TNS Retail & Shopper

Opportunities in the Traditional Trade of Emerging Markets

December 6, 2009 - by Arnaud Frade, TNS Retail and Shopper E-Mail: arnaud.frade@tns-global.com

 
Four billion people live on less than two dollars a day in the developing world. These people represent a huge and growing market for goods and services. For those of us who are familiar with the sophistication of modern retailing, it is easy to forget that the vast majority of people around the world still shop in far simpler stores. These simpler "stores" are collectively referred to as the traditional trade, to distinguish them from the modern trade, common in the more economically developed world. It is the traditional trade that plays a large role in the growing cities of India, Indonesia, Brazil and China - in fact, in cities, towns and villages all across the developing world. The traditional trade ranges from well organized independent players, to small road-side shacks and single market stalls. How can brand suppliers best understand this growing retail opportunity? What are the key challenges to consider in order to be an effective supplier to this trade? This issue of the VIEWS will shine a light on some of these challenges and opportunities.

Challenge #1: The store is not four walls...

Supplying the traditional trade forces a rethink on what constitutes a store – market stalls, roadside shacks and even itinerant sellers are all relevant, but do not fit the classic selling model of the modern trade. In some locations, at-home stores and even back-of-bike operations are common. Supplying these markets requires different approaches in both marketing and distribution. One key focus can be on approaching the community and isolating local leaders or opinion makers, who may be able to provide understanding to the marketer; and drive local acceptance by the market.

From a manufacturer's perspective, this also means considering things like how a lack of continuous electricity may affect the ability to actually sell, for example, cool beverages or treats. Having a link with the local communities through their leaders may help with finding unusual but highly effective solutions. These solutions may then be deployed across markets and regions.

Some may be surprised that internet retailing plays a growing role in the traditional trade. In many markets, the only means to use the internet is via mobile phone and smart phones. These are already becoming common day-to-day tools in even remote areas of major economies such as India and China. The question then becomes, when the internet is seen on a 2" by 2" screen, how can companies optimize the experience to deliver a clear and effective online sales proposition? This is both a major challenge and an opportunity for the years ahead.

Challenge #2: Shop keepers are gate keepers

In contrast to modern trade, where stores are designed to be self-service and shoppers are more autonomous, in traditional trade stores the emphasis is on the shop keeper, for several reasons:

• For security reasons, trade may be conducted via gated doors.
• For practical reasons, not all items may be on display.
• For credit reasons, the shop keeper offers credit within a community.
• For guidance reasons, advice and reassurance for selecting products.

These last two reasons make the shop keeper an integral and personal link between the community and the products and services they need.

There are several ways for a manufacturer to leverage the realities of the traditional trade: Firstly, the distribution network plays a crucial role. Using the regular delivery team to "partner" with the shop keepers can be an excellent strategy. Secondly, credit terms and sales aids may provide very tangible benefits and support a brand campaign.

Thirdly, in smaller shops, the owner will in many cases buy directly from a larger supermarket or a cash & carry, far away, and then re-sell the goods locally. So understanding these needs and offering suitably packaged products could also be, indirectly, a great way to drive traditional trade sale. This last point means that re-thinking the packaging could very well generate substantial gains for major manufacturers, with packages which can double-up as display stands; or offer advice for selling and merchandising items.

Challenge #3: Merchandising has a different meaning for the traditional trade – focus on channel-relevant execution

Merchandising and Point-of-Sale Materials (POSM) play a radically different role in the traditional trade – many stores have limited shelf organization and POSM is not replaced regularly and might in fact overlap across competing brands. Manufacturers tend to have very few customized solutions – some will provide storefront decoration services (awnings or walls painted the colors of a brand, especially relevant for beverages and cigarettes); others will focus on very similar materials provided to the modern trade, knowing these are likely to be discarded or incorrectly implemented. Yet there is significant potential to have unique and relevant POSM or merchandising solutions – ranging from unique storage to distribution or refill options, to facilitate the delivery of products in the traditional trade.

Challenge #4: Basic considerations are Prime considerations

For low income consumers just as for everybody else, basic needs come first – although for them, satisfying these basic needs is very much a critical survival requirement. Ensuring that goods bought are safe, un-contaminated, storable and transportable are key issues. In this context, manufacturers have a tremendous opportunity to help improve daily lives whilst also building their brand, by providing packaging and distribution solutions which support these basic needs. Furthermore, supporting these basic considerations may provide forward-thinking companies with a tremendous opportunity to play a more active role in communities – by championing these needs (or failing to do so) a brand owner will seal its future. For example, understanding usage occasions combined to storage requirements has provided leading brand manufacturers with the opportunity to introduce innovative single-usage packs, providing both an affordable solution and a true brand experience to low-income consumers in the Philippines or China.

Challenge #5: Brands are important… but are they real?

Brands are both a reassurance and an aspiration and as such play a critical role in traditional trade – but this also presents some serious challenges. Firstly, consumers are savvy, no matter what they can afford – so brand equity is very much a precious commodity when dealing in the traditional trade, as shoppers  seek the reassurance and guarantees a well-known brand can provide. In some markets, counterfeits abound, and ensuring that what you buy is genuine is a very real consideration. Secondly, whilst not all brands are necessarily represented in the traditional trade, it should not prevent manufacturers from seeking to engage consumers – the aspirational nature of many brands may help drive future consumption but can also have an immediate role in communities. Finally, the risk for a brand is to have, either via counterfeiting or via an unscrupulous local associate, its image tarnished – taking extra care of how the brand is used (POSM, sponsorship, actual products on shelves) should be a major priority in developing markets – the global future of your brand may just hinge on this.

Overall, marketing to traditional trade shoppers requires not just local knowledge but a true mindset change for international brands. competing against well-established local players, faced with an incredibly fragmented distribution network, you need to re-engineer your entire marketing strategy to match the needs and complexities of these retail channels. The investment is significant but the pay-off may well be worth it – establishing top-of-mind in the fastest growing and most populated economies in the world might well be tomorrow's pay-day. Note: Arnaud Frade is based in Singapore and covers 50 markets across Asia-Pacific, Latin America and the Middle East & Africa as head of TNS' Retail & Shopper practice. Amongst these are some of the world's most populous countries, some of the fastest growing economies and true frontier markets. He has previously worked in Europe for a leading retail tracking specialist firm and a major financial services company. His expertise in understanding independent retailers complements well my own focus of supporting global retailers.

Arnaud can be reached at arnaud.frade@tns-global.com.

The Amazonian Ghost

July 31, 2009 - by Herb Sorensen, Ph.D., Global Scientific Director, TNS Retail and Shopper
E-Mail: herb.sorensen@tns-sorensen.com

In the movie Ghost, with Patrick Swayze and Demi Moore, we see the spectral Swayze trying to reach his real world lover, by the power of the mind. He had some instruction on this matter by another cranky ghost, in the subway.

This is not totally unlike the problem that the modern self-service retailer faces. First, just like the Swayze ghost and his love, Moore, the retailer (the ghost) effectively inhabits a different world than his beloved, the shopper. Here, I will provide some down to earth, uncranky assistance to retailers seeking to bridge their own gap. :)

First of all, let's acknowledge that the gap is real. It is a gap in communication, largely broken 100 years ago when much retailing became self-service. Self-service, of course, limited the amount of personal communication that could occur between the retailer and the shopper. The exact form of personal selling that was common 100 years ago is unlikely to ever become a huge component of self-service retailing again.

However, in the past few years, another form of retailing has arisen that recaptures many of the original personal selling features, and we can learn from this something of how "personal" selling can be returned to self-service retailing, without all of the real-world staff that that might conjure. Just as with Patrick Swayze, the real adjustment that opens communication between the two worlds of retailer and shopper, is an adjustment between the ears of the retailer. So we begin with a renewed understanding of how to SELL to someone you cannot physically reach.

We must take our learning here from the world of online retailing, the Amazonian Ghost. The metaphor is apt, because, like Swayze, the online merchant cannot be physically present with the shopper. And yet Amazon, and other online merchants, sell aggressively, their wraith-like avatars doing the work for them!

 

First of all, as soon as you arrive at Amazon, their goal is to get you to the book or merchandise that you may be seeking, as quickly as possible. It is a fact that the abandoned shopping cart is the bane of online selling. Notice the "one click" option, and overnight delivery - speedy checkout - in the upper right hand corner. Amazon is ready to consummate the sale immediately, and at all times. Every personal salesman in the world knows that the longer a shopper takes to make up their mind, the more likely they are to decide to not buy.

Assuming you were looking for a book, as soon as you arrive at any book page, Amazon tells you what else people frequently buy with this book, and, further down the page they will tell how this specific book ranks in comparison to all the other 50 million books they sell, and more specifically, how it ranks compared to the other books in its category. Of course there are book reviews as well.

What is going on here is that the "salesman" avatar at Amazon is doing all they can to close a sale. First, responding to your expressed interest (a search that brought you to this page,) and secondly, seeking to reassure you about your choice by telling you that most people who visit this page, buy this book. But at the same time they are going for the close ("One Click" - close early and close often,) they are teeing up alternates in case, they can sell you two books here, or maybe close on an alternate if you reject this one.

All the rankings and reviews play two crucial roles that are intertwined:

• To get you to the close
• To drill into your mind for post close, that you made the right decision

This second role is often overlooked in selling, although it is inseparable from the first. Buyer's remorse does not just occur because of poor product performance after delivery. It also occurs because advertisers and sellers (retailers) fail to adequately reassure customers that, "You made the right choice. Given all the options out there, you made a smart selection." Even if there are flaws - everything has flaws, that's life - YOU are one step ahead of the game!

Now, Mr. Retailer (or brand supplier,) let's see if we can "borrow" the Amazon avatar to help us SELL in the aisle of a bricks-and-mortar store.

So here you are, hovering like a ghost over an aisle, as a shopper turns into the aisle. This is her first "click" (Amazon, remember?) giving you a clue as to just what you might be able to sell her. Although this doesn't have quite the specificity of the individual book that the Amazonian avatar gets for starters, it's close enough for you to start making a single intelligent offer. Remember, this is about YOU selling, not passively standing by to see what she will buy.

Hmmm! So just what should you sell, of the thousands of products in this aisle? "Amazon" will check to see what most other shoppers have purchased in this aisle. It's in your transaction logs. The number one item sold in this aisle is _____! Tell them what it is. Simple statistics tells you what the crowd buys most of, is what you are most likely to SELL to an individual. So, if you are going to sell something to this shopper, your best bet is a Top Seller for this aisle, for this category, for this brand, etc.

Remember, even though you are the Amazonian Ghost lurking above the aisle, you can make your presence felt by putting those "Top Seller" or "Shoppers' No. 1 Choice" notices on the few appropriate items in the aisle.

Continuing our Amazonification discussion - we think, but what if she doesn't want to buy what the crowd is purchasing? No problem, you, like Amazon, have thoughtfully provided many alternatives - the long tail. The shopper will be reassured in her purchase from the long tail because she has consciously rejected the crowd's choice and expressed her individuality by selecting from the rest of the options. Remember, the long tail attracts shoppers to the store, but it can also provide reassurance to shoppers who reject, and some level of purchases from those who reject the big head. So all are not only aided by your selling to them, but are reassured they got what was best for them, whether they bought the big head or the long tail.

New type of shopper research studies non-purchasers

October 12, 2009 - by Siemon Scamell-Katz, Founder TNS Magasin
E-Mail: siemon.scamell-katz@tns-global.com

TNS Magasin has launched a new service which promises to deliver additional sales by answering the age old question: when shoppers don’t buy, why don’t they? Because these non-purchasers are a huge potential source of extra business – in the store, in the aisle and at the category - understanding what goes wrong here, and putting it right, is set to deliver unprecedented rewards.

Magasin starts by identifying attrition amongst shoppers at every stage of the shopping process, from the whole retail outlet through individual category to SKU. For example, a shopper may enter a store but not a certain aisle or browse an aisle but not a particular category. And of course all shoppers interacting with a given category will spurn most SKUs within it.

Non-purchasers at every level are recorded using filming or path tracking techniques, with more detailed observation at the category level. A statistically significant number of non-purchasers are interviewed to establish perceived and actual barriers to purchase. By quantifying shopper ‘drop-out’ rate - and, most importantly, why this happens - TNS Magasin is able to pinpoint the areas of greatest opportunity for our clients.

A recent project for a brewing company has identified the additional conversion opportunities within beer and delivered strategic advice for action based on these insights. The initial research revealed how successful the beer category is at converting store traffic to purchasers; who the beer shopper is and how sub-categories perform in various locations.

Using these findings combined with knowledge gained from nearly two decades of studying shoppers, TNS Magasin was able to provide a raft of detailed recommendations to unlock barriers to purchase and capitalise on previously overlooked opportunities.

Traditional research has concentrated primarily on purchasers. By focusing on non-purchasers, we are illuminating the stages in the shopping journey at which our clients are losing customers and why. Clearly, the biggest opportunity to increase sales is with those potential purchasers who are in front of the fixture but not buying.

This approach provides a highly-tuned diagnostic for focusing further research attention and benchmarking change, because it brings every single area of under-performance into sharp relief. What’s more this pioneering angle on shopper decision-making not only provides a huge advantage to our clients, it also delivers actionable insights pretty well immediately.

Siemon Scamell-Katz

Real eye tracking: cost slashed, quality uncompromised

September 1, 2009 - by Siemon Scamell-Katz, Founder TNS Magasin
E-Mail: siemon.scamell-katz@tns-global.com

There is no substitute for real eye tracking, despite the proliferation of imprecise techniques such as field-of-vision recording hawked by me-too organisations desperate to jump on the shopper bandwagon. But in the past, the more advanced methodology has come with a higher price tag.

Now, by combining eye square software with its own, TNS Magasin is able to dramatically reduce the cost of its eye tracking research without compromising quality. The web-based software vastly speeds up the process whereby data is extracted from the digital records, previously achieved by painstaking human analysis, with no lack of accuracy.

Real eye tracking is superior because it enables every single eye fixation of every individual shopper to be recorded and analysed. Human eyes move constantly, with tiny movements outside conscious control. These are punctuated by fixations, during which the eyes stop to focus: these are typically between 100 - 600 milliseconds in duration. The brain only begins to process visual information during a fixation.

Because it cannot detect these fixations, field-of-vision recording merely shows what was in front of shoppers. Eye tracking by contrast measures in minute detail what each shopper actually notices and which elements are being used at what stage in the decision-making process. This is the key to understanding how shoppers make decisions and the visual stimuli that prompt those decisions.

Research of this more thorough kind can determine ROI on all POS materials by establishing the exact relationship between cost and effectiveness of individual elements of the in-store display, identifying their role in category navigation, brand value building and brand conversion.

We’ve been eye tracking for nearly 20 years now - it was one of our ‘first in the world’ achievements back in our early days. It is frustrating but when it comes to eye tracking, every other method is a compromise. We will never go down that route but now this technological advance means that we can offer our clients the unequalled benefits of real eye tracking at a cost comparable to inferior methods.

Siemon Scamell-Katz

No, the Customer is NOT Always Right!

July 23, 2009 - by Herb Sorensen, Ph.D., Global Scientific Director, TNS Retail and Shopper
E-Mail: herb.sorensen@tns-sorensen.com

The First Face

Quite a number of successful retailers, over the years, have attributed a significant measure of their success to the principle that, "The customer is always right."  Here I want to give proper credit to this as a public sentiment, and at the same time point out why it is also outrageously WRONG!

Let's begin with the pernicious effects of high-low pricing.  For those unfamiliar, HI-LO refers to the widely practiced pricing method of charging really higher than necessary prices (HI) a good bit of the time, but enticing shoppers sufficiently with specials and cut prices (LO) on selected merchandise to give "the customer" the impression that shopping in this store is a good value, or at least, if the shopper is careful, can be a very good value.

Before considering the merits of such a pricing strategy, we need to have an alternative for comparison.  The alternative is to simply price everything at relatively constant margin (profit) for individual items, and as low as is consistent with prudent business practices.  This strategy is commonly referred to as "everyday low pricing," EDLP.

There is probably no such thing as a retailer that is purely HILO, nor any that are purely EDLP.  However, the rational economic approach, and what is best for everyone, really is the EDLP model.  This is because of the massive economic inefficiencies that accrue in HILO pricing, which ultimately must be charged to the shopper.  This is why the prices in HILO stores, on the majority of items, are higher than "necessary."  What makes them higher than necessary is two things: to make up for the loss of necessary margin and profits on the low price specials, and to make up for the massive inefficiency of continually raising and lowering prices. 

It is this second factor that is the real culprit.  And it is this second factor that led Sam Walton, in seeking to drive prices to their absolutely lowest possible point, to reject HILO pricing, and go for EDLP.  This required forced cooperation from suppliers, who were as engrained in HILO as were the shoppers.  That is, brand suppliers were accustomed to supporting retailers in their HILO pricing by marking down, from time to time, their wholesale prices.

What Walton did was far more fundamental than simply shifting to a superficial EDLP.  He insisted that suppliers remove all non-product costs from their wholesale prices, which included slotting fees, and any other trade and promotional allowances.  To understand this, Walton is in effect saying, "I will not pay you one penny more for your wholesale merchandise than it is worth, as delivered.  Why should I pay you what you are going to give back to me in slotting fees and promotional allowances?  I'll just keep that money and NOT charge you those fees."  There is massive inefficency in the retailer paying more than the merchandise is worth, in order to get some of that money back later in rebates, slotting fees and promotional allowances.  (There is an excellent discussion of this issue in Kahn's and McAlister's short book, The Grocery Revolution.)

There is a great deal more to this story, but the reality is that this is probably the single most important factor in driving the growth of Walmart to be the largest non-oil corporation in the world.  The relentless focus on low prices struck at the root of HILO pricing.  However, this doesn't mean that shoppers are committed to rational retailing.  Far from it.  And this is why Walmart still has specials, and advertising campaigns focussing on falling prices.  This partially explains why, if EDLP is such a good deal for shoppers, and fueled the growth of the largest retailer in the world, it explains why every retailer isn't going with EDLP.  In fact, another major retailer switched to EDLP some years ago, and the first year of EDLP received an incredible amount of abuse from shoppers in the form of hate mail and complaints.  "We have always relied on you to provide specials and really good prices, and you have now betrayed us."  However, the retailer stuck to their shifted strategy, and for the first time in 50 years, showed a profit on selling groceries!  (Many are unaware that the grocer's profits largely derive from those slotting fees, rebates and promotional allowances, NOT from "selling" groceries.  See my book.)

Now, if we put these facts about HILO and EDLP in the context of "the customer is always right," at least we can see that, objectively, it depends.  After all, it was customers who made Walmart into the world's largest retailer.  But the story is a good deal more complex than just this single pricing issue.  And for that story, I recommend that you get a copy of The Walmart Effect by Fishman.  Before we draw a final conclusion here, we need to look at one more customer/pricing illustration.

No discussion of pricing would be adequate without some recognition of the importance of coupons.  It should be no surprise to find manufacturers looking to capitalize on the efficiences of EDLP, sans coupons, to mirror the great success of their retail partners.  But, notice this:

[In the 1990's,] Procter & Gamble established an "everyday low-pricing" policy that reduced the retail price of its products without hurting the company's profits. While the move succeeded in reducing "peaks and valleys" in the process of manufacturing and selling products, it was not without controversy. For example, in January 1996, Procter & Gamble announced that it would end the distribution of all coupons and reduce regular prices in three New York cities: Syracuse, Buffalo, and Rochester. Other manufacturers said they would reduce or eliminate couponing in the area. However, Procter & Gamble soon encountered consumer boycotts, public hearings, and a petition drive demanding that they reinstate coupons. In March 1997, the New York State attorney general's office demanded that Procter & Gamble end the test. [Novel Guide.]

Notice that the self-appointed consumer advocates came out in force to bring a halt to this move to EDLP, as if shoppers interests are best supported by a bulwark of HILO, the coupon.

The sum of the matter is that shoppers are more in love with the idea that they are saving money, than the actual saving of money.  It is a fact that a shopper who follows closely the weekly specials, clips, organizes and uses coupons copiously, can save substantially, even more than by simply shopping at an EDLP store.  But this is at a significant personal cost to the shopper in terms of their time, transportation from store to store, etc.  It is actually a worse economic deal than learning to count cards at the casino.

It is a verifiable fact that card counters can consistently "beat the house" when gambling at a casino.  Of course, if "the house" recognizes that you are card counting, you can expect to be unceremoniously evicted.  Retailers don't typically evict shoppers for excessive use of specials and coupons.  Why would they?  It's their suppliers that are footing the bill, with a vast and costly engine that prints billions of coupons, (most will be unused and end up in the trash,) distributes them, collects them, and charges the brand, that builds the cost into their price to the retailer, who passes it on to ALL of their customers.

There is a great deal more evidence that shoppers do not behave in rational ways.  But then, gamblers don't either.  And many shoppers are quite happy to shop in the casino-type HILO stores, thinking that surely all these specials (and maybe coupons,) really are saving us money.  As one of my favorite philosophers, Josh Billings, used to say, "The trouble with most people isn't that they don't know, . . . but what they 'know' . . . ain't SO!"