Reduced value packs - how it sounds to the buyer….

Given the latest Which? report showing that household brands are disguising price increases by reducing pack sizes by up to 25%, and sometimes adding a price increase, NAMs may prefer to raise the issue with buyers upfront, rather than be forced to go on the defensive when the customer makes it an agenda item…

S:     Just to let you know, we have managed to minimise the shelf price increase. We are recommending an increase of 6%
B:    …and keeping the pack contents the same?
S:     Well, not exactly… We are actually reducing the pack size by 15%.  Our research shows that the consumer won’t even notice…
B:    Hang on a second. There are a lot of savvy consumers out there, and they are even more value- conscious in the aisle…given all the price comparison tools available… and we even encourage the process instore. Are you guys doing the right research?
S:     As champions of the consumer, we are very sensitive to their needs…
B:     In reality we like to think that the consumer-shopper regards us as their champion, and given the latest Which research, they seem to need our help..
S:     Well, as joint-champions of the consumer–shopper, we feel that  the new pack represents good value for money..
B:     So, let’s take your 750g pack, currently retailing at £3-25, giving us a margin of 18% i.e. cash of £0.585 . This gives the shopper a cost per 100g of £0.43.
Reducing the contents by 15% increases the cost per 100g to £0.51, an increase of 18.6%!  Suppose we add your proposed 6% price increase, this makes the new retail price £3.45.
On a price per 100g of £0.54, that makes it a total price increase of 25.6%.  And you think they won’t notice?
S:     But the consumer doesn’t think like that..
B:    We believe it gives us a competitive advantage to help them think like that, which is why we are putting the price per 100g under every shelf price…
S:     Well, other members of the category are experiencing the same ingredient cost-pressures so they will have to follow our lead…
B:    As you may have noticed, our private label has a 20% share of category, and we have not seen ingredient cost increases of anything like 15%.. and besides, your competitors have not moved yet…
S:    But if you raise your shelf prices on our brand by our recommended 6%, you will generate additional margin of ...
B:   You don’t get it. The sales of your brand are going to fall, making even less money for both of us, thereby diluting our category margin…
S:    Perhaps you could lower your shelf-prices to maintain rate-of-sale….?
B:    Presumably you will compensate me via increased margin?
SuperNAM:    I hadn’t  actually factored that in…
Buyer:               Byeeeee…..

Adventures of SuperNAM (18)

Knowledge of football is a myth in sports gambling success

In a new study of football forecasting, the researchers compared the betting results of three groups of participants, including 53 professional sports gamblers, 34 soccer fans who were knowledgeable about the sport but had never gambled, and 78 non-gamblers with no prior knowledge of football at all. All participants placed bets on the final scores of the 16 second-round matches of the Champion's League, organized by the Union of European Football Associations.

No difference was found in the results of the most experienced sports gamblers, the most knowledgeable football fans, and the totally inexperienced. Two of the least knowledgeable actually made the most money betting....!

How does it affect the NAM?
Given that NAMs often have to take a ‘leap in the dark’ when dealing with major customers, like forecasting coupon-redemption rates in uncertain times, the role may sometimes feel like high risk gambling. In other words, it may seem that playing by ear can be just as successful as a deep understanding of the customer when predicting outcomes…, according to the football research above.

What makes the NAM role different?
In practice in the NAM role, we need to distinguish risk-taking and gambling. Risk-takers would not pass a car on a hill or a curve, nor blindly go into a business venture. They assemble the facts and evaluate carefully from every possible perspective the chances of success and the benefits which go with that success.  They understand  there are no guarantees and that the possibility exists that they could lose (Zigler/Sully).  Nonetheless, they recognise that the possible gain is so much greater than the possible loss that they deem it appropriate to take the risk.

Gambling is a far more hazardous undertaking, with the only long term winner being the person accepting the bets.

The only difference in these unprecedented times is that we are operating with deeper downsides, requiring numbers-based latest trade and customer insight in order to assess how much risk we are actually taking.
But nothing replaces the need to then take the risk…. 

NB. For those wanting more insight on how to shorten the odds, it also helps to distinguish Risk Intelligence, a purely intellectual ability, from Risk Appetite, an emotional trait, more to do with how comfortable you are with taking risks. Risk Appetite governs how much risk you want to take, while risk intelligence involves being aware of how much risk you are actually taking… ( More )

Exorbitant hidden charges 'could be consigned to history' by new up-front legislation...

The popularity of price comparison sites has influenced firms to highlight low headline prices, forcing hidden extra costs 'underground', into the small print.

In a new report by the Law Commission, cited by The Telegraph, reforms, along with airline pricing, could also affect mobile phone contracts, cancellation charges for weddings, payday loans and estate agents, with courts able to intervene to stop any unfair hidden charges.  In practice, an attempt by the law to frustrate the hit-and-run marketing tactics of those who do not understand the laws of repeat-purchase...

In other words, the law will try to put true like-with-like price comparison 'on-the-tin', theoretically making it easier for the non-savvy consumer to make an informed choice at the point of purchase...
However, the super-savvy consumer will appreciate that the ultimate responsibility still remains with the person paying the money, and remains unwilling to outsource the purchasing decision to marketers and retailers ever again.
In addition, the meat scandal has shown that even on-tin descriptions are no guarantee of the ingredients within...

While the Law continues to seek a one-stop solution to betrayal of trust, there has to be an opportunity in the marketplace for suppliers who are prepared to break ranks with 'normal industry practice' strip their offering down to basics, and strive for clarity in helping the consumer to satisfy a need via their combination of Product, Price, Presentation and Place.

Being 'in the business' such suppliers are in a position to identify where all the bodies are buried,  understand how easily the consumer is deceived, once, and can focus on formulating  a trust-based offering that truly does what it says on the tin.

This honesty will obviously result in a shelf-price in excess of 'less-honest' competing products in the category, and advertising would need to focus on explaining the difference. In effect, the supplier is thus creating a category bench-mark in the brand, educating the consumer on what they should seek-and-compare in evaluating available alternatives...

However, the consumer is still left with, and should retain, the ultimate responsibility for the decision-to-buy. The supplier simply facilitates the process, and relies upon the resulting 'tell a friend' endorsement to grow the brand, like in the old days...

What if:     Airlines sold paint

Cyprus Bank Robbery?

Settlement discount - how to negotiate earlier payment

Given the news that HMV and Blockbuster 'owed £490m' to creditors when they collapsed after Christmas, it is important that suppliers attempt to reduce credit periods in unprecedented times. Calculating and explaining the financial benefits of an appropriate discount for earlier payment therefore becomes a required skill in the NAM role…

S:   Given our need for reduced exposure, coupled with your constant requests for lower cost prices, we may be able to help each other out…
B:   Agreed, but I don’t see the exposure on your side? We are one of your biggest customers…
S:   So was HMV in the home entertainments category, yet they went bust ‘overnight’ leaving suppliers to find incremental sales of £4.9bn to cover losses of £490m!
B:   ??
S:   Another time…let’s focus on our trade partnership. As you know our annual sales to you are £14m, and you pay us in 45 days net.
B:   Those are our standard arrangements for all suppliers
S:   Let’s just focus on you and I…. Given the global financial turmoil, our company would feel more comfortable with 25days credit, a reduction of 20 days, and we are prepared to pay to reduce that risk…
B:   How much?
S:   Great you find it interesting… Let me work you through the calculation…
B:   Convince me…
S:   At the moment you pay us 365/45 times a year, i.e. 8 times a year, meaning you owe us £1,7m at any time… (i.e. £14m/8 = £1.7m)
B:   So?
S:   We want you to pay us 365/25 times a year, i.e. 14.6 times a year, meaning you owe us £0.96m at any time…(i.e. £14m/14.6 = £0.96m), a reduction of 20 days
B:   We would need a big discount for 20 days…
S:   I thought the same, until I worked up the numbers.  Let me show you…
B:   I have another meeting in five minutes..
S:   Won’t take that long. At 45 days you owe us £1.7m, and at 25 days the amount you owe is £0.96m, a difference of £0.74m
B:   Like I said, I’m busy…
S:   Say the cost of borrowing is 9% interest per year, so the cost of borrowing £0.74m for a year is £0.067m
B:   Where is this heading?
S:   I am trying to show you how little you need off invoice to beat 9% interest on your money…
B:   OK, another minute…
S:   That £0.067m represents 0.5% of our annual sales to you i.e. £0.067/ £14.0m x 100 = 0.5%
B:   ??
S:   In other words, 0.5% off invoice is equivalent to an interest rate of 9% per annum on your money!
Buyer:             Run that by me again?
SuperNAM:    No problem, and I’ll leave you a couple of slides to talk it through with your finance guys…

Adventures of SuperNAM (17)

What if: a restaurant was run like a supermarket?

Suppose a major multiple decided to apply state-of-art principles to the Horeca sector, using expertise in space management, offering optimisation, efficient service-level and money management to bring something extra to the food service industry…

Space management:
Calculation of sales and profits per sq.ft. means converting annual sales into table footprint like a supermarket gondola, with spaces between tables treated as aisles. In other words, the total sq.ft measure of all tables divided into annual sales would give sales per sq.ft. of ‘selling area’.

Reducing the space between tables would increase selling intensity, with customer comfort and relative privacy a trade-off against increased productivity…

The offering:
Diners would need the equivalent of ‘shopping the aisle’ via a more interactive menu. In other words, it would be apparent that flowery descriptions of menu-ingredients, albeit in franglais, would then seem inadequate, as currently conveyed. However, the temporary provision of an ipad for each guest, listing available dishes, complete with provenance, attractive illustrations pitched at levels that would manage expectations, updated ‘live’ to match kitchen availability, would help in meeting diner need. Unforeseen demand-spikes would obviously trigger emergency deliveries from just-in-time suppliers. The addition of ‘ideal world ‘ needs and other personal details would aid the addition of award points and service improvements, thus providing a basis for follow-up marketing to satisfied guests.

Service level:
The ipad would also help in minimising waiter numbers (virtual self-service?) by allowing guests to place orders directly with the kitchen, with ‘are we there yet?’ queries answered regularly via text updates…(with a suitable app designed to delete expletives, as necessary...).
Meanwhile, live video coverage of the kitchen would facilitate on-going observation/monitoring of the cooking process where so required by anxious guests…Discretionary on/off soundtrack would protect sensitive guests in the event of sudden outbursts of ‘over-excitement’ by the chef/s…

The money:
In terms of pricing, the ipad would provide full details on pricing, by ingredient/unit, per chair, and full table, with a running total monitoring impulse bottles of wine and other add-ons. This ongoing build-up of the 'shopping basket’ would provide invaluable insight to restaurant management, enabling lighting and heating levels to be related to rate-of-sale and adjusted accordingly.

Tables could be priced according to popularity, size, position, degree of privacy and of course discounted via advance-booking…  At the end of the meal, payment could be made in a check-out area, thereby freeing up the table so much faster for the next party.

Finally, a discrete scanner would then ensure that the number of guests attempting to take home the 'menu' as a souvenir, would be minimised...

Impossible, or food for thought?

What if: Airlines sold paint?
What if: Orchestras were made efficient?

Showroom retailing with a difference - you try on clothes in store, but must buy online...

At the Bonobos Guideshop in Washington, D.C., visitors can sip on beer while they try on clothes for size, but they can only purchase by placing an order on the website. The clothes are then delivered for free within two business days.

Target audience: 
The try-before-you-buy strategy is ideal for men who want to look good but hate shopping. Shoppers who book an appointment at a Guideshop - and there are only two appointments an hour, so the shop is never crowded - are greeted by personal shoppers who hand them a beer and guide them to well-fitted clothes, with the benefits of trying-on outweighing any disadvantages

Inventory economies
From the traditional retailer's point of view, where it's very difficult to get the right sizes for each location, the Bonobos model means nothing is out of stock at a store unless it's out of stock companywide. In other words they are able to deliver the same productivity with a fraction of the typical inventory investment

Other trying-retailers emerging
Online eyewear dealer Warby Parker and Gap's Piperlime Internet label have been opening up physical locations for consumers to try on the goods, and Amazon CEO Jeff Bezos plans to open stores, where customers can check out the Kindle line. It's all an attempt to ride on the $150 billion-a-year in sales success of Apple, whose hands-on-centric stores changed the focus from buying to trying.

Bonobos opened up its first Guideshop in May 2012 in New York and now has locations in Chicago, Boston, San Francisco and D.C.. Five more are planned by the end of the year.

The trying future?
It is easy to dismiss the Bonobos approach as one-off, but think why consumers visit shops -trial-  and then eliminate all the elements that do not directly contribute to that process, allowing retailers to really concentrate on enriching the experience, with no distractions...welcome to the new world of ultimate shopper marketing?

More detail and video here 

Tesco to buy Giraffe restaurants for £50m - a long neck stuck out for space-synergies?

Rather than a case of Tesco taking a risk in the search for incremental on-premise consumption, or even to increase store ‘temperature’ in and near the store, this move* should be seen as a way of creating space-synergies in relatively expensive retail real estate. In other words, if the most difficult strep in retailing is getting consumers into the store, it follows that a retailer should then attempt to sell anything that can be legally sold to shoppers.

This latest Tesco initiative will complement rather than replace existing in-store catering and only work if it succeeds in holding people longer in store, and the combination of food-service and retail sales produces incremental profits.

Dilution is not an option.

In practice, the space given to in-store consumption will have to be subjected to the same space productivity KPI of £1,000 sales/sq.ft./annum as the rest of the business, a move that will be watched carefully by those departments that have to sacrifice space to accommodate the new venture. Again, a net profit of at least 5.9% i.e. £59/sq.ft./annum will be a base requirement in order to avoid dilution of overall Tesco profitability.

The pursuit of these numbers (a first for HORECA?) will cause Tesco to examine and refine the on-premise consumption model. They will then search for cost savings and improved efficiencies from mouth-of-consumer all the way back to the green fields. This means better buying through to optimised service of consumption-needs within a store-café…with the added benefit of complementary sales for home consumption.

Experienced Tesco-watchers will know that Giraffe was not an impulse-purchase...

A lesson/warning for horeca owners everywhere?

For retail brands’ suppliers that also provide products in food services, it means harmonising the entire package of prices, terms and service levels, to the standard of their traditional Tesco business…minimum.

Moreover, the latest meat scandal will add ingredients-integrity to an already complicated package…

In terms of knock-on, these moves will add pressure to traditional food services suppliers that have never had to deal with the Big Four…and those in doubt should check out trade funding and deductions, for a glimpse of the New World…

Finally, for multiple restaurants and café players that feel they have little to fear from a grocer entering the battle-for-mouths, or who believe they could deal with this naïve 'competitor' by wringing its neck like a chicken, may we advise caution by paraphrasing the response of a similarly under-estimated player of the Forties: ‘Some neck, some chicken….’

On balance, it could be said that a neck is being stuck out, the only issue is whose…. 

* The Daily Telegraph