online marketing psychology

February 10, 2010

Are retailers the real target of consumer advertising?

Advertising tries to get you to buy things. But it can play a more subtle role too. After the article I wrote on powerplay during negotiations, I found two examples that illustrate this.

Advertising to convince the retailer that sales are going well

Walmart in the U.S. was carrying four brands of plastic food bags: Glad, Hefty, Ziploc and Great Value, the latter is the private label brand from Walmart. After store tests they decided that some brands needed to be cut (this is called brand consolidation). These brands found out about the possible removal from the shelves and started spending on advertising. Walmart's size makes up a third of its revenue so being on the shelves is essential for certain brands. The collective ad spending of the brands increased 78% in one year to US$112 million. But this kind of spending is a self fulfilling goal.
The producer needs to convince the retailer that the sales are going well so they raise advertising spending. But the competition is doing the same so getting through to the customer gets harder. This results in a lot of ads from all players to convince more people that they need extra plastic food bags. Overall sales will increase. (Brand ad spending/sales would be a nice relationship to explore in this case)

The result was that two brands were cut. Walmart has now only one national  brand competing with its private label.

Advertising to convince the retailer that your product is worth it

On the occasion of their ad in the Superbowl, Diamond Foods CEO Michael Mendes had this to say:
Retailers pay more attention to your products when they know there’s a guarantee they will be promoted aggressively. And if retailers grant your product better positioning in the aisles because a promotion is coming, sales generally see a lift.
This makes me wonder, do producers have contract obligations to provide a certain budget for advertising and promotion? No doubt stuff for a future article! If you have any idea, please feel free to share them in the comments.

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