Our other option is to try to modify existing pieces enough to give them something different."Customizing Pays OffCustomizing can pay big dividends, marketers stress. For instance, Slater reports that Target's buyer requested a large-volume package as a means of entry for the company. In response, GoodMark created a large cannister tied into its World Wrestling Federation license specifically for the retailer. "We don't want to be a job shop for each account, but size does matter," Slater says. "We're always looking for opportunities if they fit both of our needs. If the account wants added value or sizzle, a tin or bonus pack or CD compilation, we're interested in listening if it's going to drive consumption or get us in the door."Customizing can also create synergy between the supplier and retailer brand names that give both added power, notes Nabisco's Haase. "During the fourth quarter of this year, Harry Potter will be a major equity," he explains. "But Nabisco may be shut out nationally from being involved -- you never know. When those situations happen, we sometimes can work out a Wal-Mart/Nabisco promotion that can gain us some presence. If we learn early enough from our retail accounts that they're interested in programs like that, we can start working on those alliances early and create something account-specific."Promo Edge's Roper says such approaches will grow in practice to leverage major brand names, but suppliers have to be wary of trying to please too many retailers at once. "They have to limit the communication feedback they receive or they'll be over-whelmed," she says. "They really have to look at their top ten accounts. The old 80/20 rule is more like a 90/10 rule today. They have to know who those 10% are and care about what they will execute."Store Managers RuleAnd what they say they execute may not be what they actually can achieve at store level, Roper stresses. Marketers agree. "I can guarantee my displays get to the store, but I can't guarantee they get to the floor," says Sega's Lambrecht.Adds Boston Beer's Cole, "Buyers make the final decisions on what goes in, but it's up to the store manager to make it happen." Often, buyers supply an approved list of displays but don't require the manager to put them up. As a result, more marketers are focusing on simplifying the assembly of displays and hiring third-party merchandisers to assemble and maintain the programs.Beer and wine makers, who rely heavily on local distributors, have close relationships with store managers that pay off for them, notes Miller's Jones. "Our contacts with retailers are multi-level -- national, regional, state and local -- and often involve a dozen or more people." The company operates 16 sales offices around the country, each with a chain sales manager with a team of chain account managers, one of whom is assigned to each of the company's 640 distributors. Those local distributors also have their own salesforces."Personal relationships are a big part of our success," says Jones. "That final decision-maker is in the store. National and regional decision-makers are discussing pricing, features and display, but the store is where the rubber meets the road. He's the one who gives you permission to bring beer and displays into his store. Having a good relationship with that manager is extremely important. Putting up a display is kind of a reward for having that relationship."And those with strong grass-roots relationships don't want it any other way. "I enjoy retailers who allow store autonomy and let relationships and service drive execution," says Nabisco's Haase. "That type of approach benefits the merchant and his customers."Measuring ProductivityBecause of the growing clean-floor restrictions regarding what can be supplied, measuring the impact of each display becomes more vital. But many marketers find it difficult to determine what element of a promotion was most successful, and few track how quickly different types of displays sell down."There's a tendency to want to move on to the next program and keep looking ahead, but there's a lot of value in learning what worked well in a promotion," says Boston Beers' Cole. "It's important to know so you can enhance that the next time. Many buyers are required to spend time in the stores so they get a feel for what's working."GoodMark's Slater says his company's brokers and regional managers take photos in stores to show buyers how the programs are working. But such qualitative feedback tends to be rare. Most focus on sales data due to the difficulty in pin-pointing which materials in particular were most effective.Such measurements must be the next step in the retail-communication process, says Promo Edge's Roper, whose company performs such detailed P-O-P measurement. "Looking at total sales lift doesn't tell you what gave you impact and where the investment should be focused or what works best in each market or store," she says. "It's important to know if the sidekicks worked better than the floor displays at half the cost. You have to be sure you're focusing on the P-O-P that works best, not just what the retailer will accept."Closing that loop is important because all other kinds of media report their impact. "We can't afford not to measure how specifically we improve value," Roper says. "Everyone agrees that P-O-P is the most impactful form of advertising, but until we quantify it and analyze it, it's too general to be effective -- and it pales next to the information provided by other media."Specialty Niches GrowingSuch feedback will become more necessary as specialty shops grow in many fields, providing more sales but offering less space for displays. The emphasis on more specific data will also grow. "Our focus is going to be on providing more service to the specially shops by supplying proprietary data back to them or comparing their results to similar-size stores so they can benchmark their execution," says Asics Tiger's Slayton.Specialty shops may help fill the gap that some believe has been created by the consolidation of stores in many fields. While consolidation has given suppliers more return on their investment -- giving them more reason to invest heavily -- it also leaves some concerned for the future."Consolidation has steadied the ship," says Slayton. "In 1995, there was too much retailing going on, and something had to give -- and it's still falling out to some degree. But as the field gets smaller, we have to be careful we are balancing our accounts. We don't want to put too many eggs in one basket. If that one account makes a bad decision, we both suffer more than we would have in the past. We get nervous if we find we are working with too few accounts."Consolidation is also making it more difficult to gain sufficient time to explain specific programs, notes Guiltless Gourmet's Greenberg. "It seems that fewer and fewer retail people are being asked to take the responsibility for more and more stores," he says. "Their ability to be flexible and accommodate regional needs or specific store opportunities is growing smaller. We find that consolidation is making it more difficult to work on a local or regional basis with some chains."The Internet may offer a tool to regain the buyers' attention for regional opportunities, says Slayton. Already, Asics Tiger is documenting which pages viewers of the company's Web site are accessing most often and is correlating that to its regions of the country. "We can show our retailers what people in their part of the country are looking at on our site to show them what they can sell best," he says."Both sides are getting smarter about their businesses," says Miller's Jones. "It makes for a better dialogue, and across the industry, the major brewers are responding by upgrading their training and adding personnel. We're also improving our feedback mechanisms to learn what's important to the retailers."Retailers and marketers both will benefit from enhanced programs if they remain focused on the ultimate goal of serving the consumer, marketers agree. "This is a codependent relationship," says Promo Edge's Roper. "Both sides need the other to succeed. There are no parasites. They should be able to use that to develop an excellent relationship."Certainly the feedback is available if the retailer will make use of it rather than blocking it out. "Retail feedback is a lot like advice from your mother-in-law," says Sega's Lambrecht. "You're going to get it whether you want it or not. So you might as well make the best use of it you can. Unfortunately, we can't always make everyone happy. But the more we listen to them and work as closely as we can with them, the more successful we'll both be."

Closing the Gap

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