Tuesday, October 20, 2009

Procter & Gamble and the Beauty of Small Wins

Yesterday I facilitated a discussion at the Magazine Publishers Association annual Innovation Conference with Melanie Healey, the Group President of North America for Procter & Gamble. She told a story with some important innovation implications.

The story dates back to the 1990s, when Healey was a brand manager in Brazil. She was responsible for growing P&G's Hipoglos brand of diaper rash ointments. The problem? The product already had 99 percent household penetration. A tough challenge, right?

Healey did what good P&G people do — she went out to talk to consumers to find out what they thought about the product, the problem it addressed, and so on.

People claimed they used the product regularly to prevent diaper rash. If that were true, however, Healey knew consumers would buy much more Hipoglos than they did today.

So, she dug deeper. By probing when consumers used the product, she found that parents applied it when early signs of rash began to appear. Of course, that's too late if you truly want to use a product for preventive purposes.
Healey had a critical insight. Consumers weren't actually realizing all of the benefits of the product, resulting in cranky babies and sleepless nights. P&G began running advertisements showing how applying the cream to an already emerging rash was too late to prevent the rash from occurring. Not surprisingly, sales soared.
Innovation doesn't always involve new features, functions, services, or business models. Sometimes it can be as seemingly simple as a new marketing message.

Of course, I'm a fan of big bang disruptive innovations that create categories and land entrepreneurs on the cover of magazines. But the Hipoglos story shows how a disciplined approach — coupling a point of customer frustration with an innovative approach to address that frustration — can lead to small wins. And enough small wins can combine to create major impact.

Inaction Alley?

Walmart's new merchandising strategy is having a major 'Impact' on the placement of secondary displays.

By Jean Luo

In an increasing number of Walmart stores, the most valuable stretches of real estate are coming off the market.

The chain's legendary "Action Alley" is conspicuously empty in the roughly 200 stores that have been revamped by "Project Impact," Walmart's high-profile strategic roadmap for reshaping its store design, merchandise mix, pricing strategy and promotional activity over the next three years.

Announced in October 2008, the umbrella plan unites a spate of back-room practices with initiatives to improve store design and the customer experience. Among its objectives, Project Impact aims to enhance the "clarity" of Walmart stores by reducing merchandise assortment and -- evidently -- the number of secondary displays.

Walmart will bring the remodeling elements of Project Impact into another 500 to 600 stores during 2009 and, according to public statements by vice chairman Eduardo Castro-Wright, will reach about 70% of all discount stores and supercenters in the next three years. The company plans to convert all stores by 2014.

If Walmart stays on schedule, Project Impact will deliver a reality that many product marketers (not to mention display manufacturers) dread: an Action Alley that is entirely clean.

While Walmart has been quite open about many components of Project Impact, it has remained vague when discussing the glaring changes in Action Alley. The company has yet to confirm or deny whether the aisles are 100% empty in all Project Impact stores, or whether future stores will exhibit the same clean-aisle policy. But according to numerous sources, the display guidelines for Project Impact stores bar merchandising vehicles from these primary aisles.

During a fall 2008 presentation to investors, Castro-Wright declared that, "The clean store has more to do with uncluttered stores than anything else." He referred to remodeled supercenters -- with barren Action Alleys -- in Bentonville and Rogers, AR, as providing "a sense" of the retailer's new look.

"Regardless of nomenclature - Project Impact, clean-store conversion, etc. - it is common knowledge that Walmart is actively expanding, evaluating and evolving its overall customer experience initiatives," said Patrick Sbarra, president of Rogers, AR-based display manufacturer New Creature, which handles many product-vendor accounts for Walmart. "A critical in-store merchandising objective is the reduction of "visual noise" to create more clarity for the customer."

Walmart reportedly turned off the "noise" in Action Alley to improve sightlines for store departments and facilitate the navigation into them. Under the chain's traditional layout, "the customer had to walk into a pad quite a bit before finding all of the merchandise that we have to offer," said Castro-Wright, identifying the apparel and home categories in particular. By clearing away displays from the central alleys, he said, "customers consider us in categories that they were not considering us in before."

The clean-aisle strategy reportedly has generated positive results for some departments: In a recent 30-store test, the chain left "no features in Action Alley ... so our customers [could] actually see into the Home pad much more easily and see what's featured there from a price standpoint with the strong signage," said Linda Hefner, executive vice president, home, during the 2008 investor presentation. As a result, she said, those stores generated a 1.7% sales improvement in the home category.

Suppliers in some categories, however, may have reason to fret. Elizabeth Bishop, vice president of creative services for NBC Universal, interprets the clean-aisle guidelines to mean "nothing in Action Alley and no temporary footprints," restrictions that don't bode well for an impulse-driven category such as DVDs. Universal's "E-Center" fixture, an H-shaped pallet that merchandises recent releases and catalog titles, sits near the electronics department in Action Alley. The display "comprises a significant percentage of our sales," says Bishop. In clean-aisle stores -- where the "E-Center" has no place -- the company has seen a "significant decrease in sales."

"Any category that is an impulse category is going to be at risk in the clean-floor stores," she adds, naming batteries and salty snacks as other examples. "They are going to be hard-pressed to maintain market share."

Other suppliers believe the clean-aisle policy offers some flexibility. "Even in a clean store, there may be -- when appropriate -- seasonal opportunities such as the Black Friday Blitz for pallet displays in the store," says Sbarra. And, in fact, a few Project Impact supercenters still deploy pallets of seasonal merchandise in the stretch of Action Alley that separates the grocery and general merchandise departments.

One supplier, speaking on anonymity, notes that even the most rigid clean-aisle requirement will not automatically persist in a fickle retail market. "Don't be surprised if, 1,000 stores into this, Walmart's store design starts to evolve into something else. Walmart is the gorilla, they can do whatever they want. It's hard for anyone to say they're on a marching path and, by the end of four years, all stores will look like this."

Walmart's commitment to be a "Store of the Community" also factors into the design and merchandising of each store, said the supplier. "A clean-store prototype may be appropriate in one city in one season, but may not be appropriate somewhere else."

Merchandising Alternatives
While Project Impact may ultimately cut off Action Alley from many product marketers, the plan does not yet limit other secondary display opportunities. Suppliers confirm that clean-aisle stores still accept endcaps, PDQs, sidekicks, signage and other temporary vehicles.

Clean aisles direct more attention to endcaps, and Walmart is adjusting its configurations accordingly. The chain is experimenting with high-capacity endcaps that run deeper into the gondola and higher off the ground to hold more product and provide visibility from three sides rather than one. The chain has also incorporated alternate display vehicles into its endcap presentations. Pallets, for instance, comprise the bottom half of some endcaps, a tactic primarily used to merchandise packaged goods from a single manufacturer. On other endcaps, larger, more prominent sidekicks are affixed to the sides.

"In a clean-aisle environment, there exist many opportunities for suppliers to create bold, relevant, clear and compelling endcap displays," said Sbarra.

The lack of secondary displays also shines greater light on the Walmart Smart Network, the chain's upgraded digital-advertising system, which places screens airing ads for the merchandised product in the center of five endcaps. The network, which will be in all stores by the end of 2009, is also touted as a pillar of Project Impact.

Bishop, however, doesn't see as much promise for the entertainment category, where Universal's DVD titles are being merchandised on a high-capacity endcap. "I don't find it visually engaging," she says. "I don't know if it's going to sell more product and do anything other than hold more capacity. I don't know if it's best for the consumer."
She also wonders whether her category will benefit much from in-store media. "I think it works for a category like vegetables because it offers solutions, and maybe for brands because [there is] already awareness. But if it's a promotional sell, I'm just not sure how effective that is."

On the other hand, Bishop does see opportunities in Walmart's self-proclaimed "Hot Spots," which denotes sections within ladies apparel, seasonal and other departments composed of permanent four-ways, gondolas and other freestanding fixtures. (See Sidebar.)

Bishop expects Walmart to keep the four-way fixtures, which typically carry vendor-supplied PDQs. "I do not really see those going out, even with a clean store," she says. "I think you can take a four-way and 'eventize' it fast and cleverly. Instead of sending in cardboard, you're sending in PDQ trays. That allows you to keep merchandise fresh but use a permanent footprint, instead of fighting tooth and nail to secure an impulse footprint."

Some suppliers also point to the health & beauty and pet care departments as areas with secondary display opportunities in clean-aisle stores. The HBA category continues to employ a multitude of vendor-supplied endcaps, sidekicks and PDQs, including both corrugated displays and, increasingly, semi-permanent merchandisers made of plastic. The pet department's long gondola runs have been sliced into two smaller units, thus adding more endcaps. In some stores, four-ways carrying shelf trays sit between the two gondolas.

Bishop envisions a similar concept in the electronics department, suggesting that the existing 20- to 30-foot gondolas could be halved to add her company's revenue-driving "E-Center" pallet. "The department would still be compliant with the overall box, but [would] not lose impulse sales," she said. "I don't know what happens when consumers have to veer inside the aisle, but it's something that I think is obvious to try."

The clean-aisle policy gives suppliers like Bishop even stronger impetus to innovate. "Suppliers that relied heavily on frequent Action Alley presence for unit and sales lift are being challenged to get creative inside the box," said Sbarra. "The suppliers who act quickly and bring innovative programs to market fast will continue to thrive."

About Project Impact
Project Impact is a sweeping initiative that unites marketing, merchandising and operating strategies under the mantra of "Win, Play, Show." These three pillars, explained vice-chairman Eduardo Castro-Wright at a fall 2008 investor's conference, inspire "how we go to market ... how we define the assortments ... [and] how the merchandise organization makes decisions in terms of what categories we will expand and grow, and what categories we will only 'show' or 'play' in."
The plan covers a vast area of operating ground, ranging from employee training to margin enhancement to new packaging for private-label grocery brand Great Value. Among Project Impact's core principles:
  • Pricing: Walmart emphasizes its status as "Price Leader" through day-to-day signage and integrated marketing campaigns. The retailer's bold orange graphics highlight rollbacks and low prices throughout the store, while seasonal aisles merchandise items according to set price points. TV spots, circulars and other marketing materials stress the myriad ways -- and amounts -- that Walmart helps customers save.
  • Merchandise: The company will anchor its merchandise on the pillars of "fresh" and "seasonal," said Castro-Wright, using the former (essentially the grocery category) to drive traffic and the latter to infuse "newness" into the shopping experience. Walmart has also hosted exclusive tie-ins and tailored assortment to offer licensed entertainment properties for both children and adults. Project Impact will drive Walmart's margins "by providing the opportunity to present merchandise that we did not present before or that the customer wasn't exposed to before," said Castro-Wright.
  • Assortment: In an effort to clarify the shopping experience, Walmart is reducing the assortment of merchandise in stores. According to chief merchandising officer John Fleming, the chain has reduced SKUs in certain departments by 10% to 50% and, in some cases, "the more SKUs we took out, the more business went up."
  • Store Format: Project Impact will accelerate the chain's trend towards smaller footprints. The chain is approving new supercenters in the range of 140,000 to 170,000 square feet -- considerably smaller than the 240,000-square-foot behemoths of the past. Walmart is also testing the conversion of several 120,000- to 140,000-square-foot discount stores into supercenters of the same size, said Castro-Wright.
  • Adjacencies: A noticeable effect of Project Impact is the cross-store relocation of the pharmacy and health & beauty departments in supercenters to neighbor grocery aisles. The move was inspired by a 2006 category adjacency study that found many customers were reluctant to travel across a supercenter to pick up an HBA item after they'd finished shopping the grocery department.
  • Destinations: Walmart is drawing attention to "Hot Spots" throughout the store, which include high-traffic areas and sections for seasonal or thematic merchandising. One such "Hot Spot" is an upfront section in ladies apparel that uses four-ways, gondolas and racks to showcase new, seasonal or unique apparel brands on a rotating basis.
  • Fixtures: Walmart has lowered the height of gondolas in many departments, including home, pet care and HBA, and redesigned overhead signage in a curved, female-friendly fashion. The chain has also unveiled different intra-departmental layouts, such as beauty gondolas that sit at a 45-degree angle rather than parallel with Action Alley.
Elements of Project Impact have already surfaced in the company's marketing activity. Walmart's 2008 holiday campaign, for instance, aggressively promoted rollbacks and low prices while enhancing the shopping experience with a storewide set of coordinated P-O-P vehicles. The chain's "Christmas Shop" and seasonal aisles merchandised gifts and decorations according to price and category, while stores merchandised meal solutions and TV spots and print ads highlighted grocery offerings.
According to Walmart executives, Project Impact paves the way for the company's future "high-efficiency" retail formats, which will offer such convenience-driven services as drive-thru windows for the Site-to-Store delivery program. Walmart then expects to focus on integrated multi-channel communications, fusing its bricks-and-mortar operation with mobile marketing, online shopping and online networking programs.

Published: February 2009