Call me naive, but... How Tesco could rebuild trust in UK retail

Latest reports in The Guardian that over-complex supermarket pricing is being targeted by UK government to ease price comparison will probably end up in the usual letter-of-the-law observance, forgetting that consumer trust is based on the spirit-of-the-law.

Providing consumers with true bases for like-with-like comparison needs the combined efforts of suppliers and retailers with a common aim of rebuilding consumer trust, the essence of branding, both retailer and supplier.

Given its presence at the point-of-purchase, and at 29% market share with most to lose, I believe that Tesco - and its major suppliers are in a position to take the following steps:

Price clarity: A major opportunity lies in wait for those retailers that strip offerings back to the basics of letting consumers know what they get for their money. Apart from an obvious emphasis on unit pricing combined with a little education ref. prices per g/ml, it means eliminating all ‘letter & spirit’ legal issues regarding promotional offers, and replacing them with genuine, transparent and defensible offerings that can be compared accurately with competitors’ alternatives, like-for-like, but also meet and even exceed consumer expectation

Product delivery:  When a consumer opens a tin, its contents should match or even exceed the expectation created by the lid…a fundamental of branding based in part on the fact that the cost of making the first sale to a consumer is so high that profit is only possible on return visits without having to be re-sold. Tesco is in a unique position to add like-with-like conditions to its purchasing criteria, and delist brands that are found to have used content reduction to disguise a price rise…

Demand forecasting: As ‘experts’ in consumption, suppliers can be in a position to help refine demand calculations and the combination of this insight with a retailer’s instore on-time fully-shared expertise has to be a way of ensuring 100% zero-defect shelf availability, at minimal cost for all parties

Trade credit: Credit was always meant to cover the gap between delivery of goods to a reseller and payment by shoppers, and was never intended as a means of generating interest on 40-day deposits. As such, given average retailer stockturns of 20 times per annum, this means paying supplier invoices within 2.5 weeks of delivery, with recent moves to 14 day payment for small suppliers a good start. There is even a case for paying faster for items delivered on a daily basis

Trade investment: Post-audit recovery came about because of a combination of inadequate ‘paper trails’ of promotional agreements by suppliers, and the ability of financial programmes to search and claim for unpaid funds for six years previously.  Despite the strict letter of the law supporting this process, all retailers could show more goodwill and pragmatism by limiting such searches to a maximum of two years…

Trade Deductions: Should not be regarded and treated a source of income, but should reflect genuine failure to meet reasonable standards agreed in advance as a condition of purchase, with perhaps some element of reciprocation for failures of on-shelf compliance...

Organisational compliance: The above changes need to be understood and communicated at all levels within both supplier and retailer organisations, thereby reducing the possibility of 'rogue-employee' defences at higher levels of management…

Tesco, with 29% market share and a need to regain custom, is in a unique position to be in the vanguard of this change..

And if it results in a temporary loss of margin, so what…

In time, as shoppers - and suppliers - begin to relax into the feeling that in a Tesco store, ‘what you see is what you get’ and even more, then the result have to drop into the bottom line as repeat sales come in at less cost, like with all good brands…

HT to Wayne Robinson for Guardian link

Gambling on loyalty Cards - insights by Steve Gray

In response to our post on Loyalty Cards, Steve Gray has added the following insights:

• There is inherent value in the loyalty programme itself - millions of consumers like collecting points (Clubcard, Boots, Nectar etc) and go out of their way to do so. The programmes more than wash their face for the retailers who deploy them
• They also create a valuable asset for their owners : Nectar was sold for around £450m, if ever Tesco sold Clubcard (as opposed to dunnhumby) it would be worth something similar or more
• There is, as you say, additional value from the data - it can be used to deliver a more personalised shopping experience (via range, promotions and personalised offers)
• Currently, supplier-partners aren't really able to help retailers to "build a comprehensive picture" as they tend not to have any useful data on individuals (supplier data tends to be anonymised research from small sample groups). This might change as brands start to invest more in direct to shopper programmes, more retailers enable digital coupon redemption and sales tracking other than via their closed loop programmes

* Its high time the plastic was replaced by a phone or by linking to the customer's debit or credit card - not a technology barrier but slow uptake as few retailers have people who know how to get this done easily.

Gambling on 'Loyalty' Cards........?

Given Tesco's difficulties in selling Dunnhumby, it might be useful to assess loyalty cards' risk/reward relationship...

Retailers who expect loyalty cards to build consumer loyalty are missing an important trick. Loyalty cards simply provide access to possible consumer need via a record of purchasing behaviour, within a context of key data on the named cardholder. The gamble is not whether the retailer can cover the cost of maintaining the card, but rather whether the organisation can creatively drill into the resulting data, discovering and distinguishing real need from ‘want’ and then organising resources to manage and meet consumer expectations, cost effectively.

In fact, loyalty is the long-term result of meeting and exceeding consumer expectations consistently and to the satisfaction of named individuals, better than others. Whilst it can be safer for traditional marketers to conceal the consumer within the anonymous confines of a market segment, real-world marketing seeks out and responds directly to named individuals, actually welcomes the encounter with a real consumer, strives to establish an increasingly enriching dialogue, and thus provides a means of validating category assumptions, creatively.
The high cost of establishing and maintaining this level of interpersonal contact demands that the consumer be sufficiently satisfied to willingly come back for a repeat purchase, with minimal encouragement (i.e. cost).

In practice, the loyalty card completes the jigsaw of the consumer purchasing decision, helping the retailer to complete the full circle, back to the Mom’n’Pop grocer who stayed in the game by playing the loyalty card intuitively, limited only by personal memory capacity and being ‘open’ to consumer-need opportunities, 24/7. This flesh and blood family grocer earned and protected his access to 500 families via a keen sensitivity to total need, delivering a tailored response in a carefully monitored environment, resulting in a slow demise.
So too, loyalty cards provide a means of helping to restore the human touch at store level, helping to eliminate the anonymity of the shopping experience, and ensuring repeat visits by satisfied users, with minimal drift to other providers. Whilst a data-based retailer can attempt to meet consumer needs unilaterally, partnership with like-minded suppliers can help the customer capitalise on the combined equities of brand and store.

By definition, a supplier who enters such a relationship without full commitment, all the way to the point of purchase, contributes brand equity as a means of attracting consumers into the store, only to have them succumb to the attractions of store franchise in the aisle. In turn, the retailer is at risk from poor execution of the total store offering in that each time the consumer encounters the face of the retailer at checkout, any inconsistency in personal performance versus expectation is in danger of eroding that newly acquired store equity.

The supplier-partner can help by assisting the retailer in building a comprehensive picture of the brand’s named-consumer, combining consumption behaviour with the retailer’s knowledge of how that consumer behaves in store, monitoring in-home satisfaction and helping to encourage the resulting repeat visits to the store. Having cooperated in sharing experience within the supply-chain, it is time for both parties to repeat the process within the demand-chain.

In the meantime, this ‘useless piece of plastic’ can be a passport to the heart and mind of a named consumer and, carefully managed, can underwrite a long-term revenue stream.

Unless one is gambling everything on a quick win...............?

Tesco's Price Promise revamp: simple, immediate, and a fair–share pointer for retail and supply?

Deep down, Tesco’s 5-point Brand Guarantee breaks some new ground for all stakeholders:

• Instant discount at checkout – eliminates frustration of delay, next time memory-lapse, sense of lock-in
• Own Label exclusion – eliminates difficulties of true like-with-like comparison of brand and ‘equivalent’ own label
• Minimum 10 item basket: attempt to re-encourage ‘bulk’ shop?
• Large stores + online only: Fine for once/week+ shoppers, but is it enough to re-attract daily, closer, smaller shoppers?
• Only Big 4 match: Eliminates price as a differentiator vs. other mults in large space, but still at a price disadvantage to the discounters

The Big Issue will be the extent to which other mults target large space as a separate market, competing via other parts of the retail marketing mix (see slide for options), but maintaining price parity….  However, if other mults break ranks and drive down prices, the appeal of large space retail may grow, at the expense of the discounters.

Meanwhile, Tesco’s move demonstrates a major step forward in transparency at point-of-purchase, the beginnings of a fair-share dialogue with the savvy consumer that will hopefully encourage other mults to follow suit, with branded suppliers perhaps adding a little more than expected to the tin to cement the process…

…and fair-share supplier-retailer dealings an added bonus? 

Gambling on 'Loyalty' Cards........?

Given Tesco's difficulties in selling Dunnhumby, it might be useful to assess loyalty cards' risk/reward relationship...

Retailers who expect loyalty cards to build consumer loyalty are missing an important trick. Loyalty cards simply provide access to possible consumer need via a record of purchasing behaviour, within a context of key data on the named cardholder. The gamble is not whether the retailer can cover the cost of maintaining the card, but rather whether the organisation can creatively drill into the resulting data, discovering and distinguishing real need from ‘want’ and then organising resources to manage and meet consumer expectations, cost effectively.

In fact, loyalty is the long-term result of meeting and exceeding consumer expectations consistently and to the satisfaction of named individuals, better than others. Whilst it can be safer for traditional marketers to conceal the consumer within the anonymous confines of a market segment, real-world marketing seeks out and responds directly to named individuals, actually welcomes the encounter with a real consumer, strives to establish an increasingly enriching dialogue, and thus provides a means of validating category assumptions, creatively.
The high cost of establishing and maintaining this level of interpersonal contact demands that the consumer be sufficiently satisfied to willingly come back for a repeat purchase, with minimal encouragement (i.e. cost).

In practice, the loyalty card completes the jigsaw of the consumer purchasing decision, helping the retailer to complete the full circle, back to the Mom’n’Pop grocer who stayed in the game by playing the loyalty card intuitively, limited only by personal memory capacity and being ‘open’ to consumer-need opportunities, 24/7. This flesh and blood family grocer earned and protected his access to 500 families via a keen sensitivity to total need, delivering a tailored response in a carefully monitored environment, resulting in a slow demise.
So too, loyalty cards provide a means of helping to restore the human touch at store level, helping to eliminate the anonymity of the shopping experience, and ensuring repeat visits by satisfied users, with minimal drift to other providers. Whilst a data-based retailer can attempt to meet consumer needs unilaterally, partnership with like-minded suppliers can help the customer capitalise on the combined equities of brand and store.

By definition, a supplier who enters such a relationship without full commitment, all the way to the point of purchase, contributes brand equity as a means of attracting consumers into the store, only to have them succumb to the attractions of store franchise in the aisle. In turn, the retailer is at risk from poor execution of the total store offering in that each time the consumer encounters the face of the retailer at checkout, any inconsistency in personal performance versus expectation is in danger of eroding that newly acquired store equity.

The supplier-partner can help by assisting the retailer in building a comprehensive picture of the brand’s named-consumer, combining consumption behaviour with the retailer’s knowledge of how that consumer behaves in store, monitoring in-home satisfaction and helping to encourage the resulting repeat visits to the store. Having cooperated in sharing experience within the supply-chain, it is time for both parties to repeat the process within the demand-chain.

In the meantime, this ‘useless piece of plastic’ can be a passport to the heart and mind of a named consumer and, carefully managed, can underwrite a long-term revenue stream.

Unless one is gambling everything on a quick win...............?

IGD Big Debating points to ponder over the weekend?

• Convenient vs. Convenience store the way forward
• Big Space Redundancy: ‘Buy too much, Takes too long’
• Click & Collect, with value add-on services, makes a difference?
• Realistic reality-checking does not mean pessimism…
• Customer-centricity needs to accommodate customer diversity
• Can we tolerate individual loss-making channels within a holistically profitable model?
• (Two hours before the first slide… Powerpoint beware..?)
• Loss of consumer trust – retrievable or simply a feature of savvy consumerism…?
• Back to basics, but in a modern way?
• ‘Chinese consumers save 50% of their income…..’
• Retailers & Suppliers: ‘Consumers won’t notice’ – serious?
• Retailer price-matching can seem like ‘cartel behaviour’ to consumers…
• Forget politicians, ask man in street for the real level of inflation…
• ‘You never hear a child cry in Poundland’ – a pound request is an easy win for parents
• ‘We sell products for a £1, not £1 products’
• ‘Consumers are the smartest on the planet, give them right offerings in superstores and they will come’
• ‘Sorry…..’

A chronological view from the back row of the IGD BIG DEBATE 2015…

Tesco's new trading terms - a fundamental step towards fair-share dealings?

In an issue-packed day where most delegates had cause to re-set their business priorities, and test the limits of their networking skills in a pool of 650+ potential contacts, the IGD’s Big Debate presented a fundamental opportunity to update suppliers’ UK market context with the help of speakers that were prepared to face up to market realities and indicate their ways forward….

Nothing beats hearing it live, but a good second best (apart from a lost networking opportunity) can be achieved via a combination of the IGD’s Events App and reports from a packed press gallery.

Although spoilt for issue-choice, for me a pivotal item was Dave Lewis announcement of Tesco’s new trading terms.

Full details here, but essentially, Tesco has pledged to deliver a simpler and “fairer” business model for suppliers, by standardising their payment terms and settling bills from small and medium-sized firms quicker. 

When you consider that Tesco’s average days credit period is 42 days, which at say 5% cost of money and trade creditors of £5,076m (end Feb 2015), is worth £253m per annum, you will appreciate the pain this represents, given this morning’s announcement of a 55% fall in profits to £354m.

Whilst the new terms represent a major step towards fair-share dealings for Tesco – and a pointer for other retailers? - this is hopefully but the first move in acknowledging that trade credit should not be regarded as a source of working capital, but merely a way of covering a cash-flow gap between supply of a product and receipt of cash from a shopper. 

If that is the case, then Tesco need to budget for an eventual move to approximately 5 days average trade credit…

If this initiative catches the imagination of the public and thereby contributes to Tesco’s recovery, then other retailers will have to follow suit, or suffer loss of share…

However, whilst this will undoubtedly help suppliers, the real consequence will be the public-opinion spotlight then turning on major suppliers’ use of up to 90 days free credit from their ingredients, packaging and services suppliers…

Time for all suppliers to anticipate the obvious and begin their profit re-sets now?

Still think Amazon can add little to fresh retail?

Tesco’s Carlsberg de-list – just another overcrowd inevitability?

Whilst both parties understandably remain silent on the specific reasons for de-listing most of the Carlsberg range, it seems obvious that the brand’s scale and importance required a carefully calculated decision.

We are patently not privy to the specifics, but here on the outside, NAMs need to explore possible rationale/scenarios as a basis for identifying the implications for their brands, and taking evasive action, where necessary...

Consumer need has to be a starting point
Logically, when compared with available alternatives, Carlsberg was deemed to have less relative appeal than other brands and own-label, from the perspective of Tesco shoppers.

In practice, this meant that Tesco shoppers believe that the brand’s combination of Product/performance, Price, Presentation/Promotion, and Place is less appealing than other members of the category.

Whilst the Carlsberg marketing team might beg to differ, the fact remains that their consumer-appeal message is not reaching Tesco, or did not survive the BCG assessment.

Retailer need comes next
Here Tesco must have assessed the brand’s combination of Product/on-shelf performance, Prices & Terms, Presentation (how well the offering is put across, at all levels) and Place/availability, all compared with available alternatives in making a decision based on relative competitive appeal.

Whilst this can be a relatively simple process, it has to be kept in mind that Tesco is changing radically in most aspects of its decision-making-process, with a different balance of traditional and new influencers in the mix, all operating under an intense City spotlight… 

At some stage, Tesco decided that Carlsberg was deficient, and made the de-list move.

Why this matters for NAMs
The issue for NAMs is not only the possibility of their brand becoming a casualty of the Tesco re-set, but also the inevitability of this culling process being applied by other retailers in an overcrowded, insufficiently differentiated market, as they strive to optimise their relative competitive appeal, with no facilities for taking prisoners.

The answer has to lie in making a fundamental assessment of your brand’s real pulling power with the consumer, and integrating this with an effectively communicated trade offering that emphasises your advantages, and eliminates anything that dilutes its appeal, before the buyer does the inevitable…   

Jet.com: the new 'Aldi' of eCommerce?

A new US-only website, launched in July, Jet.com is offering another option for price-sensitive online shoppers: simply visit its site and it will guarantee the lowest prices across some 10 million items.

The site also offers a variety of tricks Jet.com shoppers can use to save even more, including filtering by “smart/cheaper” items, opting for a different form of payment for extra savings, accepting combined packs, slower delivery, or even agreeing not to return an item in exchange for a discount.

In other words, Jet.com are aiming at Amazon's market, but betting that online shoppers will be willing to trade high service levels for lower prices...

The business model works on a combination of a $50/annum membership fee and a real-time trading system that suggests economies such as 'combinable' products, new shipping options and price updates - cheaper! - as the shopper packs the basket, all resulting in lower prices (can you imagine the impact on B&M shopping if this facility could be incorporated into self-scanning in the aisle?).

Incidentally, given that Mr O'Leary plans to make Ryanair the Amazon of travel, aspiring to go the Jet.com route might make a better fit, and represent less of a culture-shock!

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