International: The Fastest-Growing Medium? Shopper Marketing

BATAVIA, Ohio (AdAge.com) -- The fastest-growing medium isn't the internet, but shopper marketing, where retailers and package-goods marketers are shifting hundreds of millions of dollars -- doubling their expenditure in the past three years alone.

That's according to a draft report of a new study obtained by Advertising Age and expected to be released tomorrow by Deloitte Consulting for the Grocery Manufacturer's Association. The growth comes despite the fact that marketers have yet to figure out how to define, measure or administer their shopper-marketing efforts.

More growth expected
The study finds shopper marketing has grown from 3% of the overall marketing budgets of the 19 package-goods manufacturers surveyed in 2004 to 6% this year. The manufacturers expect it to reach 8% of marketing budgets by 2010.

That puts the compound annual growth rate for their shopper-marketing spending at 21%, faster even than spending on internet advertising (rising 15% annually) and far faster than the 2% growth projected for spending on such traditional media as TV, print and radio.

Retailers are boosting shopper-marketing spending even faster, which isn't surprising since much of the spending takes place in their own stores. The report pegs growth there at 26% annually, even as spending on traditional media by the eight retailers' surveyed declines about 1% annually.

The growing importance of shopper marketing could tilt the industry's balance of power even more toward retailers, which, besides being the distribution channel, also ultimately own the fastest-growing advertising medium for their suppliers too.

Trade spending down
Shopper marketing is sometimes conflated with trade promotion -- dollars marketers pay retailers, or deduct from the cost of goods to receive such things as temporary price reductions, special merchandising displays or features in store circulars. But Deloitte's new survey of manufacturers actually projects a compound annual decline of 2% in such conventional trade spending.

The findings dovetail with the recent move by uber-package-goods marketer Procter & Gamble Co. to restate its reported ad-spending figures to reflect shopper marketing. Based on the movements in P&G's restated advertising figures over the past 11 years and a definition similar to that used in the survey, the company appears to be spending at least $500 million out of its total $8 billion in global ad spending on shopper marketing.

Despite the growth, shopper marketing still lacks any generally accepted definition, the report acknowledges. "There is wide-ranging debate across the industry on what comprises shopper marketing," the draft report says, noting that views vary on whether trade promotion, private-label marketing by retailers, or advertising that occurs outside the store but is directed at a retailer's shoppers should be included.

Officially, the report opts for the broadest -- and perhaps fuzziest -- possible definition: "All marketing stimuli designed to engage the shopper, build brand equity and lead him/her to make a purchase while he/she is in 'shopper mode.'"

Narrower definition The report's own spending survey, however, uses a narrower definition that separates such things as trade promotion and co-marketing (or joint manufacturer and retailer marketing programs) from shopper marketing for the purpose of the analysis.

What's left of shopper marketing -- which would appear to be largely made up of in-store media such as TV, floor or shelf ads as well as in-store signage and displays -- is still growing considerably faster than those other categories of spending.

Shopper marketing also has been hampered by lack of audience-reach measurements comparable to other media, which in turn makes it hard for marketers or agencies to make spending decisions or do post-campaign effectiveness analysis on shopper marketing the same way as for traditional media.

That's something industry players are seeking to address, in conjunction with Nielsen Co., as part of Nielsen In-Store, which will report results of its-initial pilot testing of an in-store audience measurement today at the In-Store Marketing Expo in Chicago.

Supply crunch
Despite growing demand for in-store marketing opportunities, retailers increasingly are restricting supply, the study notes. Because of "clean-store policies" that restrict the number and types of in-store ads or merchandising displays, the total number of retail displays have declined 4.4% in the past year and 9.1% in the past two years.

"Retailers have become very selective and extend the most valuable offers to their 'diamond vendors' (e.g. Pepsi is able to place their displays, end caps and banners in store despite clean-store policies)," the report says, noting that some manufacturers will be crowded out.

Retailers are getting increasingly sophisticated about transforming the store-as-medium into a business, the report notes, as the industry shifts from manufacturer-initiated offers to retailer-initiated ones. The report cites the Meijer Mass Marketing program from the Midwest-based supermarket chain, which offers several in-store media and tactics to manufacturers.

Profit margins on such programs are likely to be considerably higher than the low-single-digit net margins common in retailers' core business of selling merchandise to consumers.

The growth of shopper marketing has also created yet-unresolved issues for how marketers organize their efforts. P&G recently began moving most of its shopper marketers into the same brand groups that handle the rest of the marketing mix, but that's still the exception, not the rule, according to the study.

Of the 19 manufacturers and eight retailers surveyed, only 30% put primary responsibility for shopper marketing in their brand or marketing groups, 45% put it in sales, 15% put it within a market research or analytics group and the remaining 10% divided it between groups or had a separate unit for it.

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