There are two recent articles written by Retail Net Group that prompted me to write this post. Both articles discuss ways in which retailers are changing and this post will relate how those changes may affect manufacturers
Article 1: ”RNG Top of Mind: Week 2 January 2012 - Margin Compression”
The first article is about the financial pressures that retailers face in 2012. It can be found here. You will need to register for a free online account to view this article. If you are a CPG manufacturer, its worth registering and being on this company’s distribution list.
This post will discuss the impact on manufacturers from some of the areas that this article talks about that retailers need to focus on in 2012
Finances
Retailers are under financial pressure and are looking at all levels of their operations to squeeze out costs and maximize profits. What this means for manufacturers is increased pressure to hold the line on price increases and the possibility that they will have to shoulder additional burdens associated with operations and marketing costs. In operations, I sense from talking with manufacturers that retailers may be placing smaller more frequent orders to maximize their cash flow and minimize inventory, which means greater freight costs borne by the manufacturer. In marketing, the retailer may be negotiating more marketing co-op fees to help the retailer market the manufacturer’s products.
Innovation
Retailers want to push innovation to attract shoppers and manufacturers need to be constantly innovating as well to stay on shelf. Innovation at the product level includes things like better or new ingredients that improve functionality or taste (for edible products). There’s also innovation in the supply channel, like sourcing cheaper or better materials, which might be things to communicate to consumers (ie: raw materials that come from sustainable growers) or which might just reduce your COGS.
Value Proposition to Shoppers
Its critical to communicate why consumers should buy your product and it needs to be done quickly because the consumer is only going to spend on average a few seconds looking at your product. Think about where the product is shelved, how it can differentiate in look, feel, size, design, etc, if the packaging can communicate the value proposition of the product and can other forms of store marketing be employed to motivate sales (shelf-tags, endcaps/displays, smart promotion/couponing, QR codes).
Article 2: ”10 Ways Retailers Will Reinvent the Store”
This second article is from the same group that wrote the first article. No registration is required to view this article. It can be found here.
Based on this article, I think a manufacturer should be asking two key questions:
- Where can the product be sold?
- How the product can be sold.
Where
Where is not just a question of which channels and retailers within a channel, but which distribution points offered by the retailer. One of the 10 ways cited by the article is Site and Store integration. In this case, as retailers beef up their e-commerce and mobile capabilities, manufacturers need to also stay current. Manufacturers should at least be doing the following:
- Ensure that their product packaging can display well online in a thumbnail format;
- If they have e-commerce capabilities, try to sell different pack sizes so as not to compete with a retailer selling the same product on their e-commerce platform;
- Ensure that their site is optimized for any device (smartphones and iPads);
- Have positive reviews of their product on appropriate websites across the net (such as Amazon.com).
Other ways cited by the article include Prepared and Ready-to-Heat Food, Instructional/Educational Space, and Social Space. I am currently doing some work with a small CPG organic food start-up, whose product can be used for stand-alone consumption as well as an ingredient in cooking. Here’s the areas of a specialty or higher end grocery store in which this company can display its products:
- Store-prepared foods. In this case, the manufacturer sells the product to the store to use in its prepared products.
- Cafe area of the store.
- Educational space. In this case, the manufacturer sells the product to the store to use in its prepared products.
- In stand-alone product displays.
- In the aisle on the shelf
Of these areas, all but the last one are in the perimeter of the store. The perimeter of the store sees more traffic that the aisles.
Finally, the article talks about Automated Retail kiosks, which is another area to sell a product. It is no longer just selling to the retailer and sticking it on shelf, but looking at all the possible distribution points offered by a retailer. I think that while this dramatically increases the location and opportunities for a manufacturer to sell its product, it also introduces many more complexities into understanding where its best to sell a product and how to sell in those locations.
How
To me, how you traditionally sell a product involves the packaging (how it presents, does it grab attention), in-store marketing (content on packaging, couponing, sampling). But as indicated in the article, when you consider the areas of Instructional/Educational Space, Interactive Space and Retailtainment, there’s more a manufacturer can consider when it comes to how a product sells. For example, here’s what I’ve seen recently:
- There are product demos, but I know of one boutique ski manufacturer that takes it a step further and meets prospects at the resort to analyze their skiing, which helps guide the manufacturer into developing the right ski for that individual.
- Sampling taken to a higher level where there are more organized cookouts by the retailer to showcase products.
- Farmer’s markets in the parking lot of retail malls, but in this case, several retailers had tables with products at the event.
While the ideas for how to sell a product are specific to that item, it appears to me that manufacturers have increasingly more opportunities to get creative.
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