Retail Marketing Models… On the Brink of Change

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Retail Marketing Models… On the Retail Marketing Models… On the Brink of ChangeBrink of Change

October 2005

[email protected]


Discussion Points….Discussion Points….

How Leading Retailers Are Going to Compete

How Brands Are Going to Win


Shelf of the Future?Shelf of the Future?


Shopping Basket of the Future?Shopping Basket of the Future?


Retail Environment For BrandsRetail Environment For BrandsIs Deteriorating QuicklyIs Deteriorating Quickly

Retailer differentiation strategies – make me different everyday does not fit well with large brands

Shelf compression New categories Private Label SKU rationalization OPP Pricing strategies

Shelf conditions

POS and other signage execution


Advertisers Want Change …Advertisers Want Change …

Advertisers want to increase effectiveness or reduce

• mass advertising outlays• Trade promotion

Conversion - in store - to better influence the “moment of truth”

• 1:1 relationship marketing with consumers• Localized marketing/promotions• Optimized content/campaign investments

Target-ability Equity enhancement Measurement


Shifting Dollars to In-StoreShifting Dollars to In-Store

MediaConsumer Promo,

Custom Retail Programs

Trade Spending

Out of storeToo fragmented and therefore

inefficient

( - cut spend)

Effective on tactical level, but not brand building

( - cut spend) N/A

In-storeEfficient, effective, contextually

relevant (+ increase spend)

For promotions and brand building

(+ increase spend)-

In-store examplesIn-Store Broadcasting Network,

PRN, Sign Storey, NAM, FloorGraphics, etc…

ICM, Catalina, retailer cook books, cause related programs,

signs, banners, etc…Feature, display, TPR

7Source Retail Media Link, LLC


The last 20 yards has become The last 20 yards has become “FMOT”“FMOT” for retailers and brandsfor retailers and brands

Total Target Market

Aware

Understand

Believe

Want

Find

Buy

Like

Prefer

Traditional Marketing

Retail Marketing &

Merchandising

4.8%

80%

Source: Tesco


Key Trends That are Impacting theKey Trends That are Impacting theNorth American MarketNorth American Market

Market Forces Shopper Lifestyles &

Behaviors Technology Globalization Speed – need for Capital markets

Retail Industry Competitive Forces

Consolidation, Concentration, Substitution

Saturation Impact of Discounters

• Margin compression Labor relations &

productivity Demand Driven Supply

Chains


Chain Retail Share of North AmericaChain Retail Share of North America

“Chain Retailers”Organized

Local Retail

0% 51% 100%

Formal Retail

Note: The market size would be @ least 10% larger if the informal market were included

here. And the “Chain Retailer” market share would decrease.


Only 89 Retailers in North American Only 89 Retailers in North American will Gain Share!will Gain Share!

(North America Ops only, Period Evaluated = 2003 through 2008E)(North America Ops only, Period Evaluated = 2003 through 2008E)

Source: www.mventures.com

Gainer Segments


Share Gainers Key Initiatives.. ExamplesShare Gainers Key Initiatives.. Examples Re-engineered revenue streams Clear differentiation strategies

• On-going Brand enrichment … Strong brand stand (positioning), right marketing messages & platforms

• Right format positioning – targeted or mass• Innovative merchandising, products

Right people and capabilities Right Market Development models Demand driven supply chains Credible, timely information across the value chain Strong financial performance and capital structures

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A Division of MVI

Future Retail Revenue StreamsFuture Retail Revenue Streams

Future Retail Economic Model - % of profits

• Merchandise 80%• Services 15%• Marketing Svce 5%• Media 5%

Services Lifestyle Financial Small Business Services/Installation


Retailers Want to Monetize Their Shopping Trips, Retailers Want to Monetize Their Shopping Trips, Improve Own MessagingImprove Own Messaging

Source: Tesco


Brand EnrichmentBrand Enrichment

Brand Guideposts

Communication/MarketingPlatforms

Shopper Insights

Organization


What days what times do they shop?

What brands do they prefer?

Will they substitute when OOS?

What other items do they buy?

What sections do they shop?

Which promotional vehicles do they respond

to?

How promotion responsive are they ?

How price sensitive are they?

Which items drive price sensitivity?

What are theirchurn rates?

Who are my bestcustomers?

What’s my share of their wallet?

What do mycustomers spend?

Shopper Insights:Shopper Insights:They are what they buyThey are what they buy

Source: Ahold


Brand Guideposts Brand Guideposts


Brand Enrichment Strategies Require Brand Enrichment Strategies Require New Operating ParadigmNew Operating Paradigm

Right merchandising Department & Category Strategies for:

• Private label• Pricing & promotion • Localization• New

Right Assortment Fresh Ancillary/SWAS GM/HBC Apparel All other Food

Right marketing Clear consumer

target Clear positioning Marketing

Overlays In & out of store

media platforms Vendor

tie-ins/co-marketing


Brand EnrichmentBrand Enrichment

Brand Guideposts

Communication/MarketingPlatforms

Shopper Insights

Organization


Major Retailers Spend at Considerable Levels Major Retailers Spend at Considerable Levels and on Media of Declining Effectiveness and on Media of Declining Effectiveness

Ad Age Rank Retailer

Measured Advertising TV/Cable Newspaper Radio Internet

Print & Other

8 Sears KMART 1,019,704 589,034 212,170 32,222 15,593 170,685 12 Sears 785,803 517,984 123,621 19,966 14,818 109,414 24 Home Depot 561,266 300,531 95,430 117,658 1,839 45,808 29 Target 600,926 281,188 228,544 15,668 13,932 61,594 33 JC Penny 409,901 201,883 118,430 34,952 956 53,680 39 Best Buy 324,941 126,016 150,122 431 16,881 31,491 48 Federated Dept Strs 615,696 80,195 493,688 3,614 9,344 28,855 49 Wal-Mart 479,447 421,717 14,064 4,318 10,782 28,566 51 Mays Dept Stores 544,663 64,961 459,064 7,572 553 12,513 53 Kroger 110,651 32,337 74,692 287 84 3,251 61 Safeway 106,971 24,717 27,337 50,856 282 3,779 65 Lowes 302,186 206,756 56,295 18,827 2,794 17,514 67 GAP Inc 373,926 273,584 14,152 4,341 12,866 68,983 70 Albertsons 124,572 58,047 46,385 15,769 581 3,790 74 Kohl's 281,214 152,934 84,609 23,378 122 20,171 81 Kmart 233,901 71,050 88,549 12,256 775 61,271 85 Limited Stores Inc 89,552 63,593 995 562 3,390 21,012

Total Top 16 Retailers 5,945,616 2,877,493 2,075,977 330,455 89,999 571,692 All Other 10,259,284 3,122,507 4,609,023 419,545 1,025,001 1,083,208 All Retail 16,204,900 6,000,000 6,685,000 750,000 1,115,000 1,654,900

Source: AdAge

Repurposing just 10% of the leaders TV/Cable Spend to an in-house network will add $288 Million to RMN Revenues / Media Value


Retailers Have A Increasing Retailers Have A Increasing Number of Captive Marketing Platforms…Number of Captive Marketing Platforms…

MassMedia

In-store POP

RetailMedia

NetworksCustomer AcquisitionPersonal

Relationships

Community Involvement

TargetedMedia

Targeted Publications


Digital Signage to Retail Media Networks:Digital Signage to Retail Media Networks:An Industry Evolving RapidlyAn Industry Evolving Rapidly

BasicRMN

Integrated RMN

AdvancedRMN

2010

ShopperMarketing

Capabilities

OperationsFocus

BackroomDigital Signs

Digital POSSignage

Today 2001

Retail Media Networks (RMN)

Source: Intel, Premier Retail Networks


Historical Business ModelsHistorical Business ModelsOperations/Employee Communication Solutions: Primary role in-store operations, training and communication. These are

especially useful to merchants and store operations people communicating new programs, initiatives, for personnel focus as well as for training and policy communication.

Digital Signage – Initially a traditional Point of Purchase (POP) alternative substitution strategy for printed POP signage, which competes on efficacy and cost. Extends to in-store navigation and announcements. Transfers greater control and resources to the retailer over in-store conditions and shopper communications. There are two basic approaches for these sales oriented networks:

Electronic POP – static networked screens replace the high cost and sometimes ineffective printed point of purchase (POP) materials. This ranges from relatively static brand image screens to electronic shelf tags which can also deliver promotional messaging. They enabled central control over store level signage, pricing and related merchandising messages. They save labor, simplify complex product messages for shoppers and remove most of the work at the retail store and improve execution.

Digital Displays Networked together to simply make physical product comparisons. These networks are especially prevalent in categories such as TV departments, where consistent content displayed across the available products help the shoppers “see” the difference.



Retail Media Networks (RMN’s)Retail Media Networks (RMN’s) distribute various digital content including paid advertising, instructional content and

news through a network of digital displays.


New Model: Retail Media Networks (RMNsNew Model: Retail Media Networks (RMNs Retailer or Advertiser sponsored digital advertising and media

networks targeting specific zones or “customer viewing areas” (CVA’s) with digital content to engage and activate shoppers.

RMN’s use broadcast and/or narrowcast in the store. Expanded capability for greater in-store targeting, interactivity, tracking

and integration with parallel customer development systems. Devices and displays configured with high quality, directed sound and

interactive capabilities – with centralized control over the content and device operations.

Ultimately RMN’s will include multiple network platforms (wired, wifi, cellular etc). RMNs can be utilized in three distinct ways:

• Broadcast - transmitting a message over a wide area or to everyone connected to a network or service

• Narrowcast – transmitting a message to a group in a specific target area. Sectional LCD panels are common in an RMN’s that address specific products @ the modular level

• Interactive (1:1) – Devices that allow for consumer interaction, often including input to obtain product recommendations. The most common form of interactive system is a touch screen or buttons on a kiosk type display device



RMN Decisions Development and Deployment RMN Decisions Development and Deployment Considerations: Retail Network ConfigurationsConsiderations: Retail Network Configurations

Business Model – Backroom, Digital POP, RMN (as discussed above) Network Options (ie the medium the content will travel through) and Operation and op–

Wired or wireless, owned or leased for example are important choices. RMN’s operate the same hours as the store – retailers may choose to operate in-house or outsource to companies such as Premier Retail Networks (PRN).

Consumer Viewing Area (CVA’s) Configurations – The number and location of screens (in a fixed network)

Device Options/Consumer Reach Strategy – The output device that will be used to view the advertiser and store related content. These can range from very simple screens to more complex 1:1 interactive devices and will depend on consumer acceptance.

Content Objectives – There are at lease six common objectives for the content:• Branding – Establishing or re-enforcing the brand with the shopper with intensive in-store advertising• Merchandising – Merchandise and Promotional call outs (Features)• Attraction – To draw people to departments and categories• Direction – To help shoppers navigate the store• Enhancement – To support and create store environment• POS Enrichment – To improve and enhance the checkout experience

Content Development and Acquisition Process – In an RMN, much of the content is advertiser provided. However, it is not effective to simply re-purpose existing 30 second spots. 15 seconds or less is often the most effective message length. This requires development capabilities including talent acquisition and digital rights management.

Computing Power – Where the business intelligence resides in the network Key Applications – These include content management tools that guide how content is

managed with the Networks.



A Number of Important choicesA Number of Important choicesDimension Basic RMN Advanced RMN

1. Network Option Wired Wireless2. CVA’s (#zones) Digital Dept’s only (Consumer

Electronics)15-16 food/non-food departments & Promotional Space

3. Device Options Single Display type Multiple device platform (Broadcast, narrowcast, 1:1 Shelf edge tablet or cell phone/PDA)

4. Content Goals Attraction & Promotion Callout Branding, Product CalloutService/Support Information

5. Content Acquisition 70% Retailer provided 70% Advertiser provided6. Network Configuration Single Store Server Central Server7. Applications Content Management only Content management plus

business intelligence8. Network Operations Primarily internally managed Generally outsourced to

Solutions Provider9. Capital Retailer sponsored/funded Shared Cape with outsource

provider10. Retailer Profit Model Budgeted Expense/Cost

ReductionStrategic Profit Center



Multiple Networks in Any given StoreMultiple Networks in Any given StoreWith Ability to Target In & Outside the StoreWith Ability to Target In & Outside the Store

IN

IN

WiredMedia

Networks

Store

ModeOUT

OUT

Cellular

Wifi/Bluetooth

Activation

Activation

Awareness

WiMax


Retailers have natural dwell zones in Retailers have natural dwell zones in their stores.. Which are really valuable?their stores.. Which are really valuable?

2m 39s

5m 18s5 m

3m 03s 3m 55s

21m51s

2m 44s

5m 18s


Content: The MOST important Content: The MOST important considerationconsideration

5 to 10 second spots… VERY captivating for the shopper

Content development complex • Acquisition/ re-purposing• Talent acquisition• Digital rights

Future: digital libraries – standard content• DIY for shoppers - Menus, patterns, building plans


ContentContent

Attention grabbing Pertinent vs. entertaining Recognition vs. recall to

better connect More promotion,

frequency

Tie active messaging to all brand points

• Demos• Shelf signage• Floor graphics• Packaging • Associate program –

educate them on the message

• Retailers own overlay programs – Hispanic, Health & Wellness, Trend


A Number of Important choicesA Number of Important choicesDimension Basic RMN Advanced RMN

1. Network Option Wired Wireless2. CVA’s (#zones) Digital Dept’s only (Consumer

Electronics)15-16 food/non-food departments & Promotional Space

3. Device Options Single Display type Multiple device platform (Broadcast, narrowcast, 1:1 Shelf edge tablet or cell phone/PDA)

4. Content Goals Attraction & Promotion Callout Branding, Product CalloutService/Support Information

5. Content Acquisition 70% Retailer provided 70% Advertiser provided6. Network Configuration Single Store Server Central Server7. Applications Content Management only Content management plus

business intelligence8. Network Operations Primarily internally managed Generally outsourced to

Solutions Provider9. Capital Retailer sponsored/funded Shared Cape with outsource

provider10. Retailer Profit Model Budgeted Expense/Cost

ReductionStrategic Profit Center


Retailers Can Ramp Up TheirRetailers Can Ramp Up Their CVA’s Over Time CVA’s Over Time

Initial Final

# of

CVA’s

25

20

15

10

5

Big Stores – Hypers,Club stores

Medium size (ChainDrug, Supers)

Small box (c-store, Value discounters)


RMN’s face numerous challenges RMN’s face numerous challenges Shopper Adoption

Understanding –.

Measurement –

Advertising agency readiness..

Advertising Sales Force

Media Plan Integration


Most Important – Shopper Acceptance! Most Important – Shopper Acceptance! What We Know About Today and the FutureWhat We Know About Today and the FutureWhat is currently measured is

aggregate Viewer-ship

• Gross impressions• Department traffic

View Times Recall Attitude

• A good thing to offer customers• Informative• Entertaining• Provides relevant advertising

These are sorted by • Aggregate• Demographics• Selected CVA’s - Interactive Usage

What may be measured in the future

Retail GRP’s• Data synchronization with

traditional media planning tools

• Whatever tools metrics that planner uses

• Predictable reach & frequency Copy optimization – how to

optimize the message for retail

Frequency Respondent level data –

enable aggregate and segmented analysis

• Demographics, CVA’s


Consumer Response is ImpressiveConsumer Response is Impressive

Viewership From 35.8% viewer-ship 120 million gross impressions

per 4-week flightView Times Duration/viewer Growing! % of time viewing 14%Recall Unaided 42% Aided & Unaided 65%

Attitude

A good thing to offer customers84%

Informative

80% Entertaining Provides relevant

advertising78%


Qualitative Shopper FeedbackQualitative Shopper Feedback

“Do not interfere with me getting shopping done- if you get my attention fine, but don’t get in the way”

• Highlights prevalence of precision shopping and need to incorporate in-store navigation

Provide more relevant, useful and practical information in terms of better navigation assistance and product information.

• Makes sense given shoppers time compression they appreciate concise, clear and to the point information,

Provide new/unique entertaining advertising content that fits me and the shopping environment, rather than a recycle of what I can see at home on the television.

• Content counts: Make it new, make it interesting Provide a blend of content that makes the store environment more

relevant and feel like my store. • Make it local. … community news, weather, announcements, sponsorships,

initiatives, etc


Measurement: Measurement: Advertisers Want Balanced ScorecardsAdvertisers Want Balanced Scorecards

Goal: Accountability through consistent measurement – impact on cases & equity Measurable value vs. alternatives

• Advertising/brand development scores• Retail execution (in store media forces execution)

Brand AdvertisingMetrics

Trade Spend Metrics

BalancedScorecards

Impressions (CPM)RecallReach & frequency

Retail ExecutionCases (Sales $)

Brand Equity P&L’s – Customer & Brand


Funding: Shopper Marketing FundingFunding: Shopper Marketing Funding

EquityAdvertisin

gShopper

MarketingTradeSpend

Re-purposed and/or reduced

Retailer A

Retailer B

Retailer C

Retail D

Reporting

Mining


RMN’s face numerous challenges RMN’s face numerous challenges Shopper Adoption

Understanding –.

Measurement –

Advertising agency readiness..

Advertising Sales Force

Media Plan Integration


RMN ForecastRMN Forecast

Some form of a RMN will be right for up to 65 major US retailers covering over 100,000 U.S. stores(2004)

• This is based on a combination of factors including scale, consumer traffic, retailer marketing orientation and product strategy, and growth viability.

• There will be many more attempts – unlikely successful outside of these 65

Once fully installed there will be over 1,100,000 CVA’s. In the US, RMN’s will provide consumer impressions greater than

all but the largest television networks using the most conservative estimates. The reach is impressive, repeatable and measurable.

Advertising revenue will reach $3.3 Billion – a major revenue opportunity for these retailers and third party providers yet still less than 10% of the top advertisers annual media spend.

The capital investment required to support this system is in the magnitude of $2.5 Billion. This will require greater commitment by retailers or capitalization of third party providers.

ROA will always be a focus – and plans will change with the returns


Retail Media Forecasted Penetration of 9.1% Retail Media Forecasted Penetration of 9.1% for at the highest levels of participationfor at the highest levels of participation

Retail Media Forecasts represent a small portion of the total TV (broadcast and cable) Industry

Advanced and Intermediate Networks represent 4.7% penetration

Source: AdAge 2005 Adfacts$60.7B


Summary & ImplicationsSummary & Implications

Environment for brands weakening while traditional media weakens faster

Retail market changing… important distinctive strategies among retail leaders

On-going Brand Enrichment critical• Shopper insights• Brand Guideposts• Organization• Communication platforms

Retail Media Networks one of many in-store options• Has some real advantages• Retailers have some real choices – network configuration

RMN’s face some very real challenges • Adoption• Profit-ablilty/ROI• Measurement


Summary & ImplicationsSummary & Implications

Retailers will form business units to manage their marketing options – including RMN’s/In-store TV – to both monetize their traffic AND to improve own marketing spend/effectiveness• Retail Media Networks/In-store TV will be a big part of the

market• Winners will find a way to test and re-fine before they scale

any model • Retailers will capture about 50% of the marketing capacity

on their platforms • Revenue streams could grow to 5% of typical large scale

retailer Success is not about technology – its about getting

business model right


Thank you …. Questions?Thank you …. Questions?

Retail Marketing Models… On the Brink of Change

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