July 20, 2007
Braintrust Query: How Do You Merchandise a 250 Square Foot Store?
By Bill Bittner, President, BWH Consulting
Procter & Gamble Co. is undertaking a major effort to reach roughly one billion additional consumers – most of them very poor women living in developing countries.
The primary retail outlets in these markets are small stores no bigger than a closet where customers only have enough money to buy single use containers of items like toiletries or detergents. Shoppers may make several visits a day as needs arise. Besides not having much money, these shoppers don’t have places to store bulk containers. They buy the smaller containers even though they’re more expensive because they have no place to put the big ones.
According to the Wall Street Journal article, P&G estimates it only reaches about 10 percent of the 20 million “high frequency” stores worldwide. P&G sales in developing countries have increased 150 percent over the past five years to $20 billion, but there is obviously room to expand. P&G’s sales to high frequency stores in developing markets are greater than its sales to Wal-Mart. Even in Mexico where Wal-Mart is well established, high frequency stores are visited by 70 percent of the population.
But selling to high frequency stores requires a different skill set.
P&G finds it has to lobby for better shelf space, one tiny store at a time, by offering each special perks that rivals do not. P&G-employed merchandisers visit stores about every two weeks to tidy the shelves of their products, post signs with the items’ prices and hand out promotional items. Local agents are now being used to strengthen ties with storeowners. Also, sales representatives deliver inventory to stores themselves, often sparing owners a trip to the distributor.
In marketing to poor consumers, P&G is mindful of budget-constraints and even the coins they carry. Because they are often paid a daily wage, Mexican customers generally carry five- and 10-peso coins. “If you want to sell to low-income consumers, you have to know what’s in their pockets,” Jose Ramon Riestra, P&G’s direct of high frequency stores in Latin America, told the Journal. “It doesn’t make sense to have something cost 11 or 12 pesos.”
To ensure satisfactory profit margins, P&G uses “reverse engineering.” Rather than create an item and then assign a price to it – as in developed markets – P&G considers what consumers can afford. From there, it adjusts the features and manufacturing processes to meet various pricing targets.
Internally, P&G emphasizes to employees that products developed for emerging markets must “delight, not dilute.” Quality is still critical.
“You cannot trick a low-income consumer, because they can’t afford to buy products that don’t work,” said Mr. Riestra. If a product doesn’t perform, “they won’t ever buy you again, and they’ll tell everyone they know about it, too.”
Discussion Questions: What do you think of P&G’s strategy to reach “high frequency” shops in developing regions? Anything particularly stand out to you in the way P&G is merchandising, marketing and even creating products for the world’s poorer regions?
[Author’s commentary] The thing I find interesting about articles like this is that they really bring you back down to earth. We talk about all the new in-store technology and my local supermarket has shelf talkers that literally yell out at me as I walk the store. But P&G is trying to reach the least affluent shoppers in the world, who really do represent the “Long Tail” of the consumer population.
The obvious answer P&G has found is to get some kind of presence near the “check out counter”, whether it is really a counter or just the table where the owner takes the cash. By having signage or product on display in this area, P&G feels they can get in touch with the consumer. This seems to have worked.
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P&G is executing a great strategy. It reminds me of the strategy that Colgate used when they first introduced their oral care products into rural India. Colgate used mini-vans to visit the rural areas, set up film projectors and showed films on the side of the van teaching the hows and whys of proper oral care, and then sold toothpaste in small sachets to overcome price objections.
It is great to see a public company such as P&G having the long-term vision of growing brand awareness in slowly developing countries. Profits won’t come tomorrow, but the long-term strategy is sound. P&G has said this in the past, and they obviously are following the same strategy: “Sell Tide to people where they get dirty.” In essence, take the product to the people, don’t wait for the people to find your product.
Years ago I was impressed when reading Coca Cola’s annual report stating proudly that 6 billion people every day have an opportunity to buy and enjoy a Coca Cola. Coke made sure it had its beverage products were geared to every shop in every market in every culture–everywhere, everyday.
P&G is following a similar–albeit more expansive–marketing and merchandising approach that Coke that has taken: establish an appropriate presence everywhere where there are potential customers and price the products at what the consumers in developing nations can afford. But as adjustments are made to accomplish that goal product quality must be maintained. P&G’s strategy to reach “high frequency” shops in developing regions will be beneficial to those new consumers and, when so, to P&G.
P&G and the small retailers are training the consumers in these developing areas to be more sophisticated shoppers, resulting in positives and negatives for P&G. On the plus side, the branding will bolster sales for a long period as long as the product is in stock. On the minus side, once shoppers get used to having these items available, when they aren’t in-stock there will be pushback and brand switching. P&G may be hoping to have problems like these because that is a proof point for a mature market, and they can then implement all the other tricks in their arsenal to create continued demand. But for now, they have to be careful not to upset the shoppers either with inappropriate marketing campaigns or poor logistics.
My experience in selling and marketing in the Caribbean leads me to believe P&G is on the right track…if you think about Dollar Stores in the US, the reverse engineering aspect used here can be applied to lower income populations around the globe. In my days we had to determine the size of the “target population” who could afford our products before entering a market. The P&G approach will work well in developing products people can afford but they still need to be culturally acceptable and fit into the lifestyles of the people they are targeting. I would also assume that distribution and marketing will be additional challenges they will face…but if anyone can do this I’m confident P&G can!
It’s a brilliant strategy if you want to be a true global player. Not everyone lives (or shops) in an American suburb and marketers of prestige CPG brnads need to find effective ways of reaching a mass world audience.
The lowest-wage nations have different needs. Certainly Coke learned this generations ago, using local micro-distribution methods that match local economics. I was on an island with no electricity off the coast of South America, and walked into the local store: a 25 square foot shack. This was the only store in town. They sold me a bottle of Coke, taken from a Coke-supplied refrigeration case. The Coke was warm, since there was no electricity on the island. But the big point is: Coke made sure a salesperson got to that store and got 100% market share.
P&G has done this for years in many developing countries. I’m sure they’ll continue to do an excellent job of determining which products are the critical brands to offer to consumers, as well as what ideal package size and formats would be. I worked in advertising Venezuela in the early 1980s, marketing the brands Ace (Gain detergent) and Drene (the original shampoo CPG). Consumer awareness and market share were extremely high, thanks to strong distribution and advertising, and in many cases, these were the only brands in those categories. It was always interesting when P&G would decide to distribute a second brand within a category, as it did with Ariel detergent. Many stores really were too small to carry two brands within a category, so choices had to be made (usually by P&G!) as to which brand to distribute. Of course, when another CPG manufacturer had a strong brand as well, it was interesting to see which company would win with stronger distribution–often there were strong regional differences, and sometimes it would just vary by store.
A consumer demand strategy says that you start with where your consumers are and then provide the right product at the right place at the right price for the consumers. Because the consumers don’t have much storage space and because they are paid on a weekly basis and because they visit the store on a daily basis, single serving packages are desirable–even if product placement needs to be negotiated store by store when there are no chains.
The pricing strategy is similar to the one many Japanese companies have used for years–figure out what the consumers are willing to pay and then create a product for that price.
Both of these are tested and proven strategies.
Interesting move by P&G…reminds me of an game changing competitive move by a local manufacturer to compete against the likes of P&G and Unilever in India.
The local manufacturer of shampoos and beauty creams launched a game changing package–selling shampoo in a singel use sachet for Rs 1 instead of the multi-use bottles that the multi nationals offered…this allowed for the trial and then loyalty to the product and it took some time for the multi nationals to figure this out….
Just goes to show that while P&G is thinking well and focussed, there are others who already have game changing ideas in place. Seek and thou shalt locate….
If my grandfather Laymon saw this article he would roll over in his grave. He was doing this very same thing in the 1930s during the depression and helped build the largest distributor of carded merchandise (Laymon’s World Products). He sold products in small quantities such as razor blades, aspirin and even condoms to small bodegas in the USA and all over the world. Poor people can’t afford to buy a bottle of 100 aspirin when they only need a dozen. By the late 1950s, the business had run its course. It looks like this type of business is making a comeback and P&G is taking a page out of grandpa’s 70 year old business model. The world is rapidly gaining population and unfortunately most of them will be poor. Too bad grandfather is not around to make a comeback.
It seems like this strategy holds vastly more ROI potential than the hundreds of millions of dollars they spend to eek out an incremental percentage point of growth in the U.S. I doubt that the company will have the patience or the focus behind this initiative; it seems like it will take decades to get a payback. Hopefully they stick with it, because there would be tremendous value for not only P&G but the economies they are trying to penetrate.
This is a very interesting approach by P&G to a difficult problem. Many of us have had occasion to do work in developing countries and found the marketplace as we know it at home is in its infancy.
The most common approach for manufacturers is to follow the development of the mass retail outlets. In Mexico, for instance, there are hundreds of thousands of local Ma & Pa stores and street vendors, but the grocery and mass outlets have emerged over time to represent the bulk of the volume.
The WSJ article focuses on the marketing and merchandising but there are other issues with this approach. They are redesigning products to meet this market and salespeople are “carrying inventory into the stores.” Going to a DSD (direct store delivery) system is a significant departure for a company like P&G. It represents a move to a business model more like that of Coca-Cola.
One can only assume that P&G has determined that they have reached a point of saturation in their normal business approach to these markets and view this as an alternative route to market. However, one has to wonder if this will prove to be economically feasible.
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P&G is executing a great strategy. It reminds me of the strategy that Colgate used when they first introduced their oral care products into rural India. Colgate used mini-vans to visit the rural areas, set up film projectors and showed films on the side of the van teaching the hows and whys of proper oral care, and then sold toothpaste in small sachets to overcome price objections.
It is great to see a public company such as P&G having the long-term vision of growing brand awareness in slowly developing countries. Profits won’t come tomorrow, but the long-term strategy is sound. P&G has said this in the past, and they obviously are following the same strategy: “Sell Tide to people where they get dirty.” In essence, take the product to the people, don’t wait for the people to find your product.
Years ago I was impressed when reading Coca Cola’s annual report stating proudly that 6 billion people every day have an opportunity to buy and enjoy a Coca Cola. Coke made sure it had its beverage products were geared to every shop in every market in every culture–everywhere, everyday.
P&G is following a similar–albeit more expansive–marketing and merchandising approach that Coke that has taken: establish an appropriate presence everywhere where there are potential customers and price the products at what the consumers in developing nations can afford. But as adjustments are made to accomplish that goal product quality must be maintained. P&G’s strategy to reach “high frequency” shops in developing regions will be beneficial to those new consumers and, when so, to P&G.
P&G and the small retailers are training the consumers in these developing areas to be more sophisticated shoppers, resulting in positives and negatives for P&G. On the plus side, the branding will bolster sales for a long period as long as the product is in stock. On the minus side, once shoppers get used to having these items available, when they aren’t in-stock there will be pushback and brand switching. P&G may be hoping to have problems like these because that is a proof point for a mature market, and they can then implement all the other tricks in their arsenal to create continued demand. But for now, they have to be careful not to upset the shoppers either with inappropriate marketing campaigns or poor logistics.
My experience in selling and marketing in the Caribbean leads me to believe P&G is on the right track…if you think about Dollar Stores in the US, the reverse engineering aspect used here can be applied to lower income populations around the globe. In my days we had to determine the size of the “target population” who could afford our products before entering a market. The P&G approach will work well in developing products people can afford but they still need to be culturally acceptable and fit into the lifestyles of the people they are targeting. I would also assume that distribution and marketing will be additional challenges they will face…but if anyone can do this I’m confident P&G can!
It’s a brilliant strategy if you want to be a true global player. Not everyone lives (or shops) in an American suburb and marketers of prestige CPG brnads need to find effective ways of reaching a mass world audience.
The lowest-wage nations have different needs. Certainly Coke learned this generations ago, using local micro-distribution methods that match local economics. I was on an island with no electricity off the coast of South America, and walked into the local store: a 25 square foot shack. This was the only store in town. They sold me a bottle of Coke, taken from a Coke-supplied refrigeration case. The Coke was warm, since there was no electricity on the island. But the big point is: Coke made sure a salesperson got to that store and got 100% market share.
P&G has done this for years in many developing countries. I’m sure they’ll continue to do an excellent job of determining which products are the critical brands to offer to consumers, as well as what ideal package size and formats would be. I worked in advertising Venezuela in the early 1980s, marketing the brands Ace (Gain detergent) and Drene (the original shampoo CPG). Consumer awareness and market share were extremely high, thanks to strong distribution and advertising, and in many cases, these were the only brands in those categories. It was always interesting when P&G would decide to distribute a second brand within a category, as it did with Ariel detergent. Many stores really were too small to carry two brands within a category, so choices had to be made (usually by P&G!) as to which brand to distribute. Of course, when another CPG manufacturer had a strong brand as well, it was interesting to see which company would win with stronger distribution–often there were strong regional differences, and sometimes it would just vary by store.
A consumer demand strategy says that you start with where your consumers are and then provide the right product at the right place at the right price for the consumers. Because the consumers don’t have much storage space and because they are paid on a weekly basis and because they visit the store on a daily basis, single serving packages are desirable–even if product placement needs to be negotiated store by store when there are no chains.
The pricing strategy is similar to the one many Japanese companies have used for years–figure out what the consumers are willing to pay and then create a product for that price.
Both of these are tested and proven strategies.
Interesting move by P&G…reminds me of an game changing competitive move by a local manufacturer to compete against the likes of P&G and Unilever in India.
The local manufacturer of shampoos and beauty creams launched a game changing package–selling shampoo in a singel use sachet for Rs 1 instead of the multi-use bottles that the multi nationals offered…this allowed for the trial and then loyalty to the product and it took some time for the multi nationals to figure this out….
Just goes to show that while P&G is thinking well and focussed, there are others who already have game changing ideas in place. Seek and thou shalt locate….
If my grandfather Laymon saw this article he would roll over in his grave. He was doing this very same thing in the 1930s during the depression and helped build the largest distributor of carded merchandise (Laymon’s World Products). He sold products in small quantities such as razor blades, aspirin and even condoms to small bodegas in the USA and all over the world. Poor people can’t afford to buy a bottle of 100 aspirin when they only need a dozen. By the late 1950s, the business had run its course. It looks like this type of business is making a comeback and P&G is taking a page out of grandpa’s 70 year old business model. The world is rapidly gaining population and unfortunately most of them will be poor. Too bad grandfather is not around to make a comeback.
It seems like this strategy holds vastly more ROI potential than the hundreds of millions of dollars they spend to eek out an incremental percentage point of growth in the U.S. I doubt that the company will have the patience or the focus behind this initiative; it seems like it will take decades to get a payback. Hopefully they stick with it, because there would be tremendous value for not only P&G but the economies they are trying to penetrate.
This is a very interesting approach by P&G to a difficult problem. Many of us have had occasion to do work in developing countries and found the marketplace as we know it at home is in its infancy.
The most common approach for manufacturers is to follow the development of the mass retail outlets. In Mexico, for instance, there are hundreds of thousands of local Ma & Pa stores and street vendors, but the grocery and mass outlets have emerged over time to represent the bulk of the volume.
The WSJ article focuses on the marketing and merchandising but there are other issues with this approach. They are redesigning products to meet this market and salespeople are “carrying inventory into the stores.” Going to a DSD (direct store delivery) system is a significant departure for a company like P&G. It represents a move to a business model more like that of Coca-Cola.
One can only assume that P&G has determined that they have reached a point of saturation in their normal business approach to these markets and view this as an alternative route to market. However, one has to wonder if this will prove to be economically feasible.