RETAILNETGROUP STRATEGY ALERT Trip Marketing - Investing in the Retailer's First Moment of Truth


April 2009

Thank you all for your feedback and questions regarding "trip marketing" - a phrase and business process coined by RNG several years ago to help the industry pinpoint the distinctions between alternative retail marketing strategies. At its core, trip marketing is simply a strategy for reaching the consumer at a precise decision point-one that has received far less attention in recent years than, say, in-store decisions. While most of our clients have a great understanding of this concept from our work together over the last few years, this brief is intended to clarify the basics and actions for retailers and suppliers who want to know and do more on this important topic. Please let us know your thoughts and reactions. Regards, Dan O'Connor President & CEO RetailNet Group

Basics: In- and Out-of-Store Strategies
For the last decade, retailers have invested alongside their suppliers to improve the overall in-store experience, shop-ability, dwell times and other "shopper-centric" activities. These investments made a great deal of sense for several reasons: 1. Most retail chains were facing increasingly saturated markets with ever-aging stores that needed refreshing 2. Consumers were more than ready for a better environment, while few retailers understood the impact that store experience and centricity had on their overall brand and "net promoter scores"(1) 3. Niche research companies were suggesting that an increasing number of brand and product choices were actually made in the store 4. Branded vendors could see the opportunity to sell more to their very best customers while adding a differentiated value for their leading customers 5. Everyone earned a higher ROI when the consumer responded Much of this remains sensible, but there are a number of challenges with this strategy as well, including fundamental conflict between those who advocate for this investment vs. those who think that the monies are better spent elsewhere or see this all as simply an extension of category management-or, as retailers believe, that the in-store experience should promote their own brand first.

And there is a new challenge: this area may be the second or third most important place to invest for most retailers in the future in light of the rapidly changing dynamics of decisions made outside of the store. For simplicity, let's assume the shopper has four natural states:

Disengaged - Out of the store and not in any kind of shopping mode. (Most of us spend the majority of our lives here.) Engaged but not in store - Preparing a list or researching/searching - actively deciding what they need or want at home, in the car, at work or at rest - anywhere where products (retail) are on the consumer's mind and they are actively researching and organizing. Engaged and replenishing - In the store, but on a precision shop - not in the mode for working the store - few impulse items - some retailers think of this as a "replenishment" or "top-off trip" Engaged and shopping - and "shopping" 40%-50% of the building (the minority of shoppers in big box retailers today)

Each of these "shopping states" is a distinctive opportunity for retailers and brands to communicate with consumers when they are

in or out of the mindset to shop and in or out of a shopping environment (a store or online)

Why Trip Marketing Matters Now
Shopper Marketing strategies are a step towards more targeted marketing and merchandising. The "First Moment of Truth" that Shopper Marketing strategies were designed to address is the state when the shopper is in the store, and marketers have many platforms (in-store media, POP displays, etc) to send their message. And yet the retailer's first moment of truth-when the store choice is made-happens even sooner, and is highly influenced by the shopper's impressions and expectations. Like Shopper Marketing, "Trip Marketing" is about communicating with the right shopper at a specific decision point, using the right platforms. Trip Marketing is all about activating and winning trips-at the moment the shopper is deciding whether and where to shop. And increasingly, those decisions are being made differently. 1. Decisions in many categories are increasingly influenced by out-of-store research and search - not just in-store. Especially in low-frequency, high-engagement categories (e.g. consumer electronics), winning search & research is a critical part of retailers' (and brands') "selling motion" 2. Site & Store is growing in importance - By 2015 RNG believes that up to 30% of many large box retailers' food and consumable sales will be ordered and paid for digitally and that drive-throughs and home delivery will become abundant - thereby minimizing the impact of in-store decision making 3. Reputation impacts store choice - Just ask WMT how its focus on its reputation and shopper-centric topics such as sustainability and wellness impacted store choice for many consumers. Beyond those behavioral changes are some even larger shifts that underscore the importance of winning trips: 4. The current economic reality is likely to last more than 36 months from start to finish - enough time for the 60%+ of the households who have changed behavior since 2008 to make these habits

Consumers are switching retail outlets @ increasing rates - and out of pattern with what we typically see Switching in effect opens the door to new shoppers for some outlets - and 36 months is long enough for these shoppers to move from trial to adoption in new outlets (e.g. to switch to Aldi, Family Dollar, etc for what often is a 20% or greater overall savings on like items!)

5. Many of the core retail growth drivers aren't increasing-making trip capture even more strategically important

The number of "reachable and relevant shoppers" has stopped growing and even begun to shrink in many markets. In turn then the "addressable market" per store continues to decline - so the # of shoppers per store is declining (great examples of this in California, Florida, Michigan and other significant regions) The number of trips per shopper is bifurcating by socio-economic and life-stage, with an overall flat to downward trend (especially the most profitable segments). At the lower end, frugal shoppers are

fragmenting their trips to get better deals, so much so that retailer penetration is increasing while baskets slide as shoppers cherry pick.

Trip behavior is changing today in unprecedented respects - and those changes are likely to become more permanent the longer the recession continues

6. Shopper life-stage and lifestyle shifts are more apparent around the developed markets than ever as a larger and larger share of the boomers move from merchandise to services-based consumption-and their replacements - while of equal population - move through their early years of independence and household and family formation with fewer resources (wealth and income) than their parents as well as very different views on what is important (Ikea vs. treasured family antiques, for example)

The boomers and prior generations are leaving their highest consumption years (and therefore rightfully have less influence in certain store design (and entirely new trip missions) The next generation of heavy shoppers - those currently aged 25 to 35--approach media, marketing and store-based retail differently

7. Newspapers and other print media are less reliable as national distribution networks for traditional advertising tools (e.g. circulars) - The need for scalable marketing platforms to activate and capture shoppers is growing amid all of the chaos in the marketing ecosystem Given all of this, RNG believes that retailers must now increase their investments "upstream" in the shopper's decision process and continue to refine its ability to target at every stage. The goals, messaging, and platforms for communicating at each of these stages should be very different.

Targeting and Trip Marketing Leadership
We are not aware of any retailer that has completely blue-printed a fully targeted business model, but we have identified some commonalities among the leaders: 1. Establish the target - it is critical to settle on your focus first-shopper segments or trip types (missions) trying to do both is too complex - and dilutive. 2. Speed up and modernize shopper insight networks to support highly targeted communications

Focus feedback and response models much closer to the actual purchase event - whether it is a product or service transaction. Implement periodic 2-way, real-time feedback and communication. (The more the shopper is involved the richer the experience is all around.) Speed requires disintermediation; traditional (and expensive) tools are not only costly but no longer fast or relevant enough compared to newer alternatives like proprietary panels and online communities

Measuring intent-especially self-reported intent-is not nearly as important as action/behavior Developing markets may be more appropriate for leading-edge marketing platforms, as early adopters are larger as a % of the purchasing population than in developed markets, where traditional thinking slows capital re-deployment The measures of success are familiar-ROIC, Net Promoter Score (NPS), and Lifetime Customer Value "Reputation marketing" and "in-store shopper marketing and shop-ability efforts" are adjacent to "trip marketing," and leaders have integrated plans

3. Update messaging

The actual message for shoppers is least likely to change - it remains what, why, where, when and how. (Product, pricing and promotion are still very important messaging elements.) The call to action is still key.

4. Testing/learning about new consumer activation strategies - both digital and physical

Better targeting implies using complementary shopper messaging tools for different shopper segments especially between the rapidly rising generation of shoppers and those of our past Web, mobile, and digital tools will become as important as traditional tools-though we are still searching for the scalable alternatives to today's platforms

Building these capabilities is not an overnight process. Among the companies leading in these areas, we have seen a progression from awareness to understanding to action: 1. Becoming aware of new shopper insights and shopper marketing tools 2. Testing these tools (and learning the details of providers of these tools) 3. Understanding and respecting the profound advantages of emerging capabilities such as proprietary shopper panels and online communities 4. Rationalizing existing research and communication tools and processes 5. Prioritizing new capabilities and building the right mix of internal talent and external partners

Diagnosing Retailers' Capabilities
The strongest indicator of a sound approach, we believe, is when retailers & brands together have a system for getting the right message to the right consumer at the right moment-whether it is the retailer's FMOT or the brand's. This is much more than a marketing campaign or a series of shopper-focused segmentation or behavioral studies. It is an integrated strategy building on traditional and modern marketing and merchandising capabilities. Those retailers who are most able to respond to the challenges of "trip marketing" are those that have sophisticated shopper insight models (of which there are approx six flavors) and an equally sophisticated understanding of emerging marketing platforms. Implicit in each of these are several integrated components - each organized in different layers over time.

RNG clients will find these elements fully described in our Shopper Link 2012: Future Insights & Analytics case.

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