DEMONSTRATING CONTROL

JAMES TENSER

When Lifesavers Co. mounts a national in-store sampling and demonstration program these days, it faces tough decisions over whether the promotion should include some of its largest accounts.

Mandated services are the issue for those retailers, says Cathy Snow, group promotion manager at Lifesavers, Winston-Salem, N.C., an operating unit of Nabisco. She says her company is encountering more chains that require brand marketers to work through sampling and demo agencies which they, not the brand marketer, have designated.

"In those situations, we have no choice. We have to comply with whatever the retailers want. It makes things a little bit more expensive and it can make them a little more complicated," Snow says.

Like other heavy users of in-store sampling in recent years, Lifesavers is learning to work within the store access rules established by its accounts. Much of the time that simply means doing it their way. Sometimes it means paying a premium to gain access to certain chains.

"In our sampling activities, we work within the guidelines set by our

customers," says Lynn Markley, senior group manager of public relations at Frito-Lay, Dallas, which has mounted several large-scale sampling programs for its new snacks in the past two years.

While the brand marketers contacted for this article keep a calm demeanor about retailers' preferred provider requirements, the companies in the highly competitive in-store sampling and demonstration industry are sharply divided about the practice.

Some are openly courting retailers with the promise of a new profit center and greater control over their store environments. Others are warning that restrictive, profit-motivated retailer policies threaten to undermine many of the benefits of sampling programs.

The two points of view on retailer mandates tend to track closely with the agencies' belief about who is their primary customer. In a business activity that depends on both the retailer's grant of access and the manufacturer's willingness to pay, there may be no simple answer.

"It's a real difficult dynamic," says John Block, managing director of Market Growth Resources, a promotion agency in Wilton, Conn. His company sold its Smart Demo division to Time Inc. In-Store Marketing, New York, about two years ago.

He adds, "When a sampling agency is invited to participate by a retailer but is selling its services to the manufacturer, who are you responsible to? Can you continue to have two masters?"

Jim Harmon, vice president of sales at Sunflower Group, Overland Park, Kan., says his company has tracked an upsurge among retailers who opt for exclusive contract arrangements with local and, occasionally, national demonstration companies.

Harmon is especially critical of competitors which champion the notion of demos as a retail profit center. "I'm a purist; I think there is no validity there. It is far better to look at the cash registers and focus on the outcome, the benefits of the event to sales."

Among Sunflower's national competitors, at least three -- Mass Connections, La Mirada, Calif.; U.S. Concepts, New York, and ActMedia, Norwalk, Conn. -- are frequently mentioned as active pursuers of retailer exclusives.

None have been more successful in this pursuit than Mass Connections, which concluded an exclusive agreement last September with Wal-Mart Stores, Bentonville, Ark. All in-store events at the chain now must be coordinated through the agency, which in turn subs out the in-store work to a network of some 200 local demonstration companies, many of which compete with one another.

Keely Beene, demo coordinator at Wal-Mart, confirms the arrangement, which covers the entire 2,000-store chain. In a letter to demo companies circulated Sept. 26, she designated Mass Connections as the sole agent permitted to schedule programs, coordinate and contract with local agencies, then monitor, report and handle billing.

The arrangement puts Mass Connections, which takes an incremental $15 per store a day as its fee, in a position of considerable power. Not only must account-specific programs be coordinated through the agency, but national programs must be handed off to it. To critics, that's a pretty good definition of cost and complexity.

But Caroline Nakken, a principal owner of Mass Connections, says the arrangement does not mean that Wal-Mart has compromised on its core principles. "Wal-Mart doesn't want added layers of cost. If they thought we were adding to the cost of goods, we would not be there," she says.

"The manufacturer benefits from the standpoint of competition between the local demo firms," she adds. "Wal-Mart benefits from more cases sold and a better job."

Mass Connections earns its fee, Nakken says, by ensuring continuity and program performance for both the retailer and the manufacturer. Working from pre-established program criteria, its job is to book the services locally, work with the store managers, manage the schedule to avoid any conflicting items and audit reports on the programs.

"We act as a watchdog over what goes into the store as far as POS materials, coupons. We make sure it is consistent with Wal-Mart policy," she says.

Nakken contrasts her company's arrangement with Wal-Mart with those of more restrictive, in-house agencies operated by some supermarket chains. These, she says, may add a layer of cost by levying an access fee.

"Historically there would have been a 20% no-product ratio," she adds, referring to instances where the samples and/or additional merchandise do not arrive in the store on the designated demo day. "Now it's less than 2% and the manufacturer is not charged if it isn't there."

In contrast, at Kmart Corp., Troy, Mich., preferred access takes a different form. Three years ago the retailer handed Flair Communications, Chicago, the responsibility for administering its store Greeter Sampling Program.

Kevin Kennedy, vice president of client services, is Flair's account manager on Kmart. "We have done probably about 20 to 25 events in that time," he said. "We would like to do more."

Flair solicits manufacturers to participate in the Greeter program, which covers 2,100 Kmart stores. Brand marketers pay 4 cents per sample for what can amount to blanket coverage of Kmart shoppers, or 6 cents for more targeted distribution. Since samples are distributed by Kmart employees as consumers enter the store, labor costs are low. Wet sampling, or hot-food preparation demos, is not possible.

Ken Kramer, director of sales at Kmart, says the program is not designed to be a profit center for the chain. "We want to control access," he says, adding, "The whole thing is intended to improve sales and move more product."

Kramer said the value of the Greeter program was not whether Kmart suppliers would pony up fees to participate. "If you don't generate sales on a product, it doesn't matter what you get up front. It has to generate more business."

While the Greeter program is exclusively administered by Flair, Kmart also allows other sampling agencies with paid samplers in its stores for separate programs.

Nakken of Mass Connections says her company has pursued the preferred provider strategy with other retailers, establishing exclusive relationships with several other chains and large wholesalers, totaling 11,000 retail stores so far.

Its arrangement with Fleming Cos., Oklahoma City, she says, should simplify program management for brand marketers working with Fleming's numerous independent grocers.

"Before, manufacturers had to call store by store to sell a demo to each independent, then set up a 'you order.' It was a very laborious, big job, with no guarantees," she says. Her firm is now set up to serve Fleming's entire network of stores. It can even force product distribution.

But one entrepreneur's definition of an added-value service may be a brand marketer's idea of an unwanted cost.

Says Snow of Lifesavers, "Sometimes the value-added services which preferred agencies provide aren't important to us. We do a lot of sampling and we know it works. We don't want to pay the extra money to get research done."

Snow says her company has recently used Smart Demo to set up its national sampling programs. "They identify which retailers have preferred agencies, and we have to use those. On most programs we are doing, we have so many store days budgeted, we haven't asked Smart Demo to identify which retailers have these policies."

She notes that up-front access fees, another form of retailer mandate, are sometimes intertwined with preferred provider relationships. "It costs about $9 per day on the average. I try to get the brand groups to say, 'Let's not use them,' but the brand groups want to be in those accounts."

Such compromises can strain budgets, Snow maintains. "So it reduces the reach. There are several accounts where we do not sample because of this."

Observers in the sampling business have long noted that retailer mandates have tended to be most onerous among supermarket chains on the East and West coasts. High access fees may be associated with higher degrees of financial leverage, which burden many of those retailers.

"It is interesting to note that the Midwest seems to be getting more than its fair share of demo activity, which is likely a result of the fact that access fees are not nearly as pervasive here as in the coastal markets," says Harmon of Sunflower.

"Other retailers, however, are mostly concerned with making the demonstrator relationship its own profit center and giving the exclusive contract to the highest bidder -- that is, the demo company offering the largest revenue share. These tend to be the same retailers who are charging access fees," he adds.

A related issue for brand marketers is where else they might better invest their marketing funds. Says Peter Costa, president of Target Marketing Inc., a sampling company in Huntington, N.Y., "The question I would have is, 'Does the in-store restriction trend influence more people to use outside modes of sampling?' "

Target Marketing recently completed a survey of 2,056 consumers that confirms what many sampling advocates say they already believe. It found that consumers prefer receiving a sample to a cents-off coupon by a margin of 11-to-1 (92% vs. 8%). And two out of three prefer to receive those samples by hand (62%) rather than in by mail (32%) or in a newspaper insert (6%).

The very value and efficacy of sampling as a promotional technique may in fact tempt retailers to seek a guaranteed return on the asset that they alone control: their floor space. As long as brand marketers and demo agencies compete for store access, some chains will attach a price tag to the privilege.

"Our perspective is that this is a growing trend, and our sense is it is going to continue," observes Tom Aaro, a partner at Market Growth Resources. "Retailers would like to make this into a profit center. That's a key driver."

"Basically, real estate is king," adds Block of Market Growth Resources. "When the bigger players determine that these guys are playing the real estate game, midsized demo companies will require some pretty deep pockets to compete."

That means brand marketers should anticipate a raising of expectations by retailers, who will pursue four dynamics in granting access to demo agencies, Block suggests. Those include added value, service standards, up-front costs and the value of real estate.

But Sunflower says it performs an industry service by digging in its heels against the trend toward exclusive access deals. "If we could lower the cost to do a demo by 15% or 20%, how many more entrants would be able to afford it? Sunflower is trying to actually grow the business," Harmon says.

Snow says there are also some bright spots for brand marketers that are heavy samplers. "For big cooperative programs we have sometimes been able to negotiate it down to more reasonable levels."

Her conclusion: Service mandates and fees, like nearly everything else in a business relationship, may be negotiable -- if you are offering the retailer something of value.