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Supermarkets – how publishers should deal with and learn from them

We spend a lot of time ranting and raving about supermarkets and perhaps not enough time studying them. A better understanding of how the big multiples operate would not only put publishers in a better position to negotiate with them but would also help improve our, often woeful, relationship marketing. Greg Harris looks at what publishers can learn from supermarkets.

By Greg Harris

A couple of months ago my clock radio went off first thing in the morning blaring a somewhat contentious interview between a representative of a supermarket trade association and a presenter on Radio Four’s Today programme. The basic thrust of the questions revolved around the extreme damage the supermarkets were doing to the United Kingdom’s dairy farmers by beating them down on price. After a bit of back and forth, the exasperated supermarket representative finally lost it. In a very direct answer, he basically said his members worked to serve two masters – shareholders, who expected increasing share prices and customers who demanded good quality at low prices. Further, he declared that it was for the dairy farmers to improve their negotiating skills in dealing with the supermarkets, their primary customers, and perhaps they should also address the problems they were creating by producing too much milk, consumed by too few customers. Whether individual farmers stayed in business was not their concern.

This exchange reminded me of two days I spent last spring attending a PPA conference. The first day’s session was devoted to retail in the UK, with impending range reviews, changes to exclusive wholesale territories, financial troubles at WH Smith and increasing closures of independents creating a general tone of despair and fear of where things were headed. On top of this was anxiety about the growing proportion of overall magazine sales shifting to supermarkets. Views expressed by the panellists ranged from defiance (we’re the press, how dare these people disrupt the way we do things) to resigned acceptance to pleads for the industry to develop new ways of reaching consumers, such as by subscription.

The second day, devoted to developing subscriptions, was headlined by a session on how subscription-marketing managers could convince their sceptical senior management that subscriptions were a good idea. This session seemed very similar to one I attended about ten years ago – how slowly things change in this industry. Unfortunately, I couldn’t be in two places at one time and missed the sessions devoted to advertising sales. But I can only imagine it was dominated by concerns of static and falling ABC figures.

Too compartmentalised

As a circulation professional who has generally been responsible for both retail and subscription sales, and after sitting in countless meetings with publishers telling me how important growing ABCs were in supporting advertising sales, I found the disparity in the sessions somewhat baffling. It seems to demonstrate an industry so compartmentalised that solutions from one area to problems in another seem to not rise up the command structure and effect strategy, or at least not very quickly.

And I couldn’t help but wonder what the supermarket industry chap would have thought. I suspect he’d have been rubbing his hands together and muttering, "great, another disorganised lot to take advantage of".

For publishers, this disconnect can only hurt positions in dealing with and thriving in a market place that will become increasingly dominated by these tough-nosed category managers at supermarket chains. If these guys can be so aggressive towards salt-of-the-earth dairy farmers, what chance do glad-handing publishing types have? And it’s doubtful publishers will see the popular support farmers enjoyed, with Radio Four coming to their defence.

So what should publishers be doing?

First, publishers need to fully understand what motivates the supermarkets and how they’re fundamentally different from other trade partners, such as wholesalers, independents and even WH Smith. These traditional partners are considerably reliant on the success of publishers for substantial portions of their profits. For supermarkets, magazines represent a range of products whose scale and margins are relatively modest – and not entirely easy to handle either. As such, they will continually be more aggressive in negotiations and more demanding customers. What a wonderful position for a buyer to be in – not needing to carry a product.

Second, publishers need to do a better job understanding exactly what a customer is worth to their businesses, over the long-term, and from each market segment. This requires regular testing, surveying and monitoring over time. But only in this way, can publishers avoid paying over the odds to keep distribution.

Third, publishers need to quickly develop new routes to consumers to improve their negotiating positions and protect their revenues. For too long, publishers have abdicated responsibility for attracting and retaining customers to their distribution partners, making it easy for them to not know and understand their buyers. And when they have taken tentative steps to change routes to market, they’ve tended to only work on converting retail customers to subscribing customers. This tends to overlook a very sizeable group of potential readers who do not regularly buy at retail – some estimates say this may amount to 80% of potential magazine buyers.

Building brands

But there’s another way publishers can gain from supermarkets. They should be watching what these organisations are doing very carefully, figuring out what’s relevant to their businesses and copying these approaches. Supermarkets are fantastic at developing and building brands, understanding their customers, motivating purchases and extending their franchises. Frankly, these are things that many publishers neglect to do – although publishers are great at creating products and pushing them into distribution channels but so were many other big consumer brands that have fallen along the way.

In terms of branding, companies like Tesco and ASDA do a brilliant job of communicating a few simple concepts to consumers (eg. low price, good quality, convenience, etc.) and they’re consistent with these messages. Product offerings continue the messages, using logo and colours to reinforce. Publishers with large portfolios should consider creating and promoting an over-arching brand identity. Like supermarkets, consumers should learn to seek out publishers and not just publications, which are increasingly becoming more and more generic (have a look at the range of computer titles out there to see what I mean). Building these "super-brands" will also help combat what may prove to be a growing trend among large retailers of creating their own magazine products, as Wal-Mart is currently doing in the United States with the launch of All You, exclusively available in their stores. And stronger publisher brands should be leveraged to fight range reductions – ie. take our whole range or nothing.

Database marketing

Understanding customers is one of the most important and most neglected areas for most publishers. Supermarkets, armed with vast amounts of transactional data, know the buying habits and preferences of huge numbers of their customers. How frequent they shop, how much they spend and what they buy. This allows them to tailor promotions to pull customers in whatever direction they choose. Customers who have been absent for a while will suddenly receive a voucher through the post. Or in my case, Sainsburys noticed that I spend a disproportionate amount on wine and sent me a voucher for my birthday. While publishers don’t have access to transactional data at retail, they do have access to active and lapsed subscriber records and can work their databases more effectively, both for subscriptions and retail. Building databases of retail customers is also an option. And consumer research can provide a picture of buyers, helping improve product offerings and targeting. Knowing the relationship you have with a customer allows you to push customers towards actions that are beneficial to your business – such as shifting infrequent retail customers to subscribers and encouraging core customers to try other products. And treating customers as "members" improves loyalty and purchase frequency, so publishers should consider reward schemes as part of their overall marketing strategies.

Line extensions

Another strength of supermarkets, that most publishers seem not to have embraced, is line extensions and the aggressive cross selling of those extensions. Today, the top supermarkets are averaging 20% of their sales from non-food items, like clothing, electronics and home goods. And ASDA has now become the largest UK clothing retailer, in terms of volume, and in the US, Wal-Mart has taken this process to the extremes, selling virtually everything anyone could possibly want in its huge locations. Also, 16% of consumers in the UK avoid going to the high street shops altogether and go directly to the supermarkets, where they enjoy selection, price and convenience. All of these trends will continue, putting pressure on traditional retail outlets.

But supermarkets aren’t stopping at store-based products either. They’re moving aggressively into areas like financial services, working their databases to sell additional products to their current customers. For some reason, publishers seem to be slow at identifying additional products to offer their customers and tend to shy away from aggressively cross-promoting the products they already produce, almost as if they’re afraid of offending their customers. Publishers possess more creativity than they’re showing and need to be exploring ways to exploit their customers, both readers and advertisers, to expand beyond their printed franchises.

New routes to market

Lastly, supermarkets are doing the one thing publishers really need to be doing now – finding alternative routes to reaching and servicing customers. Supermarkets are not afraid to advertise and use direct response methods to drive traffic and to sell other goods. They’re also working hard to build web selling with direct delivery as part of their offerings. And recently, they’ve even started promoting magazine subscriptions. At a recent meeting, we discussed this development and a client questioned why a supermarket would work to undercut their retail business. The question basically misses the point. Supermarkets don’t view their businesses as retail bricks and mortar locations but as relationships with customers. As such, they’re interested in selling anything they can to these customers, delivering product however the customer wants to receive it. They understand how customers’ expectations are changing and are capitalising on these changes by giving them what they want.

Publishers need to take this approach on board to thrive in this fast changing business environment, and quickly.