Product, Price, Promotion and Placement: Back to the Core: Now!

Together with a Scilla-colleague of mine, I spent a couple of days in London with an international PE-client of ours, studying UK grocery retailing and fast moving consumer goods, and we agreed together that we could share some of our conclusions. UK was chosen as an interesting market for several reasons:

*The UK consumers face perhaps the biggest economic uncertainty in Western Europe, and they need to adapt to a new situation, and quickly, and therefore they are setting the scene for the trends in rest of Europe.

*The competitive environment is strong in all channels, and the companies need to be innovative and find new ways of operating in a dynamic and lean way.

*UK has always been in the forefront when it comes to innovation, from supermarkets to discount retailers to the suppliers. Their lead was perhaps even bigger 20 years ago, but they are still in the forefront. Many of the stores need refurbishment though and there was a suprisingly lack of cleanliness in some of the stores.

The learnings are valid beyond just grocery retailing. In this article, I will focus in particular on procuct, price and promotion.

Some key learnings at a high level which we believe are good to share and reflect upon:

*Changing the Product packaging and Price points. The successful retailers have adapted and responded to new types of packaging with lower and critical price points. This also means smaller packages, while at the same time having bigger value for money items, with larger packages. It´s based on deep consumer insights and which consumers to approach, from those consumers who have less money to spend, and with some critical price points to make a purchase happen, to those with more than enough money to spend, but now with much more price sensitivity. One simple example was Waitrose´s sardines in tomatoe sauce with a price point of 65 pence. Exhibit 1. Problem is that many branded goods suppliers are not responding quickly enough to this challenge as they have fixed production lines or the innovation process around packaging is too slow internally or they are too far away from the consumer insights to hit the right product with the right packaging and the right price point. At the same time, there are excellent examples between retailers and suppliers to jointly solve this challenge. One great example was Lindt at Sainsbury´s with a 1 pound item Christmas chocolate, nicely displayed, and with a lower price per 100 gram than their 200 gram pack. Exhibit 2.

*Investing more in Promotion, not less. The succcessful retailers are not spending less on marketing and promotion, but more, and the same will go for the suppliers. Being in a number 1 or 2 position is more important than ever before to stay on top and to have the necessary pricing power. If not, consumers will trade down even further over time, from an already challenged level. Combined with a price guarantee this can be rather powerful, especially as a supermarket chain against the low discount retailers, for example Sainsbury´s versus Aldi. Exhibit 3. Or the way, Marks & Spencer is displaying their own value deals and promoting it heavily, exhibit 4. (For a Norwegian, a wood fired fresh pizza with nice packaging combined with a bottle of wine for 12 pounds, that´s a great value deal!).

When succeeding with the 4 P´s this will require a lot of operational focus, a clear mobilization in the whole organization, and avoiding other distracting factors.

It has always been like this, from the introduction of the framework by professor Neil Borden at Harvard in the 1950s, and I believe the framework is still very relevant. Fashions may go out of style, but style never goes out of fashion. It´s not very complicated. But having visited UK retailers and suppliers, some companies have succeeded with this strategy, others are clearly behind. Some of them have obviously lost some focus on the core:

We should all remember the words of Walt Disney when he described Mickey´s place in building his business empire: «I only hope that we never lose sight of one thing--that it all started with a mouse.»

Header image by Heritage Auctions. HA.com