Retailing In The Recession: Playbook 2 - The Sky Did Not Fall by The Store WPP

AUTUMN 2009

RETAILING IN THE RECESSION Playbook 2

THE SKY DID NOT FALL

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Introduction Strategic Summary The Consumer Key Take-Aways - Consumers Retailers Suppliers Key Take-Aways - Retailer/Supplier Media Action items Resources

his is the second in our Playbook series designed to help retailers and suppliers navigate through the recession. Because a traditional report is too static for these swiftly changing times, we’ve chosen to present our findings in a Playbook series that enables us to react quickly and to regularly review and renew our conclusions and recommendations. We headlined our first Playbook “THROUGH THE LOOKING GLASS.” That was last winter when the collapse of the finance system and the dramatic decline in the stock market had left consumers shocked, frightened, and disoriented. We suggested that consumers would progress through this recession in three stages, roughly analogous to the way individuals cope with—and emerge from—grief. Consumers then were in Stage One: Acute Distress, which is characterized by anger and sadness. We anticipated Stage Two: Acceptance and then Stage Three: Moving On.

In this second Playbook, we assert that consumers today are solidly in Stage Two. Consumers have begun to spend, but they spend on items they deem to be truly important. Wallets no longer expand to accommodate wants. Rather, consumers are restricting their spending to fit their budgets. People are forced to make choices. But unlike the recent past, the critical choice is about which item to buy, not which credit card to use. We also see a fundamental shift in values taking place as increasingly consumers think more communally and consider the environment and product provenance when purchasing. That said, consumers are much happier to be good citizens when they’re saving money or at least not paying extra for the privilege. Retailers and suppliers who understand these new realities will add chapters to business lore. Those who ignore them will risk chapters of bankruptcy law. We believe that many of these changes are long-term, even permanent, and will remain in place even when consumers arrive at Stage Three. We take a closer look at these new realities in the Strategic Summary that opens this Playbook. Then we examine the consumer and analyze the implications for retailers, suppliers, and media. This analysis is converted into practical advice in the Take-Aways and Action Items. The Playbook series is specifically designed to benefit WPP clients with insights drawn from the organization’s unparalleled knowledge of consumers, retailing, brand and shopper marketing worldwide. For additional insights, please check out the Fast-Track briefings and TV programs produced by The Store—WPP. And refer to the Resource Directory at the end of the Playbook. The Playbook series, along with our regular The Store—WPP webcasts, podcasts, and The Store TV (www.thestorewpp.tv) will help you succeed in today’s most difficult and unpredictable economy. DAVID ROTH CEO The Store —WPP Europe, Middle East, Africa and Asia david.roth@wpp.com

STRATEGIC SUMMARY 2/3 THE SKY DID NOT FALL

To compete successfully in this world, manufacturers and retailers need to respond to reality as it exists in the mind of the consumer.

THE SKY DID NOT FALL. Just a year ago, consumers stood in fearful anticipation of a global financial meltdown— or worse. Feeling vulnerable and helpless they stopped spending. Consumers have got used to the dark clouds. They feel less wealthy but also less helpless. Consumers are realizing that they’re in control. They know what they want, what it really costs, and where to get the best price. The consumer doesn’t want bloat in the size of packaging or stores. The ethos of the internet, where the individual is at the centre of a personally-created universe is now the reality of retail. To compete successfully in this world, manufacturers and retailers need to respond to reality as it exists in the mind of the consumer: my income, my spend, my store, my aisle, my products. Even when consumers feel financially secure again, and that day will come, they will continue to spend cautiously. They will continue to want more things and nice things. We humans are acquisitive animals. But out of self-interest, because it’s fashionable, or because we really care, we will be more self-conscious about our acquisitions and the impact we have on others, on the environment, and on society.

Of course, we humans also are fickle and we will be tempted to return to the free-spending past. Not so easy: New consumer, meet new retailer. Retail is being reengineered to be simpler for the supplier, retailer and, ultimately, for the consumer. New consumer behaviours and values, reinforced by changes in the supply chain and the reduced availability of credit, will be difficult to reverse.

4/5 THE SKY DID NOT FALL

Walmart is reducing the size of its stores, removing clutter from the aisles, and editing the assortment in every category.

Sustainability already has replaced disposability as the centrepiece of the retail marketing lexicon—because it’s the right thing, and because it’s good business. Reducing packaging, range, store size, energy consumption and waste has produced efficiencies. Some of these measures have been motivated by the need to control costs during the recession and have resulted in leaner, more competitively positioned organizations.

Reducing packaging, range, store size, energy consumption and waste has produced efficiencies.

The new retailer will operate stores that are easy to navigate, respect the shopper’s time, and offer plenty of choice but less frivolity. Packaging will be minimized. And packages will be bundled according to quantities the consumer wants to buy, not the amount the manufacturer wants to sell. Products will be reliable, safe, and environmentally responsible. They will be offered at prices that deliver value, if not at the absolutely lowest price.

The most striking indicator of this fundamental change is Walmart’s strategic “rollback.” The company that grew in 40 years to become the largest retailer in the world with over 7,000 stores in 16 countries producing more than $400 billion in annual sales is thinking smaller. In an initiative it calls “Project Impact,” Walmart is reducing the size of its stores, removing clutter from the aisles, and editing the assortment in every category. In a sense, it is performing a core retailing function—making shopping easier for the customer. But because of its global scale and impact, Walmart also is reshaping the nature of consumerism. Product selection in every category will be rationalized throughout mass retailing as suppliers respond to Walmart’s directives. In a related and important development, the decline in product range found in stores will be accompanied by the coming of age of e-tailing (online retailing) and m-tailing (mobile retailing) with shopping-based applications. When the bricks and mortar world is constrained, retailers and suppliers may find that their business model depends increasingly on the digital world as more consumers click online for product research, broader selection and the purchase reassurance found in online customer communities sharing product reviews and evaluations.

AS THE SKY CLEARS, WE WE’RE BEGINNING TO MAKE OUT: 1. A new consumer who is more confident and determined to buy only what he or she actually can afford and really needs, who will reject a $3,000 computer with enough power to navigate a rocket in favour of a $300 netbook with just enough power. 2. A new retailer that operates smaller, well edited stores organized to meet the needs of the new consumer, not the supplier. 3. A new online retailing presence that moves e-tailing from its status as an addon to store volume to a place at the core of the business as a contributor to retail prosperity and brand development. Retail and manufacturer brands that understand and respond to these three phenomena can exit the recession recharged for success.

6/7 THE SKY DID NOT FALL

Consumers are gravitating to the safe and familiar, they prefer the emotional comfort they derive from their favourite brands.

ANXIETY IS SUBSIDING.

THE CONSUMER

There is still plenty to keep people up at night: unemployment, troubled mortgages, and diminished retirement savings. But consumers are adjusting. According to The Futures Company, consumers are rationalizing their purchases to fit within four strategies. 1. COPING Day-to-day life must go on. To cover the basics, like paying the rent and putting food on the table, consumers are adopting strategies to make their money stretch further. They are looking for the best value and are willing to shift to alternatives such as private label products if necessary. 2. RETREATING At the same time, consumers are gravitating to the safe and familiar, which means—all things being equal—they prefer the emotional comfort they derive from their favourite brands. Starting the day with a bowl of house brand cereal may deliver the same nutritional benefit as the national brand, but with less of a psychological lift. Similarly, consumers are spending more time at home, and increasingly favour local institutions and High Street stores to which they feel a strong connection. 3. ESCAPING These days, escape does not mean a wellplanned holiday off the coast of Spain. More often, escape is an affordable luxury that liberates the mind, at least for a moment, from daily pressure and financial stress. 4. RISK SHARING Most purchasing of durables is on hold. But when consumers need to purchase a big-ticket item, they are looking to minimise and share the risk. To stimulate the moribund car market, for example, some companies reassured prospective buyers with the promise of a full refund if the customer were to become unemployed.

To win the loyalty and somewhat increased spending of consumers during Stage Two, suppliers and retailers must ask themselves how to best position their products and services against these four strategies. While consumers are more prepared to spend money today than they were in Stage One, a thinner wallet means that they can not afford everything they desire and continue to make trade-offs. The shift to own label is a particularly interesting coping strategy because it is a global phenomenon driven by a universal consumer interest in saving money. How own label plays out in Stage Two of the recession varies by market, however, depending on the maturity of the local own label business. In markets, such as the U.K., where own label has a long and successful history, consumers are starting to move back up to premium own label. This shift follows aggressive retailer promotion of their value own label at the start of the recession. It is an indicator of growing confidence that the worst of the recession is over. Shoppers are moving up selectively, however, according to TNS, the global market research firm. U.K. consumers also are shifting from own label back to branded products, according to TNS Worldpanel, a barometer of consumer purchasing. This behaviour suggests that today’s more sober shopper believes that branded products sometimes offer a greater value. In fact, the price difference between own label and manufacturer brands has narrowed as manufacturers promote aggressively to drive volume and defend against own label.

In markets, such as the U.S., where own label traditionally has been weak and slow to establish itself, shoppers now are more assertively moving away from branded products to own label in order to save money, of course, but also because own label products are more available. Availability increased as retailers accelerated and expanded their own label programs as a strategy for driving volume during the recession. Own label penetration in less mature own label markets is set to grow. As a result of the Stage One and Stage Two consumer effort to save money and trade down if necessary, consumers everywhere have learned that sometimes the cheaper brand is good enough. Now, unless consumers can be convinced that a product is tangibly or emotionally better—whether branded or own label—they will select the less expensive alternative and pocket the savings. The consumer’s inclination to trade down or out of a category remains a looming threat.

8/9 THE SKY DID NOT FALL

When shoppers do not want to be tempted, the straight forward price and product presentation of an underwhelming online site may be just what the shopper wants.

KEY TAKE-AWAYS CONSUMERS

Despite the difficult economy, the retail category grew by 7 percent in brand value last year.

Consumers have become frugal, not ascetic. They live in homes, not monasteries. Make it easy for them to find affordable treats that they can enjoy, and justify. Well, maybe a new lipstick wouldn’t hurt. It’s not all doom and gloom. Despite the difficult economy, the retail category grew by 7 percent in brand value last year, according to the BrandZ Top 100 Most Valuable Global Brands 2009 study, produced by Millward Brown Optimor. That is not a bad performance considering the economic environment and the fact that the total value of the brands in the 17 categories included in the study increased by 2 percent.

Lead me not into temptation. Consumers discovered another benefit of online shopping during this recession. Online they feel more in control and less tempted to add to their intended purchase with impulse buys. This consumer behavior may be a positive outcome of a negative characteristic of most online sites, which still are not as appealing, well merchandised, or seductive as in-store displays. When shoppers do not want to be tempted, the straight forward price and product presentation of an underwhelming online site may be just what the shopper wants. New media reaches new customers. It’s more important than ever to know where your customers are and how best to reach them. In a recent survey, JWT asked young adults in North America, the U.K., Australia and Brazil what they’d be willing to give up if budgets become tight. The most important items to keep—by a wide margin—were cable TV, mobile phones, and the internet. Fewer than 10 percent of the young adults would give up their mobile phones, while about two-thirds were willing to live without their magazine subscriptions. These preferences suggest that innovative use of new media may offer some of the most focused and costeffective ways to reach customers.

10/11 THE SKY DID NOT FALL

The most important determinant of success in this difficult economy is not the sector served but the strength of brand equity.

RETAILERS 100%

Value

Retailers are surviving. Those that supply basic needs, such as food and value apparel, continue to be somewhat less vulnerable than those serving more discretionary sectors. That said, the most important determinant of success in this difficult economy is not the sector served but the strength of brand equity. Retailers that continue to focus on their core business and execute well seem to outperform those who have attempted to compensate for softer sales by expanding into new and less familiar territory, according to TNS Worldpanel. Discount is thriving, of course, especially food discounting and apparel value players. But many of the mainstream food merchants, such as Tesco in the U.K., also are relatively strong because they fortified their brand proposition with a credible discount presence. In the U.S., chains that focus on the range of basic foods, such as Kroger, are performing better than the organizations known for premium foods and peripheral, higher margin categories. Drug is relatively strong as well because the category primarily serves consumer “needs” around which drug retailers mix a limited number of “want” items, so that the average shopping basket totals a modest $12, according to research by MVI.

But it’s not only about price. The German-based food hard discounters, Aldi and Lidl, have taken their no-frills, cut-case, private label, limited range concept and added another dimension to their brands—quality. By communicating that their stores offer not just low prices on food, but quality food at low prices, the companies have widened their appeal, adding affluent shoppers to their core of lowincome customers. Retailers like Primark and Zara are similarly challenging mid-market retailers in non-food, with an offering in clothing that combines quality, even high-end fashion, with price appeal. In the U.S., value discounters like Family Dollar and Dollar General also are reaching more affluent consumers by refining their store prototypes and adding more consistent assortments. While special buys continue to produce a low-price image and a treasure hunt shopping experience, predictability in product range helps assure shopper satisfaction. It’s about price-plus. Price remains important but, even today, the customer wants more. The price-plus promise is made succinctly by Aldi—Spend a little. Live a lot.—and The Home Depot—More saving. More doing. While Walmat’s EDLP slogan, “Low Prices, Always,” would seem to be perfectly pitched for today’s shopper, the company retired those words in favour of the more nuanced “Save money. Live better.”

12/13 THE SKY DID NOT FALL

The multi-pack quick fix for driving volume is history. It will be replaced by a more considered blend of ranges and products that together produce a desired margin.

CONSUMERS ARE BACK.

SUPPLIERS

They’re in the stores, but making fewer shopping trips. The name of the game is conversion. Suppliers need to assist retailers in maximizing the basket size of each trip by converting shoppers into more categories. This effort helps a retailer take a greater share of the customers’ smaller wallet. It also leaves less money on the table for shopping trips to the competition. Therefore, according to Glendenning, the category marketing experts, suppliers need to present their categories in ways that project relevance, value, and a positive experience. Category Relevance: Consumers need to quickly understand why a product improves their lives in some way, such as protecting their health or the health of their family, or adding a sense of emotional well-being. The more relevant the perceived benefit, the more the product will seem indispensable and a required purchase. Category Value: Value covers a lot of territory. It can be about price, convenience, an emotional experience, an educational opportunity or a combination of factors. It can be simple or complicated. One aspect of value is constant, however: value perception can not be left to chance. Suppliers need to explain value. Price is just a number until the supplier frames a context that makes the number relevant and appealing. Category Experience: All the thought that goes into shaping the consumer’s in-store category experience can be reduced to this: Does it make it easier to shop? The follow-up questions are about then getting to a purchase decision. Does the experience add to the customer’s inclination to buy? Will the purchase make the customer feel happier, inspired, relaxed, productive, secure, somehow better off?

Suppliers need to understand that the Stage Two consumer is the new consumer. The consumer mentality has changed and “more, bigger, better” is no longer a reliable formula for category growth. In this challenging environment, retailers will depend on suppliers to help stimulate category growth. To grow share, however, suppliers will need to act counterintuitively, trimming their offering of stock keeping units (SKUs) until every item is relevant to the consumer and contributes to productivity. Suppliers who perform well will do well. Retailers will be more strategic about the categories in which they want to compete and the level of commitment will vary among the chosen categories. Suppliers can anticipate an overall sku reduction. Pricing will be more complex. The multi-pack quick fix for driving volume is history. It will be replaced by a more considered blend of ranges and products that together produce a desired margin.

14/15 THE SKY DID NOT FALL

The Wal-Mart “Project Impact” stores provide a window into this retail world-to-come. In these somewhat smaller stores not all product categories are equal. Categories are classified as win, place, or show. Suppliers need to understand the relative importance of the category in the store and the position of their brand within the category. Being a successful vendor in a show category could be demanding, for example, but potentially rewarding. And, in the jargon of late night infomercials, that’s not all…

We’re beginning to see branded product ranges with opening price points, a space avoided until now because of the low margins.

Retailers show no sign of dialing down their emphasis on own label. In fact, more in-store space and visibility will be devoted to own label. Suppliers will need to reconcile with this reality, deriving comfort—and sales—from the notion that sometimes the presence of own label assures the shelf space of a branded product. Like the relationship between the moon and the sun, own label often glows only from reflected light. Because developing own label ranges requires a large investment, retailers increasingly are forming buying alliances that include organizations that do not compete head-tohead because they serve different sectors or countries. These arrangements help the partner organizations fast track development and derive mutual benefit from purchasing economies of scale that improve margins.

At the same time, national brands will continue to play a major role. Retailers depend on suppliers for a lot of reasons, some financial, and especially for the traffic that branded products attract. For a retailer to abandon national brands completely would require reinventing the business model, which is a possible but daunting prospect. During Stage Two, retailers will push harder toward own label while continuing to offer branded product. And the branded product suppliers will need to introduce new initiatives to secure their business. For example, we’re beginning to see branded product ranges with opening price points, a space avoided until now because of the low margins. As consumers trade down, however, branded product suppliers want to make sure that they cultivate brand loyalty in anticipation of the day that the consumer trades back up. Returning to the celestial metaphor, the retail system depends on both the moon and the sun. They co-exist in changing relationship to each other. With apologies, but to stretch the idea a bit further, eclipses happen from time to time, but they’re always temporary.

16/17 THE SKY DID NOT FALL

Retailers are left with large stadiums designed for a sport that customers no longer want to play.

KEY TAKE-AWAYS RETAILER/SUPPLIER

Purpose beats impulse. Having engineered stores to grow average ticket with tempting offers on endcaps and checkout lanes lined with impulse items, retailers are left with large stadiums designed for a sport that customers no longer want to play. The “shop ‘till you drop” game is over. Instead, shoppers race through the aisles with blinkers on attempting to avoid temptation and ring up baskets of necessities only. Today, the easiest way to get onto a customer’s shopping list is to put something on display the customer actually wants to buy. Make the shopping trip easier, not more difficult. Value beats difference. In a bright note, we hear less of the word “lifestyle,” which devolved into vague shorthand used to inflate the significance and appeal of even a mundane change in product colour. From fashion to food, people today seek value. Given this trend, the danger is to retreat too completely from differentiation to the point that it dilutes the brand. The opportunity is to differentiate in serious ways that add real value that the customer will perceive, appreciate, and pay for. Otherwise shoppers will trade out of the shopping experience.

Seeking a value image. Some traditionally price-driven retailers, such as Walmart and Target, are adding a premium image to their private label packaging to reassure new customers, lured away from more up-scale merchants, that they will not be compromising on quality. Meanwhile, some upscale merchants, such as Whole Foods and Waitrose, are betting that their quality image will extend to recently introduced value ranges. Centre store becomes centre stage. After years of working the edges of supermarkets, adding coffee bars and filling the air with the fragrance of freshly baked cookies, food merchants have moved the action back to the core of the store—both in terms of physical location and products emphasized—as the place to drive sales.

18/19 THE SKY DID NOT FALL

Fashion forward needs a backward glance. In normal times, individuals renewed their wardrobes with merchandise of the current season—the correct fit and the perfect hue. Some consumers are left with closets full of fashion statements past. Unable or unwilling to buy as much new merchandise, consumers are looking for ways to make their old stuff look more up-to-date. That’s an opportunity. Smart is the new stupid. Your customers are smart. They have decided that saving money does not require an apology. Consider how women walk out of Zara making a fashion statement instead of shopping for designer labels that produce an unwanted financial statement. Or look at how McDonald’s is targeting Starbucks customers for its new espresso drinks with messages like “Four bucks for coffee is dumb,” and “Large is the new grande.” Being late is the new just-in-time. Managing inventory is difficult in the best of circumstances. Today’s economic uncertainty makes a tough job even tougher. Still nervous about the future, shoppers are putting off many of their purchases until the last minute. To protect against being overstocked or undersupplied, retailers are doing the same thing. Suppliers are left trying to guess right.

OVER HERE! Unable or unwilling to buy as much new merchandise, consumers are looking for ways to make their old stuff look more up-to-date.

hey you!

Adversarial, it’s so old school. Suppliers and retailers can continue to beat up on each other for mental recreation or perverse joy, but any victory will be pyrrhic or at least short-lived. The world has moved on. While collaborative is fast becoming one of the more annoying business buzz words, the process it describes is the smartest and most assured road to success. The hard sell may yield soft sales. When store associates greet shoppers with, “How can I help you?” the shopper often hears, “What can I sell you?” The shopper doesn’t want to be sold. The shopper wants to spend less money. “How can I help you?” needs to mean “How can I help you save money?” That approach puts the seller on the buyer’s side and will help strengthen the retailer-customer relationships. Even though so much has changed, long-term success still depends on those relationships.

The sun still rises in the east. One danger in this business environment is the belief that everything has changed, that all assumptions need to be rejected or that all the big questions need to be deferred to deal with urgent economic realities. Long-term trends—the changes in demographics and in media, for example—are exactly that, long-term. These issues are not going away. A business that ignores them now will find itself behind the curve when the economy recovers.

Green shoots. Today, we’re all atwitter looking for “green shoots.” And many economists are predicting that those harbingers of economic rebirth will be popping up by autumn 2009. So start looking. But don’t get too excited. Consumers are likely to be cautious with their spending, in case of an early frost. Now is the new normal. Or, better said, the last 20 years or so was the old abnormal. Mortgaging our homes to fill them with merchandise we didn’t always need may have felt good while it lasted. But it wasn’t a sustainable way to live, as we learned the hard way, in the acute suffering of Stage One. In Stage Two we are glimpsing life as it will be for a long time. The faster we lose our overblown sense of entitlement, the faster we’ll feel fine.

This RIPwill EDLP. Every-Day-Low-Price is near death. The strategy, which had been on life support, change went flat line during the worst days of the recession, your when merchants attempted to clear shelves by covering the storefront with huge 70- life percent-off-banners.

BUY ME

Experiment with new ideas so when the consumer is ready, you are, too.

The developing markets are developing. Yes, it’s a global recession. But the developing markets are moving through it more swiftly. The economic engine of our interconnected world is not roaring in Stage Two. But it’s not stalled either, as some had feared. Growth opportunities may not be at your front door, but they’re there.

2 FOR 1

Shopping is still fun. Not long ago retailing was about the “wow” factor, and “retailtainment” described humanity’s highest pursuit—or at least how we spent a lot of our time. Shopping was fun. Shopping is still fun. When the economy recovers shopping will again be entertaining. Like before, shopping sometimes will be a destination; other times a diversion. We will place shopping into perspective, but enjoy it in more ways—in-store, online, at a kiosk, by phone, by cell phone, by mail and at venues and through devises as yet undiscovered. Experiment with new ideas so when the consumer is ready, you are, too.

I’m just what you need

Y R T E M

20/21 THE SKY DID NOT FALL

THE RECESSION IMPACTED MEDIA.

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Media Buffet The consumer exerts less control in this category. Rather than require tailored information, the consumer figuratively opens a window and permits in any information, from trusted sources, that’s aligned with his or her expressed interests and preferences.

It has accelerated the decline of traditional mass media and the ascendancy of the more customized new media. Mindshare, the global media research and communication company, in its report “The Future of Media,” organizes this fast-fragmenting media world into four categories, according to how consumers access information and how they pay attention to information. Portal of Me This category takes personalization to the extreme, with individuals creating an online space for receiving only information they request and in the form they specify. It’s a level of personal attention previously reserved only for those who could afford the exclusive services of a staff or concierge. Implications: Instead of reaching this consumer with a mass circular, a retailer or supplier would offer a narrower selection that more closely matches the individual’s needs. This space is scary for marketers because consumers are in control and have the power to regulate information flow. Marketers are challenged to communicate their messages in ways that defy consumer editing. Product placement is one possibility. Another is serving as an information curator, helping the consumer to select content based on his or her interests.

For brands carefully built over time, a spontaneous twit can be distinguishing — or disastrous.

Implications: Sending a message through that open window makes sense for retailers and suppliers. Over time, consumers will reveal useful information about their needs. The other good news is that, unlike in television or print, the cost for delivering the message is not significant. The bad news is that lower costs means that the space gets cluttered. Brands will be heard only if they have an interesting offer and present it a compelling way.

Tons of Twitter This is a chaotic category in which people process an unremitting flow of information about diverse topics and from an enormous number of sources. These consumers filter and evaluate the relevance of information as it is received. The category is dynamic and immediate. Implications: Being effective requires having the ability to hold spontaneous interactive communications. This time constraint does not permit a lot of vetting. For brands carefully built over time, a spontaneous twit without benefit of public relations, marketing, and legal review can be distinguishing—or disastrous. Traditional New Media In this category, the consumer wants to spend less time sifting through information, preferring to consolidate information sources. The major print and broadcast organizations push the information to the consumer. And they impose their traditional formats while venturing into new delivery options. Implications: For the retailer or supplier, it is much easier to be in control in this category, which takes standard advertising creative work but delivers it through other channels. A print circular can be sent as an email, for example, leveraging existing material.

Retailer as Media Owner The decline in mass media that produces these four categories also creates an opportunity for mass retailers to bypass mass media completely and create their own media channels. Compared with mass media, mass retailers often reach larger audiences about which they have more detailed information. Some of the information is compiled from loyalty programs. Using this data, and their own media, retailers can reach customers in many targeted ways including: in store TV, point-of-sale devices, e-flyers, m-flyers and soon even mobile smart phone integration at point of display. In addition, retailers can create their own customer relationship marketing (CRM) programs. These retailer-owned media possibilities will expand and they will become more narrowly targeted and cost effective as emerging technology enables retailers to collect and more finely sort and analyze customer data. It always has been an implicit, if elusive, goal of marketing to have every message reach only those with an active interest in learning about the topic and eventually taking action. Technology is shifting this goal from desirable to achievable. Soon reaching an uninterested prospect will not be dismissed as a necessary cost of doing business. Rather, it will be criticized as an avoidable and costly mistake.

22/23 THE SKY DID NOT FALL

ACTION ITEMS 32.50

OVER OVER HERE! HERE!

hey hey you! you!

Hi! Hi!

ThisThis willwill change change youryour life life

BUY BUY ME ME

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I’mI’m just just what what youyou need need

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Hello Hello

Earn and protect trust. Nothing is more difficult. Nothing is more rewarding. Consumers feel betrayed by just about every institution that they relied upon for the stable framework of their lives. While consumers understandably will be sceptical, even cynical, their need for reliable elements (read brands) for this framework is undiminished and especially important today, in Stage Two.

Tread lightly. Consumers are in a fragile state of mind. They’re still scared. While they’ve moved on from the raw anger they felt in Stage One, when many suddenly realized that their lifetime savings had evaporated, the anger is not far below the surface. Be careful about the tone of voice used in your consumer communications. Wallets have reopened a crack in Stage Two, but it wouldn’t take much to slam them shut.

Celebrate heritage. Consumers want to retreat to the familiar and comfortable brands. Help them by reminding consumers about both your brand’s historical heritage and contemporary relevance. A milestone anniversary is an opportunity to recount a brand’s accomplishments, innovations and contributions to improving the life of the consumer.

Exhale. It’s time to stop holding your breath. Start breathing. That oxygen should help you think more clearly and innovatively. How can you differentiate your offering? How can you excite consumers? You won’t be able to convince your customers that the worst has past until you convince yourself.

Make trading down feel like trading up. The customer who purchases the most expensive face cream may actually be trading down from her monthly salon facial. Don’t make her feel that way.

Protect the emotional bond with the customer. It’s more important than ever to cultivate an emotional connection with customers. But emotions are, well, not rational. While strong emotional connection can deepen customer loyalty, that connection needs to be supported by sustained operational reliability. After establishing emotional trust, the cost of disappointing a customer can bring serious consequences.

Add real value. Shift from flavour extensions to strategic innovation and renovations that provide important benefits that the customer really wants.

Assure a low basket price. The basket price sets the price perception. Do whatever is necessary to reassure consumers that their basket is the best value for money.

Reframe value. One item at a good price may be a bargain. An entire meal at a good price is a value. That’s the Sainsbury’s “Feed your family for a ‘fiver’” message. Similarly, half price on school trousers is a reasonable promotion. Packaging an entire uniform into a well-priced and convenient back-to-school kit at a jaw-dropping price provides sensational value and a firm brand statement to consumers.

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Make it easy for the customer. The ubiquitous price point ending in 99 cents, pence, or other denomination is being supplanted by the rounded $1, £1 or €1. The approach is cleaner, projects honesty and makes it easier for the customer to calculate prices and for the retailer to communicate dramatic value. The success of stores that emphasize this simple pricing, like Family Dollar in the U.S., suggests that it works.

24/25 THE SKY DID NOT FALL

ACTION ITEMS

Y TR E M

Go where the growth is. As consumers change their purchasing behavior, there’s a potential disconnect between the stores where they prefer to shop and the stores where suppliers choose to be present. Suppliers tend to go where it’s most cost effective for them to be, the large chains. Finding growth in today’s environment requires going where the consumer has decided to buy. In some categories, there’s a lot of untapped sales potential among leading but somewhat smaller retailers.

Embrace diversity. The power of diversity as the engine of innovation perhaps was best described by P&G chairman A.G. Lafley. “It may take a little longer to work across cultures and languages,” he said, “but we’re going to come up with more ideas and create something that will make a difference.”

Touch all the touch points. Consumer are constantly switching across the many lanes of the information super highway, which include print, TV, radio, websites, circulars, catalogs, email, mobile texts, Twitter, iPhone Apps, blogs, chat rooms, and YouTube to mention the most obvious. Understanding how customers navigate these lanes is critical. Among the few certainties: the highway is a toll road; suppliers will pay and retailers will collect. Even in this new world, some things won’t change.

Curate the mix. In the old days, before the bust, retail looked to Hollywood to infuse stores with excitement that eventually was called “retailtainment.” Retailers and suppliers can’t afford “retailtainment” today and shoppers aren’t in the mood. Perhaps museums provide a more sober model for adding interest to stores during Stage Two. Consider how a well-conceived exhibit draws together disparate works, tells a story, and captures the viewers attention—not to mention spend in the gift shop.

hey you!

Begin to act normal. Be clever about driving traffic in ways that are clever and not margin eroding. Avoid the 70-percent-off sales of Stage One, which cleared the shelves but signalled desperation. Don’t sink into denial of the recession, but get back to some normality.

Make your point at the point-of-sale. That is where the rubber meets the road, at least if you stretch the shopping cart metaphor. However, the recession has produced a bit of retro behaviour. Today, the driver of that cart often comes armed with coupons and ads. So point-of-sale points better be sharp.

Make it easy for the customer to find you. When your brand is not on the shelf facing the customer, don’t assume that the customer is going to drive to another store to find it. Cruising from store to store is no longer a favoured pastime.

I’m just what you need

Don’t stop thinking about tomorrow. Growing profitability in this economy is difficult and it’s not the number one goal. It’s time to expand market share, however, to increase like-for-like store sales, and to position for the (inevitable) upturn. It’s a good time to work on execution, so when demand improves you’re ready.

Embrace shopper marketing. And understand the customer’s journey. The customer’s state of mind is both fragile and fluid. Planning from last year’s consumer research is like charting a trip with an antique map. Like Columbus, you might serendipitously land in an interesting place. But you will surely miss your intended destination. Reaching your target requires nimble course corrections informed by the important emerging science of shopper marketing.

26/27 THE SKY DID NOT FALL

WPP RESOURCE DIRECTORY To empower your business with WPP’s unparalleled global knowledge of consumers, retailing, brand and shopper marketing, please contact:

The Growing Role of Private Label during the Recession. How the value-driven shopper is creating challenges and opportunities for brands.

Kantar Retail Alastair Cochrane Chairman alastair.cochrane@glendinning. co.uk

Mindshare Ailsa Lochrie Partner ailsa.lochrie@mindshareworld.com www.mindshareworld.com

The Store WPP The Store WPP is WPP’s global retail practice. It is the central WPP address for everything retail. Part of its remit is to develop retail knowledge, expertise, thought leadership and best practice amongst WPP agencies and clients.

David Roth, The Store WPP and Vincent Verdier, Retail Analyst, MVI http://www.thestorewpp.tv/ Videos/interview-vincent-verdier

Kantar Retail is designed to increase the revenue and profitability of our clients through a solution based approach. We can solve client issues from strategic to tactical and empower organizations with the skills and capabilities to act. We offer clients better internal alignment and project efficiency, from insight through strategy to activation, and across marketing through category to sales. Our specialist areas include category planning and analytics, customer management and go-to-market strategy, retailer trends, strategies and platforms, virtual shopping insight, and shopper programme delivery.

Mindshare is a media and marketing agency with a unique open sourced approach to partnership, integrating wideranging expertise to transform marketing challenges into tangible business results for a crosssection clients, including many retail brands. The Mindshare network spans 104 offices across 74 countries throughout the USA, Latin America, Europe, Middle East, and Asia Pacific.

The Store helps serve WPP agencies and client needs by integrating and focusing the extensive retail resources of WPP. The Store WPP brings together a network of global marketing, insight, communications and retail professionals. By building a bank of collective knowledge, we help clients navigate the changing landscape of retail, shifting consumers and shopping behaviour, format development, technology, shopper marketing and sales activation. Maria Larsson +44 (0)20 7318 4900 mlarsson@wpp.com Gwen Morrison CEO The Americas and Australasia +1 312 596 3622 gmorrison@wpp.com CEO The Store —WPP The Store TV Online programs on timely retail topics providing insights and action points for WPP clients. www.thestorewpp.tv Retailing in a Recession Strategies and executions to generate sales from a recession weary consumer David Roth The Store WPP and Will Galgey, Managing Director, The Futures Company http://www.thestorewpp.tv/ Videos/interview-will-galgey

Glendinning Duncan MacConnol CEO Europe, Middle East, Africa and Asia duncan.macconnol@glendinning. co.uk www.glendinning.com Glendinning is a shopper marketing specialist consultancy. We are a global leader in the creation, development and implementation of winning sales and marketing solutions to build categories and drive product in retail channels. Glendinning understands today’s complex retail environment. Knowing that the consumer and the shopper are often different, we help shape brand propositions by effectively identifying and meeting the needs of both. MVI Scott Butterfield Senior Vice President SButterfield@mventures.com www.mvi-worldwide.com MVI provides strategic and practical insights and analysis about retailers and retail sectors worldwide. The company forms its opinions from on-going field research and a proprietary database that interprets the financials and competitive standing of over 1,000 retail companies. Much of this information is available to clients 24/7 at MVI-Insights.com. MVI also offers customized, on-site programs for planning teams and sales forces as well as general workshops about global retailers and relevant industry topics.

The Futures Company Will Galgey Managing Director unlockingfutures@ thefuturescompany.com www.thefuturescompany.com The Futures Company is the leading global trends and futures research and consultancy business. We were formed from the coming together of Henley Centre HeadlightVision and Yankelovich. Our mission is to unlock futures for our clients. We integrate our proprietary survey data with observational insights to create deep and dynamic perspectives on the consumer trends shaping our clients’ businesses around the world. And we enrich these perspectives with future-facing qualitative and quantitative research and with trends and futures consultancy. This unique combination of capabilities enables us to help our clients uncover new ways to understand and segment their consumers, identify future sources of value and build powerful brand connections.

JWT Louise Hinchliffe Communications Director, JWT louise.hinchliffe@jwt.com www.jwt.co.uk JWT is a fully integrated global communications agency network. We have 10,000 staff operating in 200 offices across 90 markets. We provide advertising, communications and channel planning, digital, Customer Relationship Management (CRM), sales promotion, sponsorship and direct marketing capabilities, globally. We are fascinated by the challenges and opportunities facing retailers and our varied multimarket experience within this sector spans clients such as Shell, HSBC, Nokia, IKEA, Papa John’s, Tim Hortons, Yum, Mazda, De Beers, Debenhams, Walmart, Vodafone and many others.

TNS Worldpanel Martin Whittingham Director martin.whittingham@tns-global. com www.tnsglobal.com TNS Worldpanel is the world’s leading provider of syndicated continuous research solutions. Worldpanel measures consumer grocery purchasing and consumption behaviour for brand owners, retailers and manufacturers in the global Fast Moving Consumer Goods (FMCG) industry and their advertising and media agencies. Consumer panels are the heart of Worldpanel and we are constantly creating and upgrading the consumer panels and increasing the level of insights, recognising that our clients always are looking for new methodologies, new added value tools and new deliverables to help them better understand their customers. TNS Retail & Shopper Area of Expertise Barry Lemmon Global Head barry.lemmon@tns-global.com

WPP WPP is the world’s largest communications services group. Through its operating companies, the Group provides a comprehensive range of advertising and marketing services including advertising; media investment management; information, insight and consultancy; public relations and public affairs; branding and identity; healthcare communications; direct, digital, promotion and relationship marketing and specialist communications. The company employs 145,000 people (including associates) in 2,400 offices in 107 countries. Clients include more than 330 of the Fortune Global 500, over half of the NASDAQ 100 and over 30 of the Fortune e-50. More information, a complete list of WPP companies and a searchable directory is available at www.wpp.com

TNS is the world’s leading shopper research agency. We help clients optimise the retail environment to influence shopper behaviour and decisions all along the Path to Purchase. Through the development and application of retail and shopper insights, strategies can be created that improve brand, category and store performance. We drive industry thought leadership, harnessing the breadth and depth of our global experience.