RETAIL MARKETING AND BRANDING Second Edition RETAIL MARKETING AND BRANDING A DEFINITIVE GUIDE TO MAXIMIZING ROI Second Edition JESKO PERREY and DENNIS SPILLECKE A John Wiley and Sons, Ltd, Publication This edition fi rst published 2013 © 2013 John Wiley & Sons, Ltd. Registered offi ce John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offi ces, for customer services and for information about how to apply for permission to reuse the copyright material in this book, please see our website at www.wiley.com. The right of the author to be identifi ed as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. 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ISBN 978-1-118-48952-9 (hardback) ISBN 978-1-118-48950-5 (ebk) ISBN 978-1-118-48951-2 (ebk) ISBN 978-1-118-48949-9 (ebk) Set in 10/14.5 pt Palatino by Sparks – www.sparkspublishing.com Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK CONTENTS Foreword xi Introduction to the Second Edition xiii Second Edition Acknowledgments xv Introduction to the First Edition xvii First Edition Acknowledgments xxi Commonly Used Acronyms xxiii Part I Building Superior Retail Brands 1 1 Principles of Successful Brand Management: Art, Science, Craft 3 Art, science, craft 5 Creativity and consistency 6 Strengths and weaknesses 8 Touch point orchestration 9 2 Segmentation 21 Relevance in retail 22 Top management attention 23 vi CONTENTS Consumer needs 26 Strategic segmentation 30 Implementation 32 3 A Guide to Excellence in Retail Brand Management 37 The brand diamond 37 The brand purchase funnel 42 BrandMatics 45 The brand promise 50 Brand delivery 52 4 Developing and Refi ning Retail Formats 63 Basic types of format development 64 The four-step process 66 Implementation support 74 5 Store Brand Portfolio Management 77 Multiple formats and brands 78 BrandMatics Advanced 80 The brand space map 81 Impact estimation 84 6 Private Label Branding 89 PL growth 90 Four generations of PL 95 PL strategy 100 SKU selection 102 Capabilities 103 Part II Optimizing Marketing ROI 105 7 How to Spend It: Fact-based Media Mix Optimization 107 Media landscape transformation 108 Equal footing 110 Three approaches 112 CONTENTS vii 8 Budget Sizing: The Million-dollar Question 117 Systematic approach 117 Transparency 119 Outside-in benchmarking 121 Inside-out budgeting 123 Effi ciency modeling 125 Budget level estimate 126 9 Budget Prioritization 129 Decision mode 129 Investment units 131 Full transparency 134 Prioritization criteria 136 Avoiding automation 140 10 Reach–Cost–Quality 147 Vehicle optimization 148 Apples and apples 149 Universal scores 157 11 Marketing Mix Modeling 161 How to spend it 161 Impact comparison 163 Applications 165 Multi-lever transparency 166 What to watch out for 168 12 The Digital Retail (R)evolution 179 End-to-end digitalization 181 Channel convergence 183 Localization 186 Social media 188 Content management 191 Brick-and-mortar 192 viii CONTENTS 13 POS Marketing 197 The most powerful vehicle 197 Lack of leverage 199 Systematic management 200 Tangible and intangible elements 203 The human factor 211 14 Leafl ets and Local Print Advertising: How to Achieve Local Media Excellence 217 The true point of sale 217 A complex challenge 219 Fine-tuning 222 Product selection 223 Geo-marketing 225 15 Fact-based Promotion Management 231 Balance pricing and promotions 232 KPIs for optimization 235 Supplier negotiations 239 Margin improvement 241 16 Excellence in Classical Media 247 A key element 248 Creativity and content fi t 252 Testing and learning 255 Message delivery 257 Creative partners 261 17 Digital Marketing Excellence 269 Value proposition 270 Digital strategy 272 Search engine marketing 276 Display advertising 280 Social media integration 282 Digital marketing organization 287 CONTENTS ix 18 Maximizing Customer Value with Data-driven CLM 297 Full value 298 Deep understanding 302 Predictive modeling 305 Keeping track 308 Capability building 310 Applications 316 19 Smart Sourcing 325 Sizeable savings 326 Effi ciency levers 329 Effi ciency optimization 332 Best practice 337 Deep dive 340 Part III Ten Perspectives on Retail Marketing 347 20 Ten Perspectives on Retail Marketing 349 Contributors 351 Index 365 FOREWORD How can retailers combine traditional and new marketing vehicles? How can they stay on top of what their customers want? How can they reach them effectively? Do shoppers still look at leafl ets, or should retailers shift local marketing funds to social media? These were the questions that gave rise to this book a little over two years ago. As it turns out, they are no less relevant today. If anything, the high pace of innovation in areas such as store formats, big data, advanced analytics, shopping-related mobile apps, and multichannel retailing has made them even more pressing. In this book, Dr. Jesko Perrey and Dr. Dennis Spillecke consolidate McKinsey’s perspective on these pressing questions. They worked with a team of more than 30 distinguished marketing practitioners and experts to incorporate our latest thinking regarding, for example, format develop- ment, advanced marketing mix modeling, highly granular geo-marketing, digital media, and fact-based promotion management. A unique combina- tion of strategic thinking and leading-edge analytics makes this volume essential reading for retail CEOs and marketing enthusiasts alike. Published to great acclaim in 2011, Retail Marketing and Branding: A Defi nitive Guide to Maximizing ROI successfully launched our series Perspectives on Retail and Consumers. It is my privilege to present the second edition today, as well as to announce an upcoming new volume, on technology in consumer industries, due for publication in 2013. I hope you xii FOREWORD will share my excitement about these books and be encouraged to seek out future volumes in the series. Dr. Klaus Behrenbeck Director, McKinsey & Company, Inc. Leader of the European Consumer Sector Cologne, January 2013 INTRODUCTION TO THE SECOND EDITION Selling something you have in stock at your store to someone who wants it – that’s not a deal; that’s a transaction. But getting ready to sell things you don’t yet have to people who don’t yet know they want them – that’s more like a deal. As you read this, the reality of retail is shifting from traditional trans- actions to real deals. Retailers operate in an environment of fragmented needs, hybrid consumption, changing channels, multiple formats, big data, and real-time decisions. Building strong brands, developing compelling propositions, and managing marketing ROI is now more complex than it ever was. New entrants, many of them pure online players, are changing the rules of the game. Ever more demanding shoppers want it all – every- where and all the time. Social media spread the news at the speed of light, whether of a good deal or of a broken promise. Retail marketing may rarely have been more challenging, but it was also never quite as rewarding as it is today. When Retail Marketing and Branding: A Defi nitive Guide to Maximizing ROI fi rst came out two years ago, it struck a chord with retailers old and new. It turned out that tools for complexity reduction and approaches for balancing analysis with pragmatism were exactly what senior retail executives were looking for. Enthusiastic feedback from readers all over the world encouraged us to up the ante for an enhanced second edition: xiv INTRODUCTION TO THE SECOND EDITION • all-new chapters on format development and fact-based promotion management; • thoroughly revised chapters on digital evolution and digital marketing excellence; • new interviews with Thomas Wagner of SevenOne Media, Armando Branchini of Altagamma, and Uwe Becker of OWM; • more than a dozen new case studies, including Amazon, American Express, Asos, Burberry, Dell, and Tesco; • updated facts and fi gures throughout, including three dozen all-new exhibits. SECOND EDITION ACKNOWLEDGMENTS We are indebted to all our fellow authors and the teams that have supported them in updating existing chapters and creating new ones, as well as to our distinguished external partners and collaborators for their contributions.