BEYOND PARTNERING

JAMES TENSER

Add this to your glossary of trade marketing buzz-words: co-marketing.

Its advocates maintain that co-marketing could be the Next Great Thing in the evolution of brand marketing and trade relations. While definitions vary, its premise is a joint focus on the consumer by manufacturer and retailer that results in chain- or store-cluster-specific marketing and merchandising.

That may not sound like an altogether new idea. Indeed, elements such as category management, efficient

promotion, micromarketing, multifunctional teams and the all-important strategic alliance have been on the rise for several years. But some supermarket retailers are shifting their collective mentality from procurement to marketing, and progressive manufacturers are restructuring to reflect better how their retail customers go to market.

"It's become a major buzzword out there, hasn't it?" says Richard Alt, vice president of national accounts and trade relations for Dial Corp.'s Consumer Product Group, Phoenix.

"We are working co-marketing to a greater or lesser extent with virtually every major operator in the U.S. Each is more or less ready to participate," he adds.

At Gillette Corp., "everybody is trying to figure out the best approach to partnerships. The tables have been turned between the manufacturer dictating the terms and the trade demanding more," agrees Chris Desrosiers, director of trade marketing and planning for the personal care division. "Both the trade and manufacturers have figured out that there has got to be a better way."

Marketing planning is increasingly a two-way street, says Bob Fallon, division manager of marketing and promotion for Ocean Spray, Middleboro, Mass. "God knows it is not just us selling them anymore. In many cases, [retailers] are selling us as hard as we sell them. Some of their marketing programs make sense for us and our consumers."

Fallon says retailers increasingly are doing their own research on their consumers. "If they spend time getting closer to those people and learning about them, we should take advantage of that and work with them on that."

Ocean Spray, Gillette and Dial are examples of forward-thinking brand marketers in the packaged goods business who have determined that beyond the rhetoric of trade partnering lies a goal worth attaining, even at the cost of rethinking their entire sales and marketing structures. Co-marketing is the label many are applying broadly to this process.

Executives contacted by Brand Marketing are understandably reluctant to discuss specific account relationships, but several cite Procter & Gamble's Bentonville, Ark., account team, which services Wal-Mart, as a co-marketing benchmark.

Several supermarket companies that are accomplished at category management are most often mentioned as active participants in co-marketing efforts. Kroger Co., Fleming Cos.and Shaw's Supermarkets are seen as advanced in this area. "Dominick's in Chicago now defines three separate levels of account relationships," one executive offers as an example.

Depending on whom you ask, however, different organizations define co-marketing in terms ranging from partnering to logistics to promotions to internal team structure. Often their definitions are a fair indicator of where their own efforts are currently focused.

Staunch co-marketing advocate Chris Hoyt, president of the consumer marketing division of Ryan Management Group, a Westport, Conn., consulting firm, prefers to describe co-marketing in terms of its ultimate expression in the marketplace. There, "leading manufacturers put their marketing and R&D people on-site at leading retailers to help them understand and develop a classic packaged goods approach to marketing their stores," Hoyt says.

In Hoyt's view, this approach must become universal among brand marketers who plan to survive the supermarket consolidation and market restructuring he sees as inevitable in the remainder of the decade. "It is the logical next step after category management and partnering. Now let's take advantage of the retailers' need to become marketers," he urges. "Look for meaningful relationships where there is a good opportunity for both partners."

Hoyt's philosophy is to shift the focus away from industry initiatives such as Efficient Consumer Response, which he feels emphasizes cost-cutting too heavily, and focus instead on boosting the net revenue line. (See related story below.) While Hoyt's point of view is controversial in some circles because it is critical of ECR and everyday low pricing, the word "co-marketing" is being uttered and understood in more and more conference rooms.

"Most companies see it as theory," admits Bob McLellan, director of sales for Fort Howard Corp., Green Bay, Wis., who worked through the early transition at Procter & Gamble in the late 1980s and now is helping to guide the process at his present company. "Every case with a customer is different because they each go to market differently. One focuses on marketing, another on replenishment, and another on full-pallet display. The key is to find their points of strength and differentiation and develop programs to meet them."

Tom McGough, product manager of trade marketing for Weight Watchers Food Co., Pittsburgh, says he has become familiar with the term more recently. He described co-marketing as "mutually beneficial manufacturer and retailer partnerships designed to grow overall category or store traffic through integrated trade and consumer promotions."

Says McGough, "We are really embarking on our first major initiative in January through April 1994." In Weight Watchers' case, the effort is centered around "Lose 10 Lbs. America!" an integrated program of custom trade promotions, consumer offers and national advertising now in the rollout stage.

Such a promotion-oriented approach is fairly typical of manufacturers who are taking early steps toward co-marketing. As he describes, the company is changing simultaneously on other fronts, too, as it positions for the future.

"This is really our first jump in with both feet," says McGough. "We have not evolved into the back office-type of partnering programs."

He continues, "It is important for us to begin with each retail account where we both are comfortable, then go forward from there. It is obviously an evolutionary path."

McGough added that Weight Watchers has for the first time begun investing in the purchase of key account data through Information Resources Inc., Chicago, to understand the retailers' business and its own business through that retailer's trading area.

A business development manager from a consumer products company in the Northeast also describes his company's effort as "in the beginning stages." He says, "We have several accounts at this point with which we are just learning how to do this."

His company is currently operating multifunctional teams with some key accounts, and is beginning to change internal titles to better reflect the new structure. So far he sees most co-marketing activity in the realm of promotions.

"I think it is an evolving process. You usually go in with a recommendation, but at the same time ask what's going on from their strategic approach, react to their recommendations and be flexible to make changes relevant to their business," he says.

"One opportunity is that it takes advantage of the talents and the knowledge of the retailer to use in a more advantageous manner. They are the closest to the consumer at the point of purchase."

At Gillette, the process also began with joint promotional planning, says Desrosiers. "Our trade marketing department has been active since 1989," she says, describing the broad and flexible menu of promotional programs available through the personal care division.

Today, the company does "lots of regional marketing and account-specific marketing," she says. "Now marketing is an annual planning process. We take a partnership approach."

Ocean Spray is yet a little farther along, says Fallon: "We are doing top-to-top with about 75 accounts on a six-month horizon, using their scanner data to understand how the category performs in relation to their market area, to do assessment and review. It allows us to get a real understanding and present these numbers back to the trade and say, 'Here are the opportunities for real and profitable growth.' "

Anil Jagtiani, partner in Marketing Corporation of America, Westport, Conn., a consultant who has closely studied the evolving nature of manufacturer-retailer relationships, regards co-marketing as a shift in orientation that can only arrive as supermarkets learn the importance of marketing vs. merchandising.

"Co-promotion is more the current reality. Not to denigrate it -- it is still very important," he says.

From detailed trade marketing survey results he gathered last year, Jagtiani concluded that retailers are quite naturally focused on building their stores and categories, while manufacturers want to build brands. True co-marketing -- retailers and manufacturers jointly marketing to consumers -- in his opinion will work only in those instances where a manufacturer's brand can actually help the retailer's category and store objectives. That, he says, implies that the retailer has the capability to actually identify those objectives.

Jagtiani's analysis reveals an area of opportunity for manufacturers who are looking for a way to make their products more important to their supermarket accounts: "Retailers are trying to become consumer marketers. They know what is going on in consumerland but they don't understand why. Many are taking this incomplete information and making decisions with it. They are forging ahead with new tactics -- new formats, frequent shopper programs, etc. -- without a clear strategy and clear consumer target."

He continues, "From the manufacturer's perspective there is this reality: He must engage the retailer or at best he may make lose-lose decisions. At worst he could wind up being relegated to being just a supplier, not a marketer."

In a marketplace besieged by trade consolidation, stockkeeping-unit reduction in the name of efficient assortment, and burgeoning store brands, such an evolve-or-die outlook is not viewed as extreme among product marketers familiar with co-marketing's principles.

"Retailers are under such profit pressures," observes the business development manager in the Northeast. "With low growth, they want to drive out costs as well. That may drive some manufacturers out of the store."

Adds McLellan of Fort Howard, "Companies that don't get on line with it are going to quickly falter, especially as the consolidation continues."

He continues, "If manufacturers don't change the way they are doing things, they are not going to have any business left. The points of differentiation between products are so slim."

He emphasizes that trade partnering was but an interim goal of a process that must take manufacturers along an evolutionary path from "compliance organizations to committed organizations." The shift to co-marketing requires a re-examination of "the basic function of work design -- how work is structured and functional responsibilities. That requires a commitment from the top."

But barriers to partnering -- both cultural and technical -- have frequently impeded manufacturers and retailers in their efforts to get beyond negotiating over the buying process to a true cooperative focus on the consumer.

Says McLellan, "I think the biggest obstacle to partnering is that senior level management is sometimes not willing to redefine their role. So a guy at the CEO level says, 'Why should I be tested now? Wasn't I tested enough getting here?' "

Lack of trust between suppliers and their customers can be another obstacle to co-marketing, said John B. Duncan, president of Duncan Group, a management consulting firm based in Charlotte, N.C. That wariness, he contends, is rooted in history. "It is almost a cultural phenomenon for U.S. companies that you should not be fully partnered. It's 'look out for the other guy who will try to take you,' " he says.

Gillette's Desrosiers agrees. "It all comes down to trust: Can you get me the information I need when I want it? That's what builds a relationship today."

When it comes to retailers' willingness to share information, says the Northeastern business development manager, "it varies widely by account. It ranges from a very free exchange to us literally buying it."

"At accounts with whom we are actually co-marketing, there is no selling of information," counters Alt. "More information is being made available. It is a process. You start on common ground in a place that's comfortable. As that increases, more information is shared between the parties."

"Our criteria for a co-marketing partner? Well, the customer must first be profitable for Dial," adds Alt. "No. 2 would be account interest."

Says McLellan of Fort Howard, "You can't partner with everybody. There must be a mutual dependency." For major accounts, the incentive may be guarantees of supply and quality, cost efficiencies, or help in category management.

In terms of opportunity, he adds, "your most important customers may not only be the biggest customers, but also the ones where there is the greatest growth opportunity."

Says Alt, "The biggest problem we have, retailer and manufacturer both, is a recognition and reward system that is not in alignment with the new vision. If you recognize and reward shipments, that's what you get. On the retail side, if you rely on inside margins, you don't get optimal sales."

With such knotty issues to work through, Jagtiani says, "Putting co-marketing into practice is going to be tougher than most people would believe. It requires that both retailers and manufacturers set their sights on consumers. Although both are making progress toward that end, there is still a long way to go."