Most of the rest of the agency business seems to be having cyberspacial hallucinations as the real world passes them by in real time. The abject inability of ad agencies to wake up to the reality that retailers are the actual source of their rapidly escalating irrelevance, and turn it to their advantage, is nothing less than astounding. Ad agencies are slumbering because they have yet to gain consciousness of the opportunity to capitalize on the rising tide of the retail trade.
Most on Madison Avenue regard the retail community as if it were some outlaw nation, interested only in brands as hostages. At best, they reason, retailers are lowly merchandisers and price promoters. At worst, they are that dastardly bastion of slotting fees and diversion that saps traditional image advertising media budgets of their vitality.
All of that may have been true-years ago-and in some cases it still is. But it's also true that the retail trade is today emerging as a powerful platform upon which to build brands. A growing cadre of retailers, led by H.E. Butt, Dominick's, Publix, Vons and others, is learning how to make money from selling instead of from buying. Their mentors are none other than traditional ad agency clients like Procter & Gamble, H.J. Heinz, Keebler and Nestle.
Despite their power over manufacturers, leading-edge retailers are turning from price- and cost-cutting (i.e., the slotting-discounting mentality) to revenue generation, because otherwise they will not survive. According to Chris Hoyt of Hoyt & Co., five out of the top 10 U.S. food retailers have failed to grow on a same-store basis since 1981. Of the remaining five that gained, two cut their store counts by over 50%.
In addition to severe losses on non-grocery channels, food retailers are now in a dogfight for what remains: 18 of the top 25 U.S. markets are now dominated by only three retailers that control over 50% of their markets. The other seven are dominated by retailers who control over 40%.
Retailer responses to these realities primarily are to: 1) Reposition their stores as brands, anchored by highest-quality store brand products (what most ad agencies still refer to as private labels); and 2) work with their suppliers to develop strategic co-marketing programming that builds store and brand equities together. They are seeking long-term, proactive partnerships with like-minded manufacturers that are willing to share their consumer knowledge and brand-building expertise.
It is now not only possible to build brand image, loyalty and equity via co-marketing through retail channels, it is becoming an imperative. Given the trade's "store brand" vision, coupled with its stranglehold over how or whether brands are marketed at the store level, we have reached the point where communication with consumers (magical or otherwise) cannot occur without the full marketing-not just merchandising-involvement of the retail trade.
If advertising agencies want to know how to re-establish themselves as "strategic partners" with their clients, they must first recognize and accept that the retail mandate is not this week's novelty. The transition from mass marketing to co-marketing has been evolving for over 10 years and represents a permanent change in the way goods are going to market in this country.
If they want to restore their relevance to the business of building brands, agencies need to re-program their creative staffs to understand that image advertising can-and increasingly must-enhance retailer equity as it delivers consumer impact. Retailers are eager to build their stores as brands in tandem with national brands.
If they want to deliver what their clients need, agencies must reconfigure their account teams to help develop and execute account specific and local event marketing strategies (including image advertising, brand-not price-promotion and database marketing). Agencies need to understand the objectives of the retailer on a store-by-store basis and create interdisciplinary co-marketing programs that achieve retailer and brand objectives together.
Above all, agencies must re-educate their account professionals to comprehend that brand problems can no longer be solved simply by delivering better creative and more GRPs for their brands. They need to start thinking about how to deliver the best creative and more GRPs for the retailer-using their brands as the driver.
If ad agencies reassess the role of the retailer in brand marketing, starting today, their client relationships might not be in such jeopardy tomorrow.
Wake up, Madison Avenue. Your alarm clock has a retailer's face. Mr. Kramer is president of J. Brown/LMC Group, Stamford, Conn.