An ROCE recipe for Dave...?

On his first day at the other side of the Tesco checkout, Dave Lewis will have no shortage of advisers explaining what has gone wrong, a few less saying what to do about it and perhaps a handful indicating a way forward…

Given that scenario, and with some humility, we offer a few pointers for Tesco and its NAMs.

Essentially, Dave Lewis has been parachuted in to restore the share price

Incidentally, much is being made of their loss of market share, but when you think that 30+% of a market seems to translate into market abuse in the minds of politicians, special interest groups and can give the public the impression that ‘Tesco are everywhere’, then perhaps allowing their share to drift down to 25% and keeping it there, would allow  Tesco to focus on growth outside the UK, whilst fulfilling the basic principle of global retailing – profitable dominance of the home market…

Improving the share price:
Given that ROCE drives the share price, then improving ROCE and its elements could provide a way forward

ROCE = Return/Sales i.e. Net Margin  x Sales / Capital Employed i.e. Capital turn
       
1. IMPROVING Tesco R/S
     -  Maintain sales (i.e. see market share issue above), cut costs via reductions in admin and operational costs
     -  Rationalise brand/Private label balance to reflect real market demand and optimise profitability

2. IMPROVING Tesco S/CE i.e. capital rotation
     - maintain sales, cut capital employed i.e. reduce Fixed Assets, Current Assets and increase Current Liabilities

Fixed Asset reduction:
- Sell off land-bank as fast as the property market will allow i.e. without crashing land prices.
- Assess profitability of existing stores, with a view to selling off those that are compromising overall profitability

Current Asset reduction: 
- Reduce stocks by rationalising  ranges and encouraging closer supplier collaboration to increase stockturn
- Reduce debtors (being a retailer, advance payments are parked in the Debtors box…)
- Cash reduction

Current Liabilities increase:
- Move to a gearing level of 30% to remove bank pressure from the mix
- Check the trade-off between extra days credit and settlement discount, and contact the suppliers

This should provide a breathing space to apply some marketing skills…

How about the NAMs?
Consider a ‘what-if’ re Tesco applying the above recipe, and assess the cost to you, and the value to Tesco of your collaboration…

Something for the weekend: Optimising price-pints via the 99 pack of beer!

                                                                                                 Youtube clip via Jake BC

Austin brewers Anytimeale website says it all: “It’s not only real, it’s an amazing deal: ninety-nine beers for $99. That’s 82 pounds of craft beer! Over seven feet of crisp, flavorful Peacemaker!”

Given the Amazonian logistics issues re getting the pack home from the store, perhaps there might even be an alternative route to consumer via some online provider?

Have another long weekend from the NamNews Team!

(Hat tip to Mike Anthony for the pointer to the Adweek article)

The Medium is the Message? (or, using a garbage-truck to re-invent a toothbrush)

                                                 Pic:  via Lars Poulsen, Birgitte Kold Ingwersen, & Eduard Hoogendijk

Marshall McLuhan caused us all comprehension-headaches in the 60’s (the bit I do remember…!) when he introduced his idea: The Medium is the Message, in his ground-breaking work, Understanding Media 

Nothing beats going back to the original (great explanation here), but essentially McLuhan was saying that we tend to focus on the obvious. When we create an idea, its main properties are obvious, but following its application, our in-use experience should cause us to look backwards and realise that we perhaps missed a trick at the time…or we did not anticipate the effect our invention would have on users, in terms of elevating their expectations..

For instance, the creators of the above truck advert were simply combining the physical characteristics of the Oral-B brush and the garbage-truck in a brilliant stroke of insight and execution.

However, if I read McLuhan correctly, this end result could cause us to look backwards at the original design of the Braun toothbrush, a breakthrough at the time, and realise that we had simply ‘motorised a toothbrush’…i.e. like making the hair of a broom rotate for increased efficiency in terms of moving dirt.

But the truck-idea causes us to see what is missing in the original design, the idea of somehow sucking up the dirt in addition to cleansing…

In other words, is there some way of sucking up displaced residue, instead of spitting the result into the hand-basin…?

Time for the Braun Oral-B guys to get in touch with Mr Dyson, or the patent-office, fast?

Request-based vs. Demand-based pricing?

Pic: Michael Ebbesen LEGO, via Mark Anderson LEGOLAND, Windsor

Degree of 'dislike' as a KPI in unprecedented times...

Whilst traditionally we used degree-of-satisfaction, or the consumer’s regard for a brand as a key measure of brand health, unprecedented times may cause us to have to work at the other end of the spectrum - degree of dislike - for guidance on retaining consumers…

Incidentally, perhaps this subconscious need of brand owners to explore all growth-avenues is a reason why yesterday’s Birds Eye survey of Top Foods that British Consumers Dislike Eating, attracted our highest readership of the week.

Cost-management as a driver
In the case of a well-known ‘Liver salts’ brand, if the manufacturer still used the original 1930’s ingredients, the product would cost upwards of £3k per tin onshelf, and would probably remain there… Given this escalating cost, the key driver of product innovation was a search for less expensive ingredients that tasted the same and produced the same physical effect on the consumer… i.e. a need to avoid known dis-satisfaction limits for regular users.

On a more personal level, many years ago in the marketing department of a well-known milk-based beverage, we faced similar issues with ingredient-cost and had to search for less expensive substitutes. We fed the ‘revisions’ to our captive audience via the canteen, and I was charged with spending break-times there, monitoring the ‘degree-of-grimace’ on the faces of colleagues as they unknowingly tasted the modified brew…

Whilst we may have risked losing an employee or two, this testing-model ensured that little risk was taken with our precious consumer franchise…

Although we should always aim to delight the consumer by ‘over-delivering’ on performance, perhaps we are in danger of moving beyond satisfying the needs of the consumer if carried to excess... In other words, we are ‘contracting’ with the consumer to deliver a combination of Product-performance, Price, Presentation and Place that compares well with - i.e. is marginally better  than- equivalents available in the category.

Delivering significantly more than the consumer is ‘buying’ by ‘over-engineering’ the product runs the risk of confusing the consumer, costing more, and may even make us uncompetitive.

The real issue therefore is to fundamentally understand and manage the expectations of the consumer, thereby releasing resources for communicating the proposition and innovation.

…and if that approach causes us to monitor ‘degree-of-dislike’ of the brand, perhaps it is preferable for us to explore and avoid that point, before the consumers vote with their feet…? 

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… 

Why dynamic pricing is a must for ecommerce retailers

According to research via econsultancy.com, 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…

Econsultancy.com 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?  

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