Thursday, 21 August 2014

Having had your lunch, Lidl are coming for your clothes…

Having taken a slice of the multiples’ action - including some top-end delicacies- and dipped their toe into the rag trade via basics like underwear, vests and childrens’ wear, Lidl have moved into what it describes as "high-end, on-trend" mainstream fashion to capitalise on its growing UK foot-print…

The unbranded clothing range – manufactured in China and Bangladesh – will compete head-on with Asda's  George brand, Tesco's F&F and Sainsbury's Tu, as well as discount clothing specialist Primark.

In doing so, they and the mults are pushing at the open door of traditional clothing retailing..

Given that clothing retailers need retail margins of up to 60% to cover difficult-to-forecast demand, especially in fashion, and to finance end-of-season 50% price-cuts, the Lidl move represents a major threat to a sector already struggling for survival.

Try matching the highlight of the collection,  "leather" jackets – two in faux leather and a biker-style design with leather piping – which will go on sale at £14.99 each, while stocks last (see pics at The Guardian),

Meanwhile, back at the branch, Lidl will attract, and keep a new stream of all-age, all income customers who will invariably be tempted to top up on foodstuffs…

Then having ‘done’ clothing, Lidl will busy themselves coming to a category near you… 

Tuesday, 19 August 2014

Why dynamic pricing is a must for ecommerce retailers

According to research via, Dynamic Pricing - a pricing strategy in which prices change in response to real-time supply and demand - isn’t a new pricing strategy, (American Airlines first introduced it in the early 80’s*), and it is currently taking ecommerce by storm..

Dynamic pricing allows retailers to lower prices to drive sales when demand is low, and to increase profits via higher prices when demand is high. 

Apparently, Amazon, one of the largest retailers that uses dynamic pricing, changes its prices every 10 minutes on average, while Walmart changes prices up to 50,000 times/month… also lists dynamic pricing tactics with examples for online retailers:

- Segmented pricing: tiered prices from value to premium

- Peak pricing: to take advantage of fluctuations in demand

- Time-based pricing: to adjust prices according to the time of day or product life-cycle

- Penetration pricing: to set a lower price to encourage trial

For suppliers, dynamic pricing has to be the ultimate match of demand with price and will succeed in terms of satisfaction as long as the pricing mechanism is seen to respond 'instantly' and proportionately to changes in real demand...

* NB Dynamic pricing needs care in application: For instance, suppose airlines sold paint?  

Monday, 18 August 2014

P&G: brand cull or category cull?

News of P&G’s intention to cull up to 100 smaller brands - approx. 10% of its revenue - in the next one to two years to focus on 70-80 of its big or ‘leadership’ brands, inevitably caused a flurry of reaction in the market..

However, now that the dust has settled, NAMs can think through the ‘small-print’ and its implications…
  • This is a cull of brands, not categories i.e. the sold-off brands will remain in the ‘over-crowded’ categories, confusing shoppers…
  • These categories - including possibly hair care, make up, shaving and healthcare - will continue to be populated by brands that are under new, invigorated ownership, by companies with a need to justify the cost of acquisitions...
  • P&G’s retained brands will have the benefits of increased resourcing and focus i.e. more competition from P&G in its ‘leadership’ categories
  • Suppliers and retailers have yet to address the possibility that the savvy consumer is confused by excessive choice....
Meanwhile, suppliers in many categories have time (?) to anticipate the new competitive landscape - Buying Mix Analysis? - in order to re-assess and optimise the relative appeal of their brands before the ‘pre-owned’ brands arrive…. 

The Wall Street Journal offers a list of possible P&G disposals here
AdAge lists the advertising agencies affected here

Friday, 15 August 2014

Is your customer worth a 90-day wait?

Although you could exercise your ‘walk-away’ rights, we all know that a customer representing 10%+ of your business is not easily replaced, especially in a flat-line environment…

The issue is whether you need to reduce the payment period to reduce exposure, i.e. the risk of a customer going bust, impact on cash-flow of an extended credit pipeline, or simply on principle i.e. a deeply-felt determination not to shoulder the working capital responsibilities of even your best customer..

If the issue is one of company principle, then the Board must be prepared to take the pain of de-listing, with the NAM simply becoming the messenger who hopefully survives the ‘walk-away’ trip…

Ordinary mortals need to focus on the cost of risk-reduction and minimising cash-flow impact…

The ‘on-time payment’ blind alley
Incidentally, forget the regulation/legislation re ‘on-time payment’. As you know, this simply states that the customer ‘must’ pay within the period agreed, be that 30, 45 or even 90 days. ‘On-time payment’ is not about paying within a defensible time-frame i.e. say 10 days for a daily-delivered product that is sold within 5 days of receipt…

In other words, if a supplier is not paid on transfer of value, i.e. when the goods are sold to consumers, then, by definition, the supplier is providing extra value in the form of interest-free credit, and this should be factored into the supplier-customer equation…

What to do about it?
Whilst you may not be successful in negotiating a reduction in payment terms, it may be possible to approach the problem in a different way i.e. via compensating concessions.

How to do it?
Having calculated the cost of financing the current credit period (NamCalc), say 65 days, vs. the cost of the ideal reduced period, say 30 days, then the 35 day difference will be the amount the supplier needs to recover from the relationship via a combination of additional low-cost, high value concessions from the buyer...

These could include ‘last-minute’ extra facings to fill unexpected gaps, temporary exclusivity, and ‘free’ use of space for in-store theatre-promos ( the mults have increasing issues with redundant space).

In order to be able to agree a fair exchange of a combination of these concessions for credit period, it is important for the NAM to be able to calculate or at least estimate the incremental sales that can result from the each initiative, never forgetting that every move creates a precedent…

The key idea is having the courage to put credit period in the middle of the table, quantify it from each party’s point-of-view, and explore different options with the buyer that may go some way towards re-balancing joint value..

Simply regarding credit-period as a fixed norm not only misses a negotiable trick, but also represents increasing risk in the current climate… 

Thursday, 14 August 2014

Where next for Aldi, Lidl and private label in the upturn?

Brand owners taking comfort in the belief that the swing to private label and the discounters’ surrogate brands (i.e. Smith’s coffee made exclusively for Aldi) is a temporary aberration due for correction in the current ‘upturn’, might lose a little sleep following the publication of new research on how consumer knowledge affects the choice of private label over national brands.

Mark Ritson gives a great summary of the paper and its implications in Marketing Week, where he notes
- Category knowledge (and the resulting confidence) is a key predictive driver in choosing private label
- ...if people are buying private labels not because they are trading quality for lower prices but because they know these products are as good as the manufacturer brands (Aldi, Lidl and private label will not lose share in the upturn).

Mark’s Marketing Week article is much more accessible, but it can also pay to go back to the original research paper for more details on OTC medicines and Pantry Staples. The paper also gives anecdotal insights such as … the welfare claims we make (for medicines) depend on the assumption that information per se does not affect the utility a consumer receives from a product. If, for example, believing that national-brand aspirin works better actually makes national-brand aspirin more effective at reducing headaches, then informing consumers could actually make them worse off…

The original paper concludes:
  • Across a range of products we find strong evidence that more informed shoppers buy more store brands and fewer national brands.
  • Consumer information plays a large quantitative role in health categories, where our estimates imply that expenditures and market shares would change significantly if all households behaved like expert shoppers.
  • By contrast, the role of consumer information is smaller in food and drink categories, where our estimates suggest much smaller gaps between expert and non-expert shopping behaviour...
    i.e. a moderately savvy consumer is likely to have more confidence in opting for private label food and drink, than medicines…
NB. The researchers emphasise that the study was limited to examining the effects of information on quantities and prices. If consumers were to become more informed, markets would adjust on other bases as well. In particular, a more informed population of consumers might change whether and how much firms choose to advertise their products, as well as which products are introduced to the market. 

NAM Implications:
For many years we have been educating the consumer to be more savvy in their choice of our brand, and have been helping them place the brand within a functionally-based category context…

Have we been inadvertently driving them at the private label/surrogate brand in the process?

Thanks to Guy Cuthbert for the pointer…

Wednesday, 13 August 2014

The Amazon KAM - A new way of Managing Major Customers?

News of Amazon’s latest issues with publishing giant Hachette and its authors, reveals the extent to which Amazon can affect markets in its aim to bring cheaper books to the public.

The row has come to a head because Amazon and Hachette have failed to agree new terms under which the online retailer can sell the publisher’s books. Amazon in turn is reducing its stock of Hachette titles and blocking pre-orders, which are vital to secure early sales and nudge a book up the charts.

For a good summary of the detail and implications, see Graham Ruddick’s latest treatment in The Telegraph.

Nothing like Amazon has happened before in terms of scale and influence. So perhaps it requires a different approach in terms of account management?

Obviously, Walmart is big and increasingly global, but Amazon has the capability of straddling the globe - albeit next day delivery might present some problems in the Amazonian jungle -, without the need for the same degree of ‘bricks & mortar’ infrastructure that would be required by a ‘walmart’ hoping to achieve the same coverage and access to consumers…

In fact, it could be said that Amazon is heading towards a 50% share of anything that can be sold anywhere, to anyone, at least…, and perhaps we should budget with that in mind?

This means that the traditional NAM/KAM model could be inadequate.

Traditionally, as you know, as in-house champions of their accounts, NAMs were seen as business managers of a customer-business-unit, often within a global context for that customer, charged with maximising sales and optimising long term profitability of the account, without compromising the company’s dealings with the customer in other countries, and with very little consideration of the impact on other  customers.

It was the job of senior management to ensure that each major customer received its fair-share of the action.

Amazon needs to be managed differently….

Whilst a company should never try to hold back a major customer’s growth in order to limit its share of the company’s business – in the current flat-line environment any growth should be cultivated – perhaps the role of the Amazon KAM & NAMs should be to not only enable Amazon to reach its full potential, but also be the in-house ‘educator’ to ensure that Amazon’s online disciplines and KPIs are applied to any other customers aspiring to compete online. In other words, Amazon standards should be used to raise the company’s total game, and to assess how trade support is apportioned among other members of the customer portfolio.

Amazon have found a way of growing in a flat-line environment and perhaps it is time for us all to learn how to optimise this new future...

Finally, it hopefully goes without saying that the Amazon NAMs should have an open-line dialogue with their Board-colleagues to ensure that immovable trading limits are set, and strictly maintained, as Amazon approaches what could be 50%+ of the company’s business… 

Monday, 11 August 2014

Short-sellers target Sainsbury's on Tesco fears

News in The Telegraph that short-sellers in the stock-market are betting that Sainsbury's share-price will fall as a result of Dave Lewis sacrificing Tesco margins to regain market share, offers a valuable insight-tool for NAMs wishing to anticipate additional pressures on the retail-buyer in the supplier-retailer relationship i.e. buyers are increasingly remunerated by share-options in their own company.

In short-selling Sainsbury's shares, the market believes that Tesco has more scope for cutting prices than Sainsbury's bottom line would allow.

As you know, short-selling is a process whereby stock-market traders bet that the share-price will fall by borrowing shares of a company, then selling  them 'short' at the current price. They then hope to buy them in the market at a lower price when it is time to fulfill the contract, thus making a profit on the deal...

The percentage of a company's shares 'on loan' in this way can be tracked (see Short Tracker) and the greater the percentage, the more shorting of the stock is going on, meaning that the market believes that the share-price will fall.

For instance, Short Tracker's details this morning on the top most-shorted retailers are as follows: (the % is the amount of a company's shares currently 'borrowed')
-  WH Smith        11.4%
-  HMV                 8.1%
-  Sainsbury's         8.0%
-  Ocado               5.6%
-  Morrisons          4.72%
-  Debenhams        3.13%

Another NAM tool to add to your repertoire!

Thanks to Richard for his persistence re this short-sell pointer.

NB. Should you be tempted to try some short-selling, it must be emphasised that the bet is on the price going down. If, for whatever reason (i.e. a sudden takeover bid) the share price rises, and the rise can be infinite, the short-seller is still legally liable for fulfillment of the contract, thereby losing the difference between the latest purchase price and the selling-price on the sell-contract.....!

NB. We wish to stress that we are in no way recommending dealing in shares, we are simply making observations re market activity in retail and other stocks in which our readers may be interested as part of the supplier-customer trading relationship.

Friday, 8 August 2014

The Happiness Formula

                                                                                                                       Source:: Andrew Sullivan

Happiness “doesn’t depend on how things are going,” says lead study author Robb Rutledge of University College London. “It depends on whether things are going better or worse than you had expected they would.”

In other words, everything depends upon setting the correct expectation level, then the numbers count...

Tesco share-price plunge - a new opportunity for NAMs?

News of yesterday’s plunge in Tesco’s share-price to a 10-year low of 243.8p represents an opportunity for those suppliers prepared to re-interpret their Tesco strategies in terms of having a direct impact on share-price improvement, surely a top-of-agenda item for both the share-optioned Tesco team and the incoming Dave Lewis.

If share price is driven by ROCE, in turn driven by net margin and rate of capital turnover, then a supplier-template for helping an increasingly receptive Tesco emerges…

Essentially, Tesco’s ROCE has dropped over the years to 8.2% and its Net Margin to 3.6%, whilst Walmart’s performance has remained at a steady ROCE 18.2% and Net Margin 5.2%, despite the global financial crisis and its aftermath.

Therefore, to restore its historic share-price, Tesco needs to raise its financial performance to Walmart levels

Suppliers can help in two areas: improving Tesco’s Net Margin and improving its capital rotation as follows:

Net Margin improvement:
Reducing Operational Costs
- Better delivery arrangements
- Easier, more economic process
- Less damaged or defective stock
- Easier handling
- More economic use of labour
- More economic use of space

Reducing Administration Costs
- Less time spent on administration
- Fewer administration tasks
- Better payment terms
- Simpler stock and order systems

Capital rotation improvement: 
Sales Volume or Value Increase
- Driving traffic and basket size
- Increasing Tesco yield i.e. sales/sq ft
- Improving quality of yield i.e. trading up

Asset Reduction
- Less capital tied up in stocks
- Less space required to stock
- Faster throughput
- Better use of spare cash
- Better use of fitments and space
- Fewer staff required

In fact, everything you are already doing, but expressed as a direct contribution to Tesco's ROCE and thereby share-price enhancement...

This direct focus on issues for a  customer currently pre-occupied with share-price performance has to represent a new opportunity to demonstrate the value of your trade initiatives and support in a way that connects directly with the buyer’s needs and wants, like never before…

...and why not throw in the fact that every £10k you invest in Tesco is worth £277k in incremental sales, based on their 3.6% margin!

Wednesday, 6 August 2014

Walgreens to complete purchase of Alliance Boots in £5bn deal

Last evenings announcement by Walgreens that they have decided remain in the US and are expected to announce shortly their decision to complete their acquisition of Alliance Boots will impact your WBAD dealings.

Their decision not to move their headquarters to the EU (tax inversion) means the time-pressure is off re acquisition, meaning that they can avail of the 6 months acquisition-window beginning in February 2015.

Remaining in the US means that Walgreens-Boots will pay corporation tax on US earnings @ US rates of 36%, probably making them subject to pressure from some major shareholders.

It also means that WBAD will have the buying muscle of 3xAB turnover….

In other words, some new dots to connect in your dealings with WBAD…

Watch this space

Tuesday, 5 August 2014

Walmart playing catchup with Amazon? Seriously?

News that Walmart are introducing personalised web pages based upon shopping behaviour for personal shoppers, represents a major leap for the Global No 1, but in reality is a mere step for online....

In other words, Amazon have set some fundamental KPIs for any player hoping to be taken seriously in the online game:
  • 1-Click: this smooth ordering process becomes addictive, especially compared with aspiring rivals. Walmart allegedly say they are reducing online ordering to 1 page.....
  • Returns: regular users know that returning unwanted goods to Amazon is easier than ordering
  • Delivery: try tracking your next Amazon order, and be astonished at the high numbers of deliveries by your driver and intense geographical density of their distribution, en route to your address...
Without matching these basic KPIs, other 'online' retailers are simply playing catchup, and I mean playing...

PS: For online rivals that match the KPIs, why not try Amazon's anticipatory shipping...?

Monday, 4 August 2014

Ethics in selling: why an ethical approach always made sense, even in precedented times!

In these unprecedented times, the savvy consumer/buyer is no longer willing to outsource their decision-making to marketers, salesmen or retailers.

In buying a product/service, they are choosing a mix of Product/Service, Price, Presentation and Place that represents good value for money. In making the choice, they are factoring in a combination of product performance and integrity of the seller.

Any short-changing by the seller automatically makes the price seem expensive - a bad deal - causing the consumer/buyer to refuse to buy, or even litigate in some cases…

More importantly, the praise/complain ratio kicks in, whereby a satisfied customer tells one  friend, whilst an unhappy customer tells ten…

Ethics, apart, it surely makes sense to manage expectation down to a point where the customer always receives more than expected, and willingly comes back for more….

Our contribution to a discussion led by Peter Ramsden on the Key Account Managers Group

Friday, 1 August 2014

Still think the global retailers are ignoring Amazon?

                                                                                       Pic: via Jayaram Vengayil, via Fabio Ferraro

Thursday, 31 July 2014

Online delivery charges - a stumbling block or opportunity for mults?

Fully-costed home delivery by the mults costing £20 vs. a £4 delivery-charge raises some issues and opportunities for suppliers and retailers

If traditional retailers want to be online, home delivery has to be part of the package.

Whilst retailers may try to shift some of the cost-burden via promotion of click & collect, there will always be a proportion of consumers that want and can accommodate home delivery. In special cases retailers may be able to charge a commercial rate but in reality they are saddled with a £4 delivery charge.

As usual, the Amazonian elephant in the room is setting online standards.

Amazon somehow appear to be able to cover the cost of delivery – possibly a combination of scale  and geographical density resulting in drivers being able to cover costs via upwards of 100 deliveries/day – albeit apparently losing money on Prime deliveries.

This appears to suggest that high-density geographical/clustered marketing may offer a way forward for the mults, offering scope for tailored promotions by suppliers.

In other words, the mult’s potential online retail opportunity is too big to miss, so any medium term delivery-cost losses will need to be absorbed by the traditional business via route-to-consumer portfolio management in order to remain competitive.

However, in the long term this cross-financing strategy will dilute overall profitability unless it can be demonstrated that scale will eventually result in breakeven on a £4 delivery charge.

Meanwhile, supplier-partners might usefully explore joint-opportunities to introduce home-delivery promotions to help defray some of the real delivery charge…. 

Tuesday, 29 July 2014

Update: US Tax Inversion moves may speed up via existing law..

Further to Friday’s blog post below, it appears that Obama may not have to introduce new legislation to prevent current and future tax inversion moves by US multinationals.

In fact, according to an article in The Irish Times, Obama could invoke a 1969 tax law that would restrict foreign companies using inter-company loans and interest deductions to reduce their tax bills. This could remove the key advantages of US companies taking over foreign companies and transferring their tax addresses to a more advantageous tax environment.

In practice, this means that companies* in the acquisition-pipeline will need to radically accelerate the process in order to avoid restrictions.

In other words, the Walgreens – Boots acquisition is now in fast-forward mode… 


* It is not clear whether  historic tax inversion companies will be impacted by the same legislation