Ecosystem shopper marketing

The need for recommendation-driven activation strategies

In the new shopping ecosystem manufacturer brands are and will be increasingly pressured from two sides, especially those in more commoditized categories, and those not able to make the step into becoming mega-brands with a pervasive presence and activation. Contrary to the strong trend of an emerging middle class in developing countries, the economic divide in the developed markets is broadening. At one end of the spectrum, shoppers are looking for value to stretch their spending. At the other, the Amazon Prime type of shopper, mainly households with an income over 100,000 USD a year, are looking for more and new expressions of convenience.

Traditional shopper marketing strategies for brand hegemony is becoming outdated. Since the introduction of retail brands, manufacturer brands have been under pressure. The introduction of retail brands fundamentally changed the role between manufacturers and retailers. Retailers moved from being an efficient distribution channel to also become direct competitors. With the emergence of big box retailers and discounters manufacturer brands have been squeezed by price, as well as by the retailer’s prerogative to shopper insights. The growing economic divide in developed markets is a key force in the continuous growth of the discounter and retailer brand segment. Discounters are also adapting to newer shopper needs of convenience by introducing convenience discounter formats, like Aldi in the UK. According to Nielsen discounter sales increased from 14.9 percent in 2001 to 22.2 percent in 2016. The global value share of private labels was 16.7 percent in 2016, and within the developed markets of the European Union 31.4 percent, with Spain and the UK at the helm with 42 percent and 41 percent, respectively.³¹ At first, retail brands were focused on price and the economy segment. In a second step, retailer brands entered the premium space of value-added brands, formerly seen as the privilege of manufacturer brands. Rebranding Tesco’s Finest, the premium range of the UK retailer with over 1.600 SKUs led to an uplift of £420 million of sales in 2018.³² Retailer brands also meet new consumer trends, not or only insufficiently met by manufacturer brands. In 1994 the Austrian retailer Billa, today part of the German Rewe-Group, launched the ecologyfriendly retail brand Ja! Natürlich. By 2010, the brand had reached sales of 290 million Euros with 1,100 SKUs in Austria. Retail brands are even reaching outside their own chains, like the German online pharmacy Doc Monis, formerly part of the Celesio group, and now acquired by the Swiss Zur Rose group, that has started to sell its branded bandaids in the Austrian drugstore BIPA. With more premium retail brands, shopper segments somewhat up the scale are being targeted and new discounter formats are capturing some of the convenience shopping occasions. All this is supported by improved market knowledge and refinement of shopper and channel strategies in terms of segmentation, price optimization and brand and product development to cover different consumption need states and consumer and shopper segments.

The model of retail brands has been developed over decades, and manufacturers have developed an arsenal of defense strategies to fend off these attacks, mainly along two dimensions, brand and cooperation. On the cooperation axes, the ECR approach has been refined, and many manufacturers have produced some of the retailer brands. The advantage of manufacturers has been their focus in terms of target consumers, as well as in investments to build brands, thereby, in the best case, building awareness and tiust with consumers and shoppers. Through innovation, manufacturers are increasing the value and relevance of the category, helping to keep ahead of retailer brands, and simultaneously helping retailers to attract shoppers and increase the value of the shopping basket.

Manufacturer strategies built on brand building, collaboration and execution have been developed for the classical retail landscape, constituted mainly by producer, retailer and shopper. With the introduction of the modem retailer in the 1920s in the USA, the brand and how it was presented superseded the importance of the store clerk’s recommendations to the shopper. The role of advertising through some key media during prime time, the presentation in store, through placement, point of purchase material, packaging, as well as retail flyers, coupons, etc. became the prime brand builders. This was a one-way conversation directed from the manufacturer toward the consumer and shopper during his relatively simple and short shopper journey. The brand strategies to counter economy products, as well as premium retail brands have been, as far as possible, perfected. To fend off the threat from retailer brands, manufacturers have refined their approach to segmentation, pricing, activation and execution, thereby understanding in detail the price premium they can charge, and how to best reach different customer segments, also with value, or fighter brands, if needed. Through investment in brand trust and innovation, manufacturers have been leading the development of categories, also in the interest of retailers in terms of drawing traffic and shopping basket size. Manufacturers have relied on the traditional way of one-directional and visual brand activation, through advertising, presence, location, space, packaging and point of purchase material, including flyers and coupons from retailers. Needless to say, the more commoditized the category, the more difficult is the branding strategy of manufacturers.

Shopper journeys have undergone radical changes, leading to the need for new activation strategies in the emerging shopping ecosystem. Today 90 percent of shoppers use three or more touchpoints on their journey compared to just a few years ago, when 70 percent used two or fewer touchpoints.³³ Research from Nielsen shows that 66 percent of respondents see electronic interaction as replacing face-to-face interaction in the future.³⁴ In this new environment one-directional, awareness building is being replaced by information seeking, conversations and peer-to-peer recommendations across the internet, applications, and social media platforms. Additionally, how to activate consumers and shoppers is changing, and thereby reducing the traditional arsenal of manufacturer brands to build preference. In particular the big four technology companies are changing the rales and moving the triangle of manufacturers, retailers and consumers/shoppers into a multi-stakeholder ecosystem. Technology and digitalization expand the connection with products from mainly visual to more recommendation-driven activation. Recommendation-driven activation started with search engines, then incorporated ratings, and is now moving to voice ordering. Through smartphones, it is not limited to the online world, as omnichannel concepts evolve, and shopping becomes about checking in, rather than checking out, shoppers are connected also in the brick-and-mortar world, and recommendations can supersede classical visual activation in the store.³⁵

Technology and digitalization have redefined convenience and introduced new players into the shopping ecosystem. The former triangular biotope of consumer/shopper, manufacturer and retailer is continuously changing into a frill ecosystem, including the tech giants GAFA (Google, Amazon, Facebook, Apple), aggregators, apps, influencers, a new delivery biotope, and in fact the shoppers themselves in a new role as reviewers.

Digitalization and technology are putting manufacturers under pressure on how to activate their brands, and who will lead the ecosystem surrounding consumers and shoppers. The new pressure on manufacturer brands is about the hegemony of recommendation and activation along the shopper journey, about more personalized offers better meeting consumer and

Connecting routes to purchase and market 149 shopper needs, and it entails more protagonists striving for ecosystem dominance, including the big four technology companies.³⁶

The tech giants are planning to spend more than 1 trillion USD on voice-based shopping solutions. Already today, shoppers asking Amazon’s Alexa to buy batteries only get one option, Amazon Basics.³⁷ Around 70 percent of word searches done on Amazon’s browsers are for generic goods and not for specific brands. Among tests done for unbranded searches, 55 percent of first recommendations were Amazon choice products. It is predicted that by 2020 128 million Echo devices will be installed in households. Amazon’s top ten private labels get the lion’s share of the exposure that the e-tailer’s private brands receive from customers, accounting for a resounding 81 percent of all the customer reviews left for Amazon private labels.³⁸ In addition, Google has entered the race and has incoiporated foodordering features into its mobile apps.³⁹

The growth of the importance of retailers, and especially discounters, changed the way manufacturers had to work in terms of refining their methods of segmentation, pricing, branding and activation, and they had to introduce key account approaches and new ways of collaboration, most notably ECR. In the new reality, manufacturers need to develop tools and structures of advanced marketing analytics, ecosystem management, and more recommendation-driven activation.⁴⁰