How retailers react, and what you can do about it
In an economic downturn, retailers react (just as consumers do) on the news of a potential downturn. As soon as they see consumers pulling back in fear, they do not take a leadership role, but rather they start looking for ways to minimize risk. Guess what the outcome is? A downturn. But that doesn’t have to hurt you, if you sell through them. It can actually be the best time to strengthen your position and sales.
Let’s start by understanding what retailers do when they start to fear a coming economic slowdown. The first and most obvious thing they do is put together a plan for pulling back rather than looking at how they might take control and make themselves the leaders now and after the downturn. Much of what they do is self-destructive and also harms the marketers selling through them.
From the top down comes the order to cut costs, extend payment schedules (whether or not they actually negotiate longer terms), reduce in-stock inventories and increase special orders as a percentage of total sales (if they even offer such services), pressure their marketers to offer promotional discounting (that may or may not be passed along to end-users), become tougher on asking for other promotional allowances, and (occasionally) create new ways to get money from marketers without ever having to sell product. That’s ugly. But it’s the environment almost anyone selling through retail has to face.
In making these cuts and “innovations,” they typically reduce the knowledge levels of their sales staff (the higher-paid people usually get cut first) and reduce the selection of product, despite the fact that broad selection is one of the most important things customers expect from a retailer.
Then they usually put even more emphasis on “store brands” that make them the exclusive place to go to get them. This usually doesn’t have much real effect upon store traffic, but it does steal sales from their branded products (and makes for bad relations with the marketers who sell through them).
All of this is “functional” innovation that they do in an attempt to make themselves “leaner” and more attractive to customers. Most of it backfires. That’s why retailers are in such a mess today. Unfortunately, most brand marketers have allowed themselves to be sucked into the trap of relying upon retailers to “sell” their product. So when tough times come along, it’s time to stop being lazy and start thinking strategically.
So what can you do when faced with this? Firstly, get excited. This is an opportunity to make great gains for yourself both in overall sales and in gaining long-term support from your retailers. It may even force you to innovate in ways you never would have without this impetus.
Assuming that you have not given up on retailers and have decided to take distribution into your own hands (a decision that many smaller marketers are choosing), there are many things you can do that will help you now and also after the economy improves.
Here are just a few ideas –
Innovate to address the core needs of the retailer:
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Retailers want more customers in their doors. They don’t want to save money – that’s their desperation move. They need traffic. And they want it to stay in the store for a longer time period. (For every minute a customer is in a store, their average purchases increase geometrically.)
· Create ways to drive more customers into the doors of those retailers who have given you (or commit to give you) extraordinary perks in their stores. We have had great success in getting otherwise ruthless retailers to dramatically reduce the demands placed on a marketer who drives traffic into their stores. This can be done through marketer-sponsored ads that
· Don’t forget “dealer listing” ads. They have been poorly used by most marketers in the past, but they are a great value to retailers. List one retailer per ad, not 20, and make it appropriate. (We used this to great advantage by placing billboards listing one retailer across the street from a competing retailer who would not support our efforts. The next year, the recalcitrant retailer got “on board.”)
(This is a “Satisfaction” innovation.)
- Retail buyers want to be “heroes.”
· Using the ideas above, make your buyer the hero to be able to offer what top management really wants. (In some cases, we have had to go around the buyer to the VP or even the CEO level, where those benefits are recognized and supported. We’ve never had a buyer stay angry about that after his boss told him how excited he was with what was being offered.)
· Offer an exclusive on a new product to your buyer at a key retailer from whom you want to get a greater commitment. It can even be a re-packaged older product, but it will often represent a value to them.
(This is a “Significance” innovation.)
Innovate to go beyond your retailers:
Don’t allow yourself to be limited by the short-sightedness of your retailers. Sometimes, they don’t want to be helped by their brand marketers. You don’t have to stop selling through them to make yourself stronger and to increase your sales. For instance…
- Build your brand’s influence.
· Don’t count on retailers to sell your product. If you are going to work through them, only allow them to be the place customers go to get it, not the place to learn about it. The result will be immediate and future influence, which equals greater retailers support. (Remember, retailers want to have products that attract customers. Make yours their lead attractor.)
· Make sure what you are “selling” is what customers really want. (Beyond the obvious things they tell everyone, discover what they really wish they were getting.)
· Start to drive higher customer expectations. Once you understand what customers wish they were getting, you have the key to driving higher expectations. If you innovate for “Significance” and “Satisfaction,” you will become the most influential brand.)
- Find ways to make your product available in more places. There are more places to sell product today than every before. The internet has become just one new way to expand the availability and influence of your product.
- Go in the backdoor to increase sales through your retailers. Many retailers offer online sales, so you could easily use your product’s website (and other information venues) to lead customers to retailers who have given you extraordinary commitment.
These are only a few ideas that have worked to overcome the resistance retailers put up. The fact is that once end-users get past the initial time of holding back as fear of a downturn is created, they want to buy the products that will address their satisfaction and significance needs. Retailers may stand in the way of you getting your product to those customers, so do what is needed to attract customers to what you offer.
If you combine that with innovating ways that make your retailers see you as they path to greater satisfaction and significance, you will be far stronger on the back side of a downturn than your competitors are.
I have been doing a lot of informal research and watching the business news pages, and the evidence for why you don’t want to be in the middle is everywhere. Mercedes dealers (at least those who were strong dealers during the good times) are either even or ahead of last year, while almost everyone else including powerhouse Toyota is having a tough time. And that’s not because Mercedes customers are wealthy enough to not worry about the economy. Their real strength has been in customers trading up from other cars to buy a Mercedes, especially the new “C” Class. Toyota, on the other hand, is seeing sales slide downward, not just in total numbers but also thrugh trading down from their best-selling Camry to the Corolla.