Wal-Mart Wants More Ad Dollars
Wal-Mart Stores’ attitude concerning the marketing dollars it should get
from manufacturers is pretty straightforward. If a supplier generates X percent
of its sales from Wal-Mart, the retailer wants that same percentage of the
vendor’s ad and promotional budget. That is what it is asking suppliers to
pony up.
A report on the Advertising Age website, calls the action “probably
the boldest retailer grab for suppliers’ consumer-marketing funds ever.”
In recent months, Wal-Mart has rolled out its “cost-supplement initiative” to
obtain what it views as its fair share of dollars for use in co-branded media
spots, the chain’s in-store network and on walmart.com.
Ad Age estimated that if suppliers were to accede to Wal-Mart’s
wishes, the chain would bring in more dollars from a single manufacturer
(in this case Procter & Gamble) than it spent on its own all of last
year.
Reluctance on the part of suppliers to participate in Wal-Mart’s program
could prove harmful to a brand’s prospects, especially if it is a slow mover.
The chain has been looking to cut back on its product assortments by 15 percent
overall with much higher percentages in categories not considered critical.
Leon Nicholas, director of retail insights at WPP consulting firm Management
Ventures, told the publication that it is implicit that suppliers that meet
the retailer’s demands will “get more favorable treatment and placement.” Mr.
Nicholas said that while consumer demand is Wal-Mart’s prime criteria for
making distribution and space decisions, marketing funds (or lack thereof)
can play a deciding role.
According to Ad Age, no major marketers have met Wal-Mart’s demands.
If they did, it would mean they would have to do the same for all other merchants
or risk violating Robinson-Patman.
Discussion Questions: What do you think of Wal-Mart Stores’ push to
get ad and promo dollars from suppliers that is proportional to sales?
Will suppliers comply? Do you expect to see other retailers follow Wal-Mart’s
lead?
I assume Walmart is trying to grab its share of co-op dollars, not vendors’ total ad dollars. (Most of these dollars, especially for CPG companies, still need to be reserved for their own marketing efforts such as TV and promotions.) I don’t think Walmart’s request is unfair even if it sounds aggressive. Doesn’t it make sense (at least on paper) to support your largest customer at least with a proportionate share of co-op dollars? And in a climate where that huge customer is gaining share at the expense of almost every other competitor, doesn’t it make sense to make sure you are on the train before it leaves the station?
This is not surprising, is it? Wal-Mart has been moving in this direction for years, and in fact, it is simply another step in their goal of “owning the manufacturer” as well as the customer. For years, Wal-Mart has made “suggestions” as to what types of products manufacturers should produce for their customers. They then have made suggestions as to how products should be packaged for their stores, and how they should be shipped. They have encouraged manufacturers to bring the product to their shelves at a specific cost. And now they want to tell the manufacturers and brand owners how to spend their marketing dollars.
When one retailer tries to have this much influence over a brand owner, the brand owners should be concerned. I think they are.
Walmart’s desire to reap more cash from manufacturers never ceases to amaze me. I hope that suppliers do not comply with this latest cash-grab. It would set a horrible precedent and trigger significant Robinson-Patman concerns, to say nothing of frivolous lawsuits from other retailers.
When you are the big gorilla, you can get more than the normal retailer. Walmart is over 50% of the business for many vendors. The vendors feel like they have to do what Walmart wants. Walmart will be successful with at least their top 100 vendors.
Ah…good ol’ Walmart trying to control the universe again. You know, if it weren’t for their volume….
I’m big on a strong vendor/retailer relationship and I have to wonder why Walmart is always so adversarial with their own suppliers.
This is just a cash grab for Walmart, they don’t need the extra marketing dollars. Instead they should ask for straight up invoice credits or minor cost reductions to make their shelf prices more competitive. Wal is slowly losing it’s reputation as being the cheapest out there (and in many categories they are actually much more expensive then some grocery chains here in the Toronto area). Focus on the shelf instead of making your suppliers crazy. But from personal experience, this is a cultural thing within Walmart.
From the AdAge piece: “Walmart is looking for a share not just of trade-promotion funds but also consumer-ad dollars.”
There is some rationale to Wal-Mart’s thinking. That being said I wonder how they would feel if they were not the giant that they are.
This certainly places manufacturers in a difficult space in these times. All retailers at looking at SKU rationalization (i.e. reduction). Losing a SKU in a single local store or even a regional chain for that matter is not the same as losing one at Wal-Mart. However, if this does take place, and other retailers place the same demands, it means manufacturers will continue to hasten the demise of the smaller retailers and will find themselves with a very limited number of larger powerful retailers. Is that what they want?
If you represented 30% of a company’s sales yet that company was throwing dollars at marketing vehicles that aren’t core to your strategy, what would you do? One of the questions that we are hearing more and more from marketers is some version of “What should my marketing spend break-down look like?” This is a burning issue as some retailers (such as Walmart) step out into emerging media while others insist that their suppliers support traditional media. Walmart is helping solve the conundrum while at the same time getting its fair share of the pie.
Another factor that looms large: As the economy worsened and as marketers got better at assessing true profitability (post returns, advertising spends, charge backs and the like), Walmart’s up-front margin proposition didn’t look so bad. However, plenty still have taken a to-the-initial-margin-winner goes-the-spoils approach to divvying up marketing dollars. With this move, Walmart is also claiming the right to get paid first.
For all that is said about Walmart I have contended for a very long time that Walmart is the most user-friendly retail customer of any for manufacturers and suppliers. Walmart for many years has been very black and white and easy to understand in terms of EDLC, net pricing, etc. And unlike many other retail chains, very few of the manufacture’s dollars are taken for granted or wasted for the funding of weakly executed promotions, fees, and other phantom programs that often do not give the manufacture a good ROI.
I agree with Joel. I don’t think we can be surprised by this. Wal-Mart has always used its size to squeeze every penny out of its vendors. And vendors, while not happy, resign themselves to the fact that they sold their souls a long time ago and there’s no going back.
Should they get an equivalent percentage of marketing dollars to the vendors percentage of sales through their doors? Why not?
But here’s the scary part; there will come a time, not too long from now, when Wal-Mart will begin its decline. Boomer spending will dry up. Gen Y preferences and shopping habits won’t support the “stack-it-high” business model and Wal-Mart, as we know it, will die.
Those vendors that failed to see the writing on the wall and simply continued to make themselves more inextricably a part of Wal-Mart’s operations, will go down with them, proving once again that unbridled greed is not a sustainable strategy.
Walmart is bringing the manufacturer into the “Consumer Equation.” If the manufacturers link in with Walmart buyers, and take the time to understand what, how, where, when, and with which consumers it is willing to connect, a better plan will evolve. The consumer is in charge in today’s marketplace, and both Walmart and the manufacturers have to hold that perspective.
If this is a mere money grab, the initiative goes nowhere. Time to get the lens focused on the consumer–both parties will be winners.
Walmart has the strength but like so many giants it has little finesse. Any sanctions that are imposed on suppliers will have a negative effect on consumer choice.
I disagree with you Doug, your comments seem directed towards a Walmart retailer of 5 years ago versus to the Walmart today.
You characterize Walmart’s merchandising strategy as “Stack it High” and its core customer as Baby Boomers.
Walmart has launched a strategic overhaul of its merchandising and operations that seeks to respond to a changing retail landscape. These changes include Vendor and SKU/Assortment rationalization; Marketing and Merchandising re-balancing and a fiscal imperative that seeks to maximize ROII; an environmental and social overhaul that recognizes corporate and aspirational responsibilities.
Whether these changes ultimately improve Walmart’s performance and continued viability will be proven out by time. But they are clearly not standing still which is a hallmark not of a dying or declining company, but one with and eye to its future.
One of the elements being missed here is that Wal-Mart has put great effort and thought into creating alternative vehicles to justify grabbing national ad spend from marketers. From Elevenmoms to website banners to In Stores Now and soon/now the Smart Network, WMT is adapting to the changes in communication methodology.
Several facts really should be brought up. First, WMT’s website averages over 50 million monthly unique visitors. By definition, if a marketer is selling product to WMT, these are perfect customers. Second, the number of unique store visits is some astronomical figure. Again…perfect targeting if a marketer is already selling stuff in that store. While we tend to view these things as “coop” because they are related to the store itself, in fact, they are truly extremely focused opportunities for marketers to influence consumers in the midst of the purchase process.
Traditional media isn’t working as well for anyone as it used to…TV, radio, or print. If that’s the case, and if dollars are going to flow into digital/alternative (and everyone seems to think they will), then why not into digital/alternative focused at the point of sale? Isn’t that really the holy grail for marketers?
Linking marketing spend to presence in-store or on-shelf isn’t heavy handed. It is simply good business. This is in no way going to stop WMT merchants from carrying hot items, brands or lines which blow through their stores and are not supported by ad spend. The vast majority of products carried by full-line multichannel retailers aren’t supported by huge ad budgets.
Before we get too critical, let’s look at this as a potential win for everyone. Marketers want to reach consumers without clutter and without avoidance. Retail websites and stores are “opt in” experiences, which factors out avoidance. With limited real estate (online and in store) the clutter factor is reduced significantly. Further, as already noted, the point of impact is during the purchase cycle.
The supplier community will need a backbone on this one. First, Wal-Mart demands dead net costing. This means all the supplier trade promotion (off invoice, bill back and market development) funds are in the cost of goods. What Wal-Mart is now demanding is the consumer advertising and promotion budget from suppliers. Any supplier that gives in to Wal-Mart must, by law, give an equal amount of this consumer budget to every other distributor. Wal-Mart is not making any commitment to spend all the supplier consumer funds on the specific brand that provides the funds. Thus the supplier will be reducing their brand awareness. I can think of nothing worse for a brand than to reduce or quit brand advertising. This will reduce the brand life cycle faster than anything else a supplier can do other than a recall.
I take it this is why Wal-Mart pulled out of Nielsen’s PRISM initiative. They didn’t want their in-store media space evaluated against anyone else’s.
My point is a bit contrary to the words and tone of most of the other comments.
This is an opportunity for suppliers! It provides the distinctive ability for CPGs to provide targeted messages to promote and sell where and when shoppers are making their buying decisions.
Walmart and other retailers know major CPGs have huge advertising budgets. Diverting funds from increasingly less effective traditional media to a media which creates immediate sales lift is what CPGs should have requested. The perfect media would have no wasted circulation, provide measurable sales lift and offer shoppers reasons to buy their products at the place where they can. This is what Walmart is proposing.
I think the issue is that ‘mandating’ is a more appropriate term than ‘proposing’.
Target should instead focus on their profile customers, who–as others have commented above–don’t necessarily care about comparisons to Walmart. Cultivate those distinctions that attracted Target customers in the first place: style, quality and shopping experience. One thing you can count on, Walmart is well focused on its key customer segments and continues to strive to build loyalty by driving prices down further. Be careful who you pick fights with, and over what.