Trade and retail marketing

History of trade marketing

When talking about the retail marketing, it is important to have in mind the complexity of the relationship distributor and producer (of products). Historically, there was a dependency in-between channels and distributors (producers) where the strongest/biggest had the most power to decide what to buy or what to sell. Today, the relationship is totally different where the relationships have switched.

The complexity of the channel mix for the retail market resides in that their have their own channels that they need to keep profitable. Therefore, there are products that they can not sell to their channels due to the impact on the high profitable channels.

In any case the relationship between distributors and producers is of great difference.

Historically (in the 60s) you could easily sell what you produced just by putting promotion in the Television. Buying spots you generated distribution, if the distribution worked you sold more products, selling more products leads to generate more business and that to invest in promotion in TV etc…

But this has changed. What has happened are several trends:

  • Saturation of information (promotion). Spain is the 4th country that use TV for promotion
  • Concentration of the distribution (all markets tends to this but in consumption it has taken off)
  • The brand of the distribution is more important than ever. This alters the relationship of the power
  • The supermarkets and hypermarket have empowered their own brand to the extend that it is now affecting profitability (as they compete with their own brand along with the brands they include in their space)
  • Innovation is harder and harder due to the copy-replication of the products
  • The globalization has impacted the retail market due to the new emergent markets and the transfer of the technology. Globalization has led to hypersegmentation of the offering which has affected the life cycle of the products
  • Changes in consumer behavior: from mass market to individualism and ending up in multi-individuals (grouping them based on their common behaviors)

The way to calculate sales in retails is: price *how many units * frequency * penetration (people that have bought my product more than once). It is hard to affect penetration unless you have an innovative product. I.e. it is hard for an existing product to increase penetration, i.e. to make the homes buy more of a product.

An interesting aspect is the 2X1 habit in the retail market. It is not done to “get rid of stock”, it is done to increase the frequency of buying behavior (have the hypermarket consumer return more than the 11 times a year as usual). A way to increase frequency is AXE campaign (“spray more like in the spot” with the result that you use more and need to buy more).

the channels

The channels producer, distributor and consumer are today interfacing with each other. There is a relationship in-between consumer and distributor and between relationship in-between the product and the distributor.

Trade marketing is about “identify and satisfy the needs of the channel (distributor) adding value, profitability and dependency”, but the trade marketing is also working on identifying and satisfying the needs of the consumer. The marketing mix in retail mix is called:

  • offering
  • promotional activities
  • price (towards consumer)
  • space

Challenges fo the trade and retail marketing

For the producer: The challenge is to be “visible” with your product. It takes 5 seconds for a consumer to choose a product. For a supermarket with 11 000 products and 1h of medium time it means that only 6% of the products are selected. 94% are “missed”. Therefore, the objective of the retail marketing is that the consumer choose your product. Branding, promotions become your most useful tool.

For de distributer: The challenge for the distributor is the great amount of categories they have to work with. This cause an issue as they find it hard to differentiate. This will cause a trend towards socio-demographic segmentation. They work with

  • providing all the different needs of a consumer and/or
  • a set of many brands that answers the same need

What trade marketing can do generate more successful business

Spain by facts

  • invest less in marketing/communication in new products (innovation)
  • the spanish population is less prone to change
  • products in the spanish market take longer time to reach the shop

There are 5 types of product launches. It is important to focus your effort based on the type of culture you are talking to.

  1. great boost (typical English approach) 
  2. retarded effect
  3. collapse
  4. plain
  5. continue increase (typical Spanish approach)

Working with different markets and channels. From most margin to less margin depending on what type of distribution you use. E.g. the retailer is buying the product to a higher price than the supermarket. The margin is important but the focus is on “how much does our customers get their return” in order to understand where the week points are for that business. The reason for why it is important to understand the business of the client (distributor), is to know how much the producer profit from the product in each channel and how much the client (distributor) earns in terms of margin. Information useful in the negotiation and decision of how much and where to place the product.

The challenge for the producer is to adapt to the segmentation of the distributor. If the focus is single homes, your product has to adapt to those segments as well as support the needs of other distributors. This could be handled by creating different formats of the same products.

co-marketing

In order to provide a better product and service to the consumer, the producer and the distributor try to cooperate. The main aim is to make the product category to grow (instead of chasing the market share). When you work to increase a category you must be aware of that you also help the competitor to increase. E.g. if you make the category perfumes to increase you also “help” the competition to increase their sales.

The reason why the distributor and the producer co-operates in increasing a product category is to gain benefits from both angels: know-how of the consumer (the producer) and know-how of the consumer behavior (the distributor). There are many elements that are important in the buying behavior but that may be (very often) different from the elements important for the consumer. Normally we focus on the consumer but not so much on the shopping behavior. Very often we segment based on parameters that may not be relevant for the shopper (the user that does the shopping). E.g. wine. Segmented by “color” and then by “origin” but what about “when it is used”? Example, a segment of wine called “to give away”.

All buying activity is about offering more solutions for less effort. Therefore you need to work with minimizing the effort and or increasing the solutions for that effort required. The less effort you ask the consumer to make the easier you make purchase (less time, simplify, same product developed to meet several demands).

The focus has to be in the needs of the consumer/shopper independent if we are distributor or producer. The focus has to be on solutions, experiences in the buying process. Create experiences by simulating how the dress fits, how the furniture fits into your home, cosmetic simulations without having to try on the cloths.

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Distribution strategies

Distribution is a set of “things” you have to do and operation you have to make in order to make sure that your product or services arrives to the place or consumer that will consume.

The distribution channel is the “road” through which products and services circulate from its creation in the origin to the arrival of the consumer.

There are different commercial structures that have different characteristics. Depending on what your product is and what your strategy is you would need to choose the correct distribution. Depending on your positioning, its attributes, the needs your product satisfy.

Different types of distribution channels

  1. Mega-supermarket
  2. Supermarket
  3. Branded shop
  4. Local shop
  5. Home delivery

Different types of characteristics

  1. Capacity to Customer Care
  2. Logistic costs
  3. Consumer effort
  4. Customer time

Depending on what product/service you sell you will have to find the optimal distribution channel. But it depends on what characteristics you are covering. Example high-value products don’t have to worry about low-cost logistic because you have margin to work with the delivery, but if you have a low-cost product you need to focus on finding delivery that matches your product.

The product can therefore be sold through:

  • direct selling (channel)
  • retailer – consumer
  • wholesaler – retailer – audience
  • franchising

Different types of integration

  • horizontal integration
  • vertical integration (cooperatives, banks in order to control quality and price) are normally contractual

setting up a distribution channel

Depending how “complex” your product is (does it need to be explained?) and how targeted your audience is (if you know exactly who your target is you don´t need long channel chains but if it`s mass market you need to be everywhere and then you need long indirect channel chains)

  1. Taking decisions about the “length” needed of the channels
    a) direct channels (Dell)
    b) short indirect channels (a car)
    c) long indirect channels (Coke-Cole)
  2. Decisions about the coverage of the channels
    a) intensive distribution (e.g. a medical brand)
    b) selective distribution (e.g. scisors)
    c) exclusive distribution (e.g. Mango)
  3. Review:
    a) the companies objectives
    b) the marketing objectives
    d) distribution objectives
    e) analyse characteristics of the product
    f) identify possible channels
    g) value your distribution channel