As a CPG brand, you may have noticed a shift in the conversation when sitting down to negotiate with retailers. They’re starting to demand more, and they’re taking a more aggressive approach when making their demands. According to McKinsey & Company, this changing power dynamic can be traced back to three major trends:
- Stagnant growth in the biggest CPG brands as smaller yet more dynamic manufacturers challenge them
- Shrinking margins among traditional retailers as new retail channels like deep discount and e-commerce continue gaining traction
- The continued progression of big data through advanced analytics in the retail space.
To succeed, CPG brands should alter their approach to retailers and gain traction by going back to the most basic element of all — value.
5 Steps to Create Value and Prove Your Worth to Retailers
Retail continues to evolve, and so does value. Brands can use these five modern and entirely vital steps to create value with current and potential partners.
Study Your Shopper
A change in perspective is necessary when approaching retailers. Conduct market research based on the retailer you’re negotiating with. Not all retailers are the same, and your target audience will engage with each in different ways. Shoppers are also more research-focused than ever. Google shares that more than 80% of CPG shoppers have either multiple brands in mind or no brand at all. That means your research needs to focus on more than just brand loyals at a particular retailer. Instead, expand your research to include category buyers as a whole.
Look to uncover key motivators, like what people like about the store and what they want out of the shopping experience. Pay special attention to those that the retailer may not be taking advantage of yet. For instance, are they leveraging the fact that nearly half (47%) of leading-edge Gen-Zers participate in household grocery shopping, or that parents point to their Gen-Z children as a major influencer in CPG purchase decisions? If they aren’t, they may also be missing out on opportunities because that generation prefers brands that include them in their feedback loop.
Take advantage of:
- Real-time input from shoppers
- Advanced social media listening and sentiment analysis
- Data from smart products and other connected devices
- Shopper engagement at every stage of new product development, from ideation to packaging and rollout
Show the Retailer Why Your Shoppers Matter
Your research gives you the data necessary to begin conveying brand value to retailers and the role you play in their shopper’s lives. You can begin with a simple framework: Are your products a main driver behind the shopping trip, or a value-add? Are they purchased as an impulse buy, or as a planned stock-up or fill-up trip?
With this information, more distinctive details can be developed. Take ELF Beauty, for example, the company began as an online-only, discount cosmetics line. In the nearly 15 years since then, it’s opened 15 retail locations while also carving a place for itself within retailers. Whether it’s brick-and-mortar stores like CVS and Target or e-commerce stores like Amazon, its sales-per-linear-foot are strong. How does the brand do so well? Every ELF product goes for sale online exclusively first; only the products its customers love head out for broader distribution. ELF Beauty can point to the data about a product’s sales as an indicator of how popular it should be on the shelves.
Integrate Retailers and Their Needs into Your Marketing
If you head into a meeting with a retailer talking about how a campaign is going to help sell your products and without any regard to category growth, then it will undermine your brand’s value to the retailer. After all, what does it do for them if you steal market share from one of your competitors? As the saying goes: rising tides lift all ships.
Approaching retailers with the same program may seem efficient, but giving focus to their specific shoppers as well as their company goals are vital. This can be achieved through a combination of two things. First, run marketing campaigns to your target audience with retail-specific offers keeping the retailers’ objectives in mind. Your marketing aids them directly. Second, segment marketing creative to connect with each retailer’s audience.
A perfect example of this is Pfizer’s program that combined ThermaCare heat wraps and Advil. As described by Shopper Marketing Magazine, they spoke directly to shopper needs on the whole — i.e., true pain relief requires a combination of treatments — while utilizing different imagery and creative in different retailers. Broader lifestyle messaging was used at CVS, while Target signage featured professional moms.
Measure the Impact
As much as you can, track the impacts to both you and the retailer. This works best if you can cooperate with the retailer to define the campaign KPIs that prove success for each of you. Take the initiative by setting up check-ins after the campaign is complete, and head in ready to identify what worked as well as pointing out opportunities for optimization. Welcome retailers’ input and agree on changes to put in place for the next campaign. While the bottom line is eminently important, there are other important factors for you and the retailer to track, including:
- Brand engagement
- Offer recall
- Purchase intent
- Satisfaction with purchase
- Likelihood to recommend
Maintain Open Communication
Aggressive negotiation tactics could confuse the conversation when retailers are approaching manufacturer relationships in a way that’s less transactional; instead, they should look to strategically find true partnerships. That’s going to require both transparency and adaptability to build and improve retailer trust, neither of which can be achieved instantaneously.
Value Is a Two-Way Street, But Shoppers Have the Most Power
Open communication and added value can establish greater equality at negotiations, but it can also propel you into a new position. Preferences for online shopping, home delivery, and new options like meal kit services create the opportunity for CPG brands and retailers to work closely together to understand the real group with the power — shoppers themselves. Build partnerships with retailers, especially those that can offer real-time inventory and sales information, consumer insights, and more. Pairing the value you bring to the table with retailer data puts both of you in a stronger position to deliver top value to shoppers and improve growth.
Retail is always going to evolve based on advancing technology and trends in shopping behaviors, but changing power dynamics at the negotiation table don’t need to leave your CPG brand scrambling for success. These five steps will not only help your brand create value for retailers, but will also create true partnerships that can evolve to meet shopper desires, needs, and expectations. Applying these to your brand strategy will strengthen your position in negotiations and help ensure greater success and growth.