Marketing is not just about media and creative. Many brands spend considerably more on retail promotions and merchandising than they do on the above-the-line investments, such as shooting a commercial that’s then aired during high-profile TV. In the U.K., it’s estimated that FMCG, consumer technology, and consumer healthcare brands spend as much as ten times more on promotions as they do on marketing, investing up to £15bn each year. For a large brand, this can mean tens of millions, and sales and marketing budgets typically include not only marketing development, advertising, product development, packaging, and market research. They also include point of sale, merchandising, and field force management.
These services allow companies to ensure that their products are displayed and promoted in-store in the most effective, on-brand way possible. They help advertisers to gain the best exposure and secure the most advantageous shelf space, introduce new products direct to consumers, explaining the features and benefits of these products. For it is in store, at point of sale, that the rubber hits the road and marketing connects directly to sales. This is where brands become tangible and consumers decide whether or not to buy the product. It’s no wonder so much investment is focused here.
In-store merchandising and field force management can be run by teams who work directly for brands, although very often these services are outsourced to specialist field marketing agencies. As with every other category of marketing investment, CFOs should work with their marketing and procurement colleagues to measure and monitor performance against contracted obligations. Just because it can be perceived to be less glamorous than advertising, retail promotional spend shouldn’t get a pass or a free ride. In fact, as many brands invest more here than in above-the-line spend, retail promotions should be subject to even closer scrutiny.
When brands outsource to agencies, typically they remunerate them on an open book basis, under which annualised costs are agreed upfront – line item by line item – and then billed monthly. But there are commercial risks to brands of agreements made on this basis. Too often, once a budget is agreed, provided there are no overspends, brands are happy to pay what has been agreed. Too often, underspends stay with those contracted to deliver because they’re not asked to account for delivery that apparently runs on budget.
Here are three areas where finance and marketing should assess what agencies have agreed to deliver. It’s only by close scrutiny that they can determine if they are owed monies for aspects of the contract that weren’t, in fact, delivered.
Staffing: Promotional plans specify the number of in-store and back office staff required to deliver a campaign, but when vacancies are not filled, brands need to know what proportion of staffing was actually delivered. Unchecked, what’s to prevent agencies from substituting more junior, inadequately trained, and less knowledgeable staff in more senior roles, reducing the impact merchandisers can have on sales? Also, even when staff are recruited at contracted levels, does the contract include cover for annual leave? Be sure it’s clear that your merchandising teams won’t be too thinly-stretched during the peak holiday season.
Overheads: The allocation of overheads required to deliver a campaign is often overstated – worst-case investment levels that are never reached. But if you don’t ask for comprehensive reconciliations of budget against actuals, you’ll never know what the agency spent. A budget might say that all field force representatives drive 2019 model cars or vans whereas in fact they drive vehicles from 2016. Merchandisers would get to store on time and in the same way, but at reduced cost to the agency.
Or consider the case of field force wearing branded uniforms requiring regular cleaning. The budget might specify third-party cleaning, when in fact the agency runs its own, in-house cleaning facility. The uniforms would be cleaned and field force turn out looking smart and on-brand, but the agency would have made more money than contracted by in-housing the task. Just as in media and other aspects of marketing, brands need transparency across the supply chain.
Physical space and equipment: Was the back-office and warehouse space – for teams, shelf-wobblers and other promotional materials – actually required? IT – from hand-held inventory counters to tablets and phones – is a critical tool in the armoury of the in-store merchandiser. However, brands can find that by paying for equipment on a monthly basis they end up paying for it several times over. It may be more cost-effective to buy high-value equipment upfront rather than lease it over time.
The impact of Covid-19
The coronavirus pandemic meant that non-essential retail environments – everything apart from supermarkets and pharmacies – were shuttered in many markets for several months. Clearly, promotional plans agreed at the start of 2020 cannot have been delivered, particularly for Q2. Even though non-essential retailers are open once again in many markets, customer footfall is often dramatically down compared with what was previously typical. Many consumers are understandably wary about engaging with anyone they don’t know, any more than necessary outside their homes or bubbles, and stores are limiting the number of shoppers in store to ensure social distancing. Many retailers are also not allowing merchandisers in store right now, interacting with consumers.
Taken together, this all shows that the retail experience is very definitely not “back to normal”. Accordingly, brands should revisit and revise the contracts they have with their in-store agencies, both on the basis of what they’re going to be able to achieve for the second half of the year as well as what was impossible to deliver in the first half of the year. Brands should also assess the commercial viability of their merchandising partners. While some are big businesses, servicing thousands of retail outlets, others – including specialists – can be much smaller. It truly is a case of caveat emptor, and now is a good time to assess partners’ credit worthiness.
Investment in merchandising and field force management represents a significant investment for many brands. As with all other marketing investment, this spend should be audited on a regular basis by experts who have specific expertise in marketing contract compliance. It can and does have a powerful impact on return on investment in the bricks-and-mortar retail environment.
However, the impact of the Covid-19 pandemic on shopping behaviour and retail environments means that now – more than ever – marketers and their finance colleagues should work with their promotional agencies to take a temperature check on 2020 so far. Moving forward, they should apply continued vigilance and rigour to measuring and monitoring the efficiency and effectiveness of their in-store promotional spend. Coronavirus provides an ideal – if uninvited – opportunity for a hard reset.