BOGOF losers?

A BOGOF sold for £10, with a supplier Gross Margin of 50% and Net Margin of 10%, refunding the retailer's margin, can lose the supplier £5.50 per BOGOF !

See example above, where the supplier has agreed to replace the retailer’s margin on the free item in a BOGOF.

Here it can be seen that the retailer continues to make his normal margin (say 25% Gross, 5% Net) on the free item.
However, because the supplier has to refund the retail margin, it can be seen that the supplier loses £2.75 on every item, or £5.50 on every BOGOF sold on promotion.
Sure, the promotion will create excitement in store, but will not only damage brand equity, it will also lose money…

P.S. If you want to discuss the BOGOF application to your trading termstion, drop me a line on bmoore@namnews.com

...but I don't need Authority!

Powerless President job-interview (divine inspiration)

Pic: Reuters/ Jason Reed

Walmart - The ultimate destination-category?

News that Walmart are attempting to complete the cradle-to-grave loop by becoming a category-killer via the provision of coffins and other funeral requisites is bound to cause grave concern to the traditional trade, who will apparently rely upon 'the personal touch' (seems like a stable-door job, given the state of the user?) to bridge the price-gap between their services and the Walmart Way....

Have a lively weekend, from the Namnews Team!

Tesco Bank - no contest?

Just picking on points in a Guardian article yesterday (a compelling template!), shows why traditional banks are going to experience a major wake-up call, and will be forced to 'get it' by a customer-focused shopkeeper, doing everything they don't…

• 'We do not need (Northern Rock's customers or brand)'
• plans to build a new full-service bank offering current accounts, mortgages and, in time, small business banking facilities
• it is likely to charge a small monthly current account fee and offer Clubcard loyalty points for those using its debit cards
• "We have a great brand and a great relationship with our customers"
• "we have stores where there are lots of people"
• (Tesco) could cash in on the upheaval coming to the bank sector as customers reassess what they want
• "Our competitors will be busy looking inwards when we are looking outwards."
• "There is a real gap in the market to look after customers in a simple straightforward way and reward their loyalty,"
• "In financial services, being simple and straightforward is not common"
• What bank customers want is "to be treated like grown-ups"
• "We have got to make money, but let's do it in a transparent way."
• (Tesco) do not want to punish account holders who "make the odd mistake" and go overdrawn by accident
• Neither do they want to copy the traditional banks' "sneaky ways of imposing charges"
• The retailer intends to mine the information it holds on its Clubcard database to pull in new customers for the bank
• "When we have the UK established, we will try and do financial services in all our markets"

In other words, if Tesco even get this half right, combined with their 'boxes' efficiencies, then traditional banking had better be afraid, very afraid….

Government extension of the Trade Credit* top-up

As you know, when insurers began to withdraw credit insurance for troubled retailers in April 2008, the government introduced in the April 09 Budget a top-up insurance scheme to restore full insurance cover to retailers that had had insurance reduced or withdrawn. They backdated this to October 1st 2008, meaning it applied to those retailers getting into trouble after that date. However, retailers want the cover extended back to April 08 in order to include retailers that suffered from credit insurance withdrawal from that date.

While the politicians and retailers negotiate a 'win-win' vote-retrieval solution, suppliers need to explore the extent of their credit risk by calculating the incremental sales required in the event of one or all of such retailers going bust…see www.kamcity.com/namcalc for details, but a back-of-envelope job will reveal that a supplier making 10% net profit on a retailer that goes bust owing £150k will need incremental sales of £1.5m (in this market!) to recover the lost profit. If you deal via wholesalers, and their retail customer goes bust, they need incremental sales of £15m....

* Credit insurance or trade credit insurance (also known as business credit insurance) is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. Credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy. Trade credit insurance is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. The costs (called a "premium") for this are usually charged monthly, and are calculated as a percentage of sales of that month or as a percentage of all outstanding receivables.

Credit insurance insures the payment risk of companies. Policy holders require a credit limit on each of their buyers for the sales to that buyer to be insured. The premium rate is usually low and reflects the average credit risk of the insured portfolio of buyers.

US Paper Seeks Pot Correspondent

News that a US newspaper has received well over 100 applications for the post of retail marijuana critic, many of them offering to work for free (!), makes one realise why the retail press carries so few adverts for Marijuana NAMs and KAMs…a job in a lifetime, where large size of territory can be a virtue, with its longer trips a bonus, store-checks a delight, competitor cross-check/sampling a must-have, sales target achievement positively addictive, and minimal problems with over-stocking, buyer appointments, brand loyalty and repeat purchase….

Only problem is the need to complete the 'paperwork' before amnesia kicks in…

Seriously, fourteen US states now allow the sale of some sort of medical cannabis. States like Colorado and California, where medical use is legal, have seen an explosion in the number of pot shops - ranging from upmarket clinics to dingy drugs dens.

The dispensaries sell more than a dozen varieties, from White Widow to the less expensive Afghan Gold Seal. Some cost up to $130 (£78) an ounce. But the marijuana critic is expected to focus on the dispensaries, not the drugs.

"Compensation will be meagre," says the posting. It says the paper can't pay for marijuana purchases, "although that would be pretty cool."

Have a dreamy weekend, from the Namnews Team!

Pack size reductions and the consumer, the short-change perception….

Recent press reports re pack-size reductions whilst maintaining shelf-prices raises several issues:

• By the time mainstream media pick up the problem the damage has been done…
• Consumers' criticise-praise ratio remains 10-1, when 'telling a friend'
• Never underestimate the consumer's ability to spot a downsize of a regular purchase
• 'Healthy eating' Telling them that content-reduction without price reduction is in the interest of healthier eating insults the intelligence of a savvy consumer, and can alienate the junk-food shopper...
• Consumer need: Telling the consumer that 'content reduction without price reduction' meets their need ignores the fact that a given-quantity-for-a-given-price represents the consumer's view of 'value for money'. Anything less for the same price, especially without explanation, can represent 'short-changing'...
• Consumers do not distinguish between imported vs. locally produced goods, unless importation is offered as a cause of higher prices...
• Perception, rather than fact remains a major driver of purchasing, especially in FMCG marketing
• When an explanation is required (like from day one), why not refer to the fact that 4 years of rising costs without a shelf-price increase has forced suppliers to reduce pack size to maintain shelf prices?

Cynical? Then think what the consumer has gone through in the past couple of years, from all sides……

Political Retailing in Times of Unprecedented Change?

As we continue to undergo fundamental political change worldwide, the impact of politics upon retailers and retailers influence upon political change is becoming a more important factor in supplier-retailer relationships. Moreover, the political climate is changing in ways that complicate the supplier-consumer relationship. These changes include the significant step forward in the development of the EU following the ‘yes’ result in the Irish vote on the Lisbon Referendum, continuing fall-out from the UK MPs’ Expenses scandal, a complete loss of confidence in the banking system that is seemingly obvious to all but the banks themselves. Incidentally, this resulting loss of consumer loyalty will become more obvious as Tesco banking begins to gather momentum at the expense of traditional banking, everywhere….

Given the resulting challenges to consumers’ ability and willingness to spend as economies everywhere attempt to pull out of the global financial crisis, it is perhaps useful to explore the growing political influence of retailers on the provision of consumer choice in their markets.

The focus upon consumer-shopper need-satisfaction
Given their sensitivity to consumer need and their ability to respond rapidly and cost-effectively to consumer-shopper behaviour, using insights derived from their intimate knowledge of their target audience in terms of name, address, income, shopping behaviour, hobbies, family circumstances, financial exposure and state-of-health, it is obvious that the retailers are evolving a powerful marketing tool.

For instance, Tesco’s Clubcard penetration of over 50% of UK households, measuring 45 pieces of data on each product, and with an additional 12m members in Ireland, Poland, Slovakia, Thailand, China, Malaysia and South Korea means that the retailers are moving way beyond the collection of basic numbers in their use of deepening insight into consumer behaviour as a basis for focused need-satisfaction. This constant attention to the meeting of consumer need, coupled with a determination to encourage repeat purchase as proof of need-satisfaction, can build a degree of consumer loyalty that can only be envied by those in political power.

If politics is meant to be about bringing about willing change in citizens’ behaviour, it could be said that retailers have more political power than the politicians…

Retailers impact upon consumer and economy
Anyone doubting the potential influence of retailers should bear in mind their ability to exercise real political power in two ways, direct influence on the consumer-shopper in-store, and via direct impact upon the economy.

In the current economic climate, they can use price, the ultimate persuader, to modify the entire value-set of individuals, whilst they can directly affect the economy via their leverage in terms of influencing, and even controlling inflation, the balance of payments, direct employment of significant numbers of wage-earners, and especially their ability to control access to in-store traffic-flow. For instance, their impact on shopper behaviour can be seen in the way they have responded to shoppers trading down in their purchases of top-end toiletries, and embracing quality private label as household budgets have come under increasing pressure, all without negatively impacting retailer profitability.

Specifically, doubters should reflect upon retailers’ track record in unilaterally dismantling restrictive and out-of-date legislation in the EU and UK relating to limited shopping hours, Sunday trading, Resale-Price-Maintenance, the Net-Book-Agreement and the provision of banking services, in recent years.

Even if it takes a few ‘failed’ legal cases and prosecutions to make the point that a particular law has passed its ‘sell-by’ date - so be it; especially when the publicity resulting from a £1,000 fine not only reinforces their image as the peoples’ champion, but would probably cost more than £250,000 via prime-time TV in the real world.

Real political contact
Meanwhile, whilst politicians attempt to sway the public every five years via direct dialogue in the run-up to elections, a retailer manages to persuade most of the population to come to a store and pay hard-earned cash for ideas, sometimes several times a day, in unprecedented economic conditions.

Whilst they may have slightly different perspectives in that retailers see store traffic in terms of consumers and shoppers, and politicians see voters carrying shopping baskets…the potential for influencing change via shopping behaviour soon becomes obvious to both sides. And bearing in mind that all voters are shoppers, whereas not all shoppers are voters, ‘captive’ store-traffic can represent a fruitful target and potential source of votes for a political party…

So what if retailers are effectively running the country? Perhaps suppliers should be more concerned about the possibility of the politicians upping the ante on trade funding by competing for access to the consumer-voter in the aisle….