why you need a good strategy

Posted on March 3, 2012 by Rod Street

The next few years in European markets are going to be tough for grocery businesses – retailers and suppliers. Economies are going to struggle in the face of our debt overhang, regardless of whether all manage to start paying down their debts successfully. Real household disposable income will face a squeeze short-term as governments rein in deficits and longer term as interest rates come under pressure to rise.

2011 has proven that even though groceries are resilient in the face of this economic pressure they are not immune. We are seeing volumes dip and value growth rely wholly on price inflation. We are seeing the continued tidal growth of the digital channel increasingly undermine the productivity of the dominant bricks and mortar business model – it is already evident in the UK in non-food and is likely to come over the next few years in food, especially as click and collect and mobile services start to really gain traction.

In the face of this it will be essential for businesses to have a good strategy – not just for growth but perhaps even for independent survival. Most companies talk a good game but this will not be enough. At the moment it is difficult to see which leading players in the market are only talking and which have really got a good strategy. Not everyone can succeed.

Nestle are talking about growing in emerging markets and in Europe this coming year. They see that as perfectly possible. P&G are cutting over 4000 jobs and $10bn to help drive growth and rebalance the business to where its future potential is to be found. Pepsi is going to drive growth versus Coca-Cola by outflanking it with more creative juice based offerings. Tesco is seeking to move away from its recent Christmas nadir with investment in service, in-store theatre and other initiatives to reinvigorate the shopping experience. Walmart is continuing to drive its EDLC/P across the globe in pursuit of growth. 

It is difficult to tell from outside who will succeed and generate growth ahead of the market. Not every company can succeed in doing this. It is a mathematical impossibility. In a slow growth market if someone is to grow faster – someone else grow more slowly and lose share… and no-one is announcing their intent to do this!

 Why should one succeed at the expense of another? I think that a key determinant will be the quality of the strategy chosen by the business. All these businesses say that they are going to outperform in this difficult market. The reality is though that 9 out of 10 management teams who outline what they are going to do in the future fail to make their goals. 

Saying it doesn’t mean that they there is a thought-through strategy and that the management team has made a good choice.

I am reminded of this fact of life at the moment as I am reading Richard Rumelt’s interesting little book, ‘Good Strategy, Bad Strategy’. Too many management statements and strategic goals are not strategies but rather something on the spectrum from fuzzy verbiage to mere aspiration or else political expediency in the face of competing internal interests. Indeed all too often, they are simply a fudged continuation of what we has been the approach being pursued for sometime.

In the current market environment that would be a mistake. Successful growth is going to need good strategy not bad. The next couple of years are going to show who is really following a good strategy.

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Branding is about credibility

Posted on February 21, 2012 by Rod Street

I went to the cinema last weekend. The BAFTA award-winning film, The Artist, was every bit as good as its billing and demonstrated the power of a well told story to entertain to the very end. However, a more lasting impression was left on me by something rather earlier in the billing.

As always the film is preceded with a series of advertisements – not just for forthcoming movies but also for products. It was one of these that brought home to me the importance for all products of remembering that brands are about meaning and meanings are not about veneer and more about reality.

One of the ads begins just like the movie Chariots of Fire. However, instead of athletes, a cast of people from every walk of life – milkmen, firemen, judges, nurses and others gradually appear running along the beach. As the camera pans away we see Nigel Havers sitting in a deck chair reading a copy of The Sun newspaper. As the ad reaches its crescendo with flares burning from the soldiers in the group the byline appears – “Lets make it Great, Britain”.

I confess I am not a Sun reader which may bias my response. However my reaction was one of incredulity and a niggling anger at what felt like a cynical ploy to try to position The Sun at the heart of Britain and its values – loyal,  patriotic and sticking up for the people.

At the moment, for me, this simply does not ring true: A foreign-owned paper, with an Australian Chairman and a massive problem around integrity in its British operations (at the very least in PR terms) decides to launch an ad that emphasises its support for Britain in the Olympics.

In short it left me with an even worse impression than I had before entering the cinema. Whatever the moral issues involved, this brand’s attempt to position itself in this way had further undermined its credibility by seeming to judge the public as naive enough to be persuaded by an ad that seems to be about supporting Britain and not selling papers.

So what you might say. What has this got to do with the consumer goods industry?

Well it offers a timely reminder of the vital need to make sure that your brand is persuasive, consistent and credible - especially in the face of enormous pressure from hard pressed consumers.

Most shoppers do not pay a lot of attention to the products that they put into their trolley and even the store that they shop in. They tend to buy the same 2-300 grocery products each year; they take little time to search, rate and buy an item; and they adopt a less than forensic approach to selecting products unless they are of particular significance.

Brands that want to be distinctive, offer something a bit better or special, charge a premium price or cultivate uniqueness need to ensure that all elements of the brand delivery system (those marketing P’s..) fit with each other, with the proposition and with reality!

Brands are powerful because they offer an informational shortcut for shoppers. They are easy to recognise. People know what they are getting without having to re-evaluate all the offers in the category. Whilst it does this a brand tends to do well. However when that decision-making gets disrupted either by competition, deterioration of the relative strength of the brand or a major reputation issue then an almighty problem appears.

The reaction of the brand becomes critical – consider Tylenol, Perrier or Toyota. The difference in how well the brand performs after a fall from grace is how the corporate responds.  In some respects a visible crisis is easier to handle. At least there is a clear case for change. If brands simply lose their relevance and power then this is more difficult to address. Witness the challenge facing many old-established branded products as they face continuing retailer product improvement, or challenges from retailers over their share of shelf.

Brands need lots of care and attention to build and retain their power in the mind of the consumer. When damaged they need a serious rebuild not a quick lick of paint.

 

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cut costs – boost growth?

Posted on February 13, 2012 by Rod Street

 

I have been struck by several recent pronouncements from companies – the most recent being PepsiCo and Coca Cola – who have spoken about cutting costs to drive growth.

In the case of PepsiCo the strategy translates into cutting 8700 jobs and consolidating agencies so that it can release investment for growth. The rationale runs that the business will use the cost savings to plough more money into the advertising and marketing of its core brands to drive up their growth. Some $500-600m  will be spent on their 12 megabrands – with a strong focus on the North American beverage market.

The announcement follows a somewhat similar one by Coca Cola only the week before when it announced that $650m of cost savings will be ploughed back into supporting the core brands. Productivity savings in supply chain and improved marketing will be the vehicle for savings which will then be turned into more support for their drinks business.

The moves have generally sparked positive comments from analysts concerned that these  doyens of packaged goods brands need to bolster the support to their big brands to sustain the price premiums and volume that underpin the core of their revenues and profit.

However, to what extent is cost cutting really to be associated with additional investment in brands and to what extent will it really drive growth?

Unless the company is cash constrained (which neither of these behemoths are) the association is really limited to timing and risk management. Presumably if costs can be successfully eliminated or productivity increased then that will be done anyway. Similarly, if the investment in marketing is justified by the returns then that will done anyway. The only factors that would push these together are cash limits, coincidental timing or perhaps most likely the risk management and review that is inevitably high on the agenda in a planning process.

The announcements represent a management rethink now reflected in 2012 budgets – something I would think many teams have been doing in the last 2 months as they enter perhaps the most difficult to read business environment that we have ever faced.

The rethink is in part about squeezing even harder on the cost base and accelerating the drive to increase the productivity. But the pressure is increased even further by the recognition that supporting the base business (especially those big brands) needs more investment. The focus is investment in the core brands in the big mature markets.

Maybe a recognition that the scale of the base is so large that it needs to be maintained or even grown to achieve earnings expectations. Even when long term growth prospects are so much stronger in the emerging and developing markets, it is essential to keep the core performing to deliver in the short term.

So is it likely to deliver the intended results? It is difficult to tell. There are huge downside risks that are driving this additional investment in the face of economics that are edging away in many developed markets.

The most interesting thing to me though are the areas of concern expressed by analysts in their cautious welcome of the news. As they represent key ones for any company moving through 2012:

  • Execution: whatever strategy allocates more money to the hungry marketing mouth needs to make sure that it is carefully controlled to avoid waste, optimally allocated to maximise impact and well directed to leverage the brand assets effectively. In PepsiCo’s case the focus is the top 12 in a stable of several hundred brands. Effective execution will be needed to get the benefits from the strategy – especially when the economics of 2012 do not permit the same relative level of spend as 2000. This is seen to be PepsiCo’s challenge

 

  • Price control: Coke’s 2011 was a strong year because of its ability to drive up realised prices through clever mix management, pack and price negotiation. However, to realise the financial benefit of additional marketing the business needs to make sure that its marketing does not capture only volume but also value through further clever price and mix management. The analysts want to see Coke repeat this in 2012 especially given the clear contribution it made to profitability in the face of rises in input costs

Neither of these concerns are easy to address – but both are going to be essential, and not only for these branded businesses, also for us in 2012.

 

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lets ‘nudge’ the hypocritical consumer on sustainability

Posted on November 25, 2011 by Rod Street

There has been a lot of talk over the last few years about how consumers are becoming increasingly ethical in their purchasing habits – interested and ready to pay more for sustainable, environmentally friendly, fair trade, organic or  other ‘principle based’ brands. We have seen the growth of these through the last 20 years.

However, I was struck this week by the struggle that we humans seem to have in connecting our thinking and our purchasing habits and indeed in acting in line with our principles. This was well illustrated by fact that nearly half of all consumers who said that they would boycott Nestle over breast milk substitutes had actually still gone out and bought their coffee (see article in the Daily Telegraph).  This is only one illustration of our inconsistency between principle and checkout. The researchers found more.

Separately, in another article in the Telegraph it becomes clear that the idea of showering to save water also falls short in practice (at least in the UK). Unilever measured water use over 10 days in 100 families. They found that the average power shower used twice as much water and power as a bath! A great example of how to progress and worsen our environmental impact. (As an aside perhaps the most surprising insight was that the worst culprits were 12-year-old boys who spent 9 minutes and 41 seconds in the shower!)

This seems to surprise us … perhaps we don’t look inside enough to understand our own behaviour and the gap that easily exists between what we say we believe in and what we actually do!

I think this can be especially challenging with purchasing behaviour which is so often done on autopilot. How else could the average shopper negotiate a superstore with 40,000 sku’s and fill their cart in under an hour? Why else would the average household buy the same relatively small number of 2-300 grocery sku’s each year? Most of what we do when we shop is done in the subconscious (or semi-conscious!).

Even though, all over Europe, shopping list use has jumped significantly in the face of the recessionary pressure of the last few years, the fact is that we do not see shopping as one of the most engaging activities of our limited leisure time.

This presents a real challenge on issues around sustainability and to the consumer goods industry whose environmental footprint is as much determined by the way that we all use the products as by the manufacturing process needed to produce them.

It is therefore welcome that Unilever, in its commitment to sustainability has looked at how to address this in its drive to reduce its environmental footprint and boost the sustainability of the industry (see Warc). In doing so it claims to have reached out to the principles of  ’Nudge’ and behavioural economics to find ways to prompt the right behaviour:

  • encouraging use of compact detergents
  • reducing foam dispersal in emerging markets to cut water use
  • putting healthy foods at eye level in store

The aim is to make it easy, desirable and rewarding. Unilever has enshrined this practice in five ‘levers for change’ that it has published to its marketers.

It might be easy to be cynical about this as not enough or not sincere but that would be to undermine a potentially practical ways that players in our growth oriented market system can actually begin to address a problem that is clearly going to bite us badly if it is not addressed effectively – and to date we show no signs of addressing it effectively.

Lets hope that this initiative gets extended and deepened across the industry to make a real difference to all our shopping and consuming behaviours. Otherwise our lack of attention when shopping could cost us a planet.

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The word on the street is not social media

Posted on November 21, 2011 by Rod Street

You would have had to had your head in a bucket for a good few years to have missed the buzz that has swirled around social media. It clearly presents opportunities to engage consumers and take part in the digital dialogue about brand experiences. Indeed there are some neat examples of the effective use of social media to address consumers. However these new media seem to be creating an enormous amount of concern among many marketeers about how to best to bring these tools into the marketing mix and make sure that they are central to brand communication.

However all this attention on the digital space can far too easily hide the underlying driver of value – ‘word of mouth’ or buzz!

Too many people imagine that this is a new on-line phenomenon but the reality is very different. Many years ago I remember seeing a study on the consumer drivers of laundry brand purchase – and even then there was a heavy dose of word of mouth. At the time this was delivered face to face in neighbours’ kitchens, on the telephone (the variety with wires) or at the school gate.

Nonetheless the impact was the same – positive comments about brands travelled from one person to another powerfully amplifying mainstream media communications and often acting as the trigger that initiated people down their path to purchase.

It may then surprise you to learn that this story has not changed much for 2011 – even with our digital communications explosion and the domination of the term ‘word of mouth’ by social media. Whilst digital social networks may have drawn everyone’s attention to buzz, it seems that their real impact is still dwarfed by the off-line social networks.

Brad Fay of the Keller Fay Group in the US shared some fascinating statistics at the Word-of-mouth Marketing Association Summit in Las Vegas last week (see Forbes). Over the course of 12 months Keller Fay asked 32,000 people to keep daily diaries about conversations on brands. The results?

  • over 9 out of 10 conversations about brands take place face to face or over the telephone not on-line
  • 2 in every 3 of these off-line conversations are positive and not negative, and
  • 60% of participants said that these conversations prompted a high likelihood to buy the brand

Word of mouth is still powerful – but it is still most often gossiped face to face not machine to machine. For consumer goods companies and retailers hungry to engage people and take part in the conversations that often drive purchase this might seem a huge issue. In reality I think it is much more a reminder of the vital importance of taking a properly holistic and integrated view about communications.

A siloed new world/old world view that creates a digital divide is a not an accurate representation of reality for most everyday products. Its inaccuracy weakens its impact.

The human factor needs to be central to marketing. People who communicate a lot do so by lots of methods – because they like communicating; conversations cross media types  as the dialogue progresses over time because people do not only communicate in single media but in multimedia; we are more influenced by people whom we know well and share more stuff with… and often our brands are a real part of this bit of our life.

Whilst Facebook may mean you have a lot of friends, not all friends are equal and most of the most important ones are those I talk with.

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Battle of the Titans

Posted on November 18, 2011 by Rod Street

No – this is not another article about the grocery price wars. Although it could be. Retail has matured over the last 10-15 years into an industry comprising major players with formidable market positions, enormous resources and well entrenched strategies. In many cases this is taking them head-to-head in competition with other Titans in a prolonged war of attrition with an outcome that often reminds me of the way that a game of chess plays out: mistakes made by a player leading to a slowly disadvantaged position and eventual loss after intense and prolonged concentration. (You will guess that I am not a good player as I share my experience!)

No. This article is about another war of Titans that is just about to begin. In the US Amazon has launched its all colour, superfast and well reviewed Kindle Fire. At $199, it is $200 cheaper than the all-conquering ipad but its arrival signals the start of a new phase in tablet warfare and perhaps a little glimpse of what might be needed to break stalemates in other mature and intensely competitive markets.

The Kindle is fast, with great graphics and display and of course a lot of content – and it is being launched onto a strong user base. In providing a serious alternative in the category of tablets to the dominant ipad it is expected to present a formidable competitor to Apple and will, in the course of the ensuing battle, no doubt boost the size of the market (something that is rather more difficult in most advanced markets if you are a grocery retailer).

What might be the lessons of this battle for retailers engaged in their seemingly relentless run to price based competition. There are three that come to mind:

  • The competition is between solutions. Apple has always been very clear that it is about consumer solutions. This is why its systems are closed and why it succeeded with mp3 players when everyone else meandered around – because it provided a complete solution for the consumer’s need. The ipad is a hardware, software and app set that provides real solutions. Too often other tablets have been simply devices on which companies have tried to offer pieces of solutions. Amazon is clearly also in the solutions game and indeed is in there with its formidable position in content (think not only books but also Lovefilms…). This will be a competition between two solutions each of which offers something different.
  • The war is fought by using the whole business system. In playing the game it will be fought out by deploying all the different parts of each company’s business system. Amazon are no doubt subsidising their Fire tablet through the add-on sales that they can get from their content. They will offer incentives to get other content providers onto their platform. Apple meanwhile will rely on their app store royalties and richness to offer a different kind of experience and continue to play on their heartland of ease of use and providing a solution to the challenges of communication. Leveraging every part of the system – for costs and revenues and for platforms to compete with is essential when you are battling for market position against opponents like these companies.
  • The game is a war not a battle. This is not a single battle but a series of battles. Apple has had several years of building up its solutions, working up its ease of use, adding features and building faster, smaller, neater, better devices. It has maintained a high unit price but may be able to move that down if it chooses. It is playing a game that is mapped out for years not months. Amazon likewise has been developing the Kindle, the content and the user base for many years. The Fire has been pre-reviewed well by many analysts and commentators and they understand the usage of the current e-reader that this will overshadow with its multiple uses. It will also have a development path mapped out and the resources to put behind this.

There will no doubt be room for both in the 2012~ market and consumers will make their choices. ‘Communication’ will play ‘content’ and both may well emerge as winners in the long run but the lessons should be well-considered in our crowded FMCG marketplace – especially by retailers who might be tempted simply to stick with the pack to reinforce their position. Success is secured by this kind of strategy.

 

 

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The shopper view – price vs value?

Posted on October 24, 2011 by Rod Street

There is a price war going on in the UK grocery sector – with each of the leading chains trying to mark out its own territory in the minds of the shopper.

The battle to demonstrate value for money of course goes back a long time and has been the anchor theme for some players – like the persistent pocket tapping of Asda. But in recent times, spurred on by the recession and increased pressure on households the game has moved to a completely new level.

Asda led the journey into this new battlefield with its ‘price guarantee’ (spurred on by its parent’s global drive to offer ‘everyday low prices in every market’ as its President has said) where Asda promised to undercut all its main rivals by 10 percent. To capture the promise the shopper has to log on to Asda website with their till receipt and let it calculate the comparative prices. Several million shoppers have already done this, indicating that price is important in the journey to purchase.

Tesco responded with a price check promotional campaign to enable shoppers to claim double the difference in vouchers if they were didn’t deliver  on their offer of the cheapest price. This campaign subsequently had  to be modified to avoid over generous payouts to shoppers who buy selected products just to cash in on the promise.

Sainsbury’s has also  now entered the fray. Having previously advertised their match on key items to Tesco, it is  now introducing a voucher at till scheme that will automatically calculate the difference in prices of branded products between itself and Asda and Tesco in any basket worth over £20. The superstore claims that it will refund any difference by providing shoppers with  a voucher that can be spent in the following two weeks.

It is becoming increasingly apparent that all these innovative schemes are attempts to convince the consumer that the retailer’s offer is good value and so entice or retain the shopper to the store. All are slightly different in their conditions, approach and promise however. They are also  key themes for positioning the retailer’s  brand in the market. Yet all present a zero sum game which will simply level out the playing field between the current incumbents. Will shoppers see this as good for them? Will this deliver the elusive ‘value’ that retailers are pressing on for their customers?  I think not.  The reasons are varied. For a start, shoppers have seen some substantial rises in the prices of basic items  such as butter, chocolate and flour. These increases  have drawn their attention to look at prices more closely, especially at a time when disposable income is under threat. Shouting about price could  make shoppers  even  more  price sensitive.There needs to be something more than a focus on price to create real value for consumers. Certainly as each retailer neutralises the advantage of the others,  shoppers are likely to explore new avenues to pursue their own views of price and value.

Indeed there are some signs that they are already doing this including:

  • Competition – Other retailers are playing for the price sensitive basket. Budget retailers Aldi and Lidl have for example recently delivered an impressive sales growth of 24% and 14% respectively. Similarly the ‘pound’ stores and other cheaper channels are also cutting in – especially on household, toiletries and confectionery. If price becomes the dominant factor for consumers, there are some players expert at optimising the total cost of the shopper’s basket who could provide a compelling (and maybe equally importantly) simple offer here;
  • It’s not just about price for the consumer. There are other factors that shoppers’ value other than prices on packaged goods. Being assailed by promotional prices and shelf barkers everywhere in-store will reduce as much value for some shoppers as it adds! The in-store experience is also important. Similarly branded ambient grocery (on which most of the battles have centred)  is not the only place that shoppers will look to find value.
  • Channel migration. The rise of other shopping channels such as the small store, the  drive-through or even online exposes the fact that while grocery shopping maybe essential, it is not the centrepiece of most people’s leisure time. Convenience plays an important role in a busy life. The spur to online allows better budget control and management of impulse purchases. Small formats offer immediacy and save petrol and time – despite a potentially more expensive mix of product. These other factors shaping value are important considerations for retailers and brands;
  • Promotional fatigue. The promotional noise level in the major chains – particularly in the UK – has risen dramatically over the last 3 years (now nearly 55% of all products sold are on promotion in the UK ). In fact it is so high in some categories that the idea of an everyday price that periodically gets discounted in a deal has been washed away by  a set of prices that are normally charged periodically punctuated with a premium price that few people buy into. The sheer number and range of promotional offers has made shopping much more complicated and stressful for many shoppers. So while  these price schemes should help shoppers if they trust them and use them, over-use of the strategy is creating  a blindness to the real value of a promotion  and suspicion that the complexity hides ways to charge higher prices.

It is possible that there a tipping point coming on the issue of pricing. After all, the real squeeze on household incomes is only just starting in most indebted Western economies. Even though the fear has been here for a long time, shopper behaviour is likely to twist again when reality proves just as bad as they thought.

(This post originally appeared on Just-food.com)

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Breakout ideas – P&G

Posted on September 3, 2011 by Rod Street

In the corporate drive for growth there is perhaps no ideal industry to be in – only preferred ones in preferred geographies. The consumer goods industry has the benefit of stability and relative necessity from a consumer viewpoint. However, its challenge is that it also has a phenomenal maturity – with consequent competitive pressures both as suppliers consolidate and as it strives to reach the end consumer through the increasingly concentrated retail channel.

In the face of such competitive dynamics, the key to continued growth and success is as much vision and strategy as it is operational excellence. Too often leaders are tempted to hunker down and fight a kind of trench warfare to deliver results. This might deliver in the short-term and may even be essential in some markets but it will not deliver long-term growth and success. It is key that a business sets out a midterm course that can open up new pools of value in the face of the relentless squeeze that competition delivers to all existing ones.

In this context the recent comments from Bob McDonald of P&G provide a good example of a company pressing to continue success and breakout of bear hug of maturity. (see Warc.com). Aside of a strategy of growing aggressively in the emerging and developing markets he articulates how P&G plans to keep the everyday products it focuses on relevant to the lives of consumers around the globe – and it is a bold vision playing on the opportunities that technology and media change give to consumer goods companies

  • a one-to-one relationship with consumers everywhere in the world – digitally enabled
  • ‘purpose inspired’ participation in the lives of consumers, generating movements that engage with people (think not just philanthropy but also the emotional challenges of life)
  • continued drive for technically enabled advantage to meet the higher product aspirational needs of consumers
  • a multi-channel strategy – offering ubiquity of access to consumers

The strategy drives to per capita expenditure in different countries and core target consumer groups that stretches out decades. Not your average rather tactical 1-3 year plan.

What I like about the strategy is the anchor that it puts out to set direction and the way that it encapsulates both the essential elements of past success  (great R&D and consumer insight) with the trends that are transforming the context for success (as for instance the cost of holding and engaging with an individual consumer plummets through the digitisation and automation of all aspects of the operation).

P&G clearly has the global scale, resources and market presence to make this strategy credible …. and in the face of a tough economic context it provides a great challenge to other businesses to question what’s their vision for success in 2020?

 

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WIFI Increasingly Drives Retail Service Experiences

Posted on August 1, 2011 by Paul Crick

I was at Twycross Zoo this weekend celebrating our god daughter’s second birthday party and it was a hoot. It was great to see Seren wide eyed and curious at the sight of the magnificent ‘raffes’ (Giraffes) and ‘panzees’ (Chimpanzees) and running hither and thither with boundless energy as two years inevitably do.

One of things I was particularly struck by in the whole zoo experience was that free WIFI was on offer in Himalaya, the zoo’s restaurant / café. The impact on my perceptions of Twycross Zoo as a venue immediately went up a notch or two because (i) WIFI was available, (ii) no complicated registration process was needed to get access and (iii) it was free. I wasn’t the only one who was impressed by this.

On my travels, I find there’s plenty of WIFI access around but I have to pay for it via the likes of BT Openzone or The Cloud. When I’m paying to pick up work emails, it’s tolerable but when it’s for personal use then it jars with me. This, then, was overdelivering on service in my book and I was delighted.

Contrast this with the case of Tesco.

The announcement that Tesco plans to offer WIFI access in its stores trumpeted by the marketing and broadsheets sounds a little reluctant. Reports suggest WIFI is currently on test in four stores and is expected to expand to 2,700 stores in the UK though interestingly it doesn’t say by when.

Mike McNamara, Tesco’s CIO was reported to remark “you can’t stand Canute-like and pretend nothing is happening (i.e. shoppers are comparing prices on smartphones in store)…or you can say it’s happening, and I am going to help it happen.”

Is it me or have Tesco missed the point?  Actually, they seem to have missed the point on several fronts.

With Marketing Week reporting the research findings of Arc (Leo Burnett Group) and Best Buy showing that consumers are (a) unimpressed with retail customer service and think it’s worse than ever and (b) 71% are willing to pay for great customer service, you are left wondering what on earth Tesco are thinking.

The opportunities to raise the bar for the retail experince via in store WIFI are immense. Offering a store ‘sat nav app’ is a great idea but significantly flawed by only offering it on Android not on iOS (the iPhone platform).

With all of Tesco’s financial firepower and market dominance, why is it that they appear to lack the courage and entrepreneurial savoir faire of Twycross Zoo to deliver a service that customers want, would value and – to top it all in their case – would potentially pay for.

Every little helps indeed!

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Pricing: you’ve been framed!

Posted on July 29, 2011 by Rod Street

Frames by Loopweaver

A good part of my working day is consumed helping businesses understand how best to improve their performance in the market. Or, if things are really bad, how to find their market when it seems to have shrunk in the wash!

As a result of this I sometimes end up reading rather unusual studies. One such publication was the study conducted by HMG’s Office of Fair Trading into the impact of price frames on consumer decision-making. This examines the extent to which people make ‘mistakes’ because of price frames – and if shops benefit.

Of course, if you have been to the shops recently you cannot have failed to notice that all is not well and retailers are intent on using every means at their disposal to boost trade. These offers are typically some variant on a temporary price reduction. The belief being that lower prices are a powerful stimulant to demand – which they are – and that the reduction in price can be used to increase demand quickly – which they can do (sometimes!).

Much of the ‘call to action’ in a sale makes use of price frames – they are the tools used by retailers to encourage shoppers to see offers as good value and prompt them to open their purses to buy now.

Common frames are things like:

  • Now £1.29 – was £1.99 (reference prices)
  • Save 1/3 (sales)
  • BOGOF ends August 1st (time limited offers)
  • 3 for 2 on all cereals, cheapest free (complex pricing)

It has been true for many years that in most grocery markets a high percentage of shoppers cannot recall the price that they paid for an item accurately. They are simply not that engaged in the shopping process for these routine everyday purchases.

It is for this reason that frames can be so important. We decide how attractive a price is by comparing it with something else i.e. relatively not absolutely. As a result price frames are of great relevance in how people decide what to buy and when.

The psychology of shopping means that even if shoppers do not recall the absolute price accurately they typically have benchmarks in their head as they pick up the items. They use these to compare prices against – what I paid before, what other products like it cost, what environment it is being displayed in etc.

Price frames given by the retailer might therefore be very significant. So do they make a difference?

The OFT study was an experimental one with 166 participants and the conclusions were that these devices do indeed influence shoppers – impacting perceptions and therefore behaviour.

The answer was yes – some frames more than others but each shaped shopper behaviour.

The impacts make interesting reading:

  • the desire not to miss out leads to sometimes buying in the first store when a better deal could be found elsewhere (they obviously did not have the Redlaser app to hand!)
  • if an advertised offer was out of stock it generated anger and frustration
  • people sometimes did not work out the value of the ’2 for..’ type deals properly and a third of them would buy the offer without doing the calculation!
  • people struggle with the more complex offers and as a result make a choice that on reflection they would have preferred not to have made
  • People used the reference price information even though in the experiment it was meaningless

Clearly those who think pricing is about absolutes and easy economic rules have not dealt with the shopper. Framing prices correctly does influence how and what people buy. The right frames, communicating with the greatest clarity help to persuade the shopper to buy.

In the long run of course the claims need to be true and the business needs a strategy that offers real value if it is to grow.

The study also indicates these lessons:

  • One of the other conclusions of the study was that people learn through experience and make better decisions with practice
  • Whilst the first shop that they comes to often benefits from increased sales, the overall impact on baseline sales was remarkably flat (except with multibuys). So if everyone uses offers, more value will only come from offering something more
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