A TASTE OF MONEY

JAMES TENSER

In-store sampling events work so well at generating new product trial, building brand equities and driving volume that many brand marketers willingly shell out millions of dollars to put programs into the field.

Retailers know this, too, and lately a handful have begun charging brand marketers for the privilege of store access. Fees of $5 to $8 per store day are not uncommon, especially in East and West Coast markets, with charges at a few bold retailers approaching the $40 level.

For a midsized national program of 10,000 to 12,000 store days, these charges can easily top $70,000, due before

the first sample is tasted or the first coupon redeemed. This added layer of cost has alarmed major sampling and demo agencies, who say they detect among their clients a reluctance to work with retailers who charge high fees. Brand marketers don't appear quite as worried.

"There are discussions taking place in the hallways of manufacturers that say, 'Maybe we need to look at alternatives in the markets where the chains charge a fee,' " says Ted Bohnen, vice president of sales at Smart Demo, a division of Time Inc. In-Store Marketing, New York.

Bohnen adds, "Companies are spending so much money on in-store demos that they are looking at who is supporting them in the chains and who is not. Some may choose different tactics with chains so that they will support it."

Adds another demo firm executive who insisted on anonymity, "Kellogg and General Mills have reduced outlays significantly in this area." If that is so, the big cereal marketers are not about to talk about it, although when pressed, a General Mills spokeswoman admitted that the issue holds some strategic importance.

Brand marketers Pillsbury Co. and Pepsi-Cola Co. seem not at all anxious about access fees. While both companies say they have paid on occasion and are monitoring the situation, neither admits any deep worry that the practice is getting out of hand.

"They are becoming more prevalent," says Chris Romoser, a spokesman at Pepsi-Cola Co., Somers, N.Y. "Yes, sometimes we have to pay access fees. Our experience has been that the results more than justify the cost of the process."

Says Greg Lincoln, director of brand communications at Pillsbury, Minneapolis, "Our records show about six accounts in the West and Southwest that have imposed access fees recently. Whether you count that as significant depends greatly on how heavily you want to use those accounts in your program."

Depending on your perspective -- which on this subject may boil down to whether you are a retailer, a demo agency or a brand marketer -- the advent of access fees may represent either (a) a handy new source of rental income, (b) a threat to the American way or (c) just another bump in the road to unlimited promotion.

"Accounts see the demo business at this point as an opportunity to generate incremental income above and beyond moving incremental merchandise," says Dan Ailloni-Charas, chairman and chief executive officer of Stratmar Systems, a demo firm based in Port Chester, N.Y.

"For them this is a profit center," he continues. "They ask the manufacturer to pay access fees. Then they go to the demo company and ask them for a fee to work in your stores."

"Retailers have correctly surmised that the marketers will pay the price," says David Schwartz, president of Super Marketing, Minneapolis. "Big sampling programs are integrated into success of a new product, so at the moment the retailers are charging fees because the market is willing to pay for it."

Growth in the demo business has been robust this year, says Schwartz, who puts the total size of in-store sampling and demonstration business at roughly $400 million. "The trend on a a national level is still to see demos being done on a greater level. They are doing more and bigger programs," he says.

For a massive sampling program like Pepsi's Value Pack promotion this past summer, in which 14.5 million wet samples of Ocean Spray Lemonade, All Sport Body Quencher and Lipton Original Iced Tea were distributed over 32,000 store days, the prospect of $70,000 in access fees is barely a factor.

"In-store sampling can be expensive, but it is a great way to get massive amounts of samples out there to generate trial and drive volume. It has been especially effective for Pepsi in introducing new products," says Pepsi's Romoser.

Headline-making demo programs like Pepsi's Value Pack appear to prove the vitality and viability of in-store sampling as a promotional technique. Even worried national in-store agencies concede that their market is growing. However, argues Wayne Locurto, president and CEO of Actmedia, Norwalk, Conn., "the cost of access is damping that growth."

One reason for brand marketers' apparent nonchalance about access fees up to now may be wariness about spreading the practice to retailers in other areas of the country.

Says Locurto, "Now it is out of the closet. People didn't want to talk about it and give other retailers the idea."

"It is not a national phenomenon yet," adds Schwartz of Super Marketing. "Access fees are currently skewing toward the East and West coasts."

Perhaps the highest access fees in the country are being levied in Los Angeles, where major supermarket chains such as Vons Cos. and Ralphs Grocery Co. compete intensely on price and struggle to carry high debt loads. In the search for cash flow and profits, in-store programs of all kinds are an easy mark.

Aggressive retailers can pull profits out of in-store demos in two basic ways: directly in the form of access fees to the brand marketer, and indirectly by layering on fees to the demo agency.

Says Time Inc.'s Bohnen, "At more and more stores -- particularly in certain markets -- some charge fees due before you do anything at all. Retailer fees range from $8 to $40 per day just to be in the store. Those charges tend to be highest at the West Coast chains."

He adds that several chains out west are now also layering on additional access fees to the demo agencies. Those presently range from $3 to $9 per store day.

"Several retailers went to each agency in California and said, 'We think you should pay an additional fee to us, since you are the ones doing business with us,' " Bohnen says.

Some retail chains have made exclusive agreements with demo services. Such "preferred" demo firms may sometimes be their own internal company or more often outsiders with one-year or two-year renewable agreements. "We have found that whenever a chain arranges for a mandated agreement, the fees jump an average 25%," said Ailloni-Charas.

While retailers may claim a need for control over their retail floors, demo companies argue that such exclusive relationships tend to erode performance standards.

"I'm not a believer that exclusive relationships are good for the business," says Schwartz. "Competition is what makes the world go around. Take away the competitive environment and you create the worst possible situation for quality.

"I have seen situations where quality is harmed, very much so -- to the point where those chains aren't getting as much business as they used to," observes Schwartz. "Some major chains are booking fewer days, even though the total pot has grown."

One possible response for brand marketers is reapportionment of spending, says Actmedia's Locurto. "We have some major clients that have refused to pay access and demo fees and will not offer those retailers major programs.

"Manufacturers are not at a loss for alternatives," he adds. "We are starting to do demos in drug stores, category killers, out-of-store."

"We have got loads of places to spend our money," agrees Pillsbury's Lincoln. Those choices extend to other forms of promotions and alternative retail channels, not just other retail chains or other markets.

"It depends on brand strength. If you don't need those markets, you can get around it. Rarely are these sampling programs full-blown national in 200 designated market areas. In many sampling programs, you are choosing markets anyway."

Schwartz says he detects a shifting of dollars away from retailers that have high fees. He cites a group of "select chains in northern California" that don't even get recommended for demos at all.

"We are already seeing marketing dynamics taking effect," he says. "Some manufacturers won't pay fees. Some retailers are getting fewer store days.

"There are some manufacturers who refuse to go and demo wherever a fee is charged. They have taken that stance and stuck to it for years," notes Schwartz.

"There has to be a return on investment," says Ailloni-Charas. "The return doesn't go any higher, but the investment is growing. So productivity is declining and declining fast."

As long as high fees and exclusive arrangements remain isolated in pockets of the nation, many brand marketers say they are unlikely to alter their methodology much.

As Pillsbury's Lincoln suggests, "So the real debate becomes, is this a trend? Will it become widespread? If so, how do you react? My answer is it's too early to say."

High access fees, he adds, "have the potential to tip the decision. They have not in our case yet."

Despite the worries of the demo firms, whose interests may certainly be damaged if brand marketers are forced to cut back on total demo days due to higher fees, brand marketers such as Pillsbury and Pepsi remain sold on in-store sampling.

"In-store demos are a good way to move goods and build franchise. It is one-to-one with the consumer on the retail floor," says Ailloni-Charas. "But if you get to a point with the manufacturer where it is cheaper to give your product away free, then you are in trouble."