CPGs' Influence on the RVP

“Experience is the way of the future,” Pat Pecora said this Monday. Of RVP's four aspects, experience is what will differentiate successful retailers. CPGs depend on retailers for sales. If they want to influence a retailer’s RVP to make their own products stand out, will they be able to?

CPGs have varying levels of influence when it comes to the RVP. Though final pricing decisions rest with retailers, CPGs can push a price upward based on wholesale prices because they are familiar with retailers’ traditional mark-ups; the manufacturer’s suggested retail price can hint at final price as well. Trade spending and other incentive programs can encourage price cuts.

For selection, manufacturers can sway retailers’ breadth and variety decisions with new products, new lines, or SKU rationalization. If the CPG is the retailer’s category advisor, influence can extend outside of the company’s products to the entire category. Depth can be increased using volume discounts. Though shelf space, storage, and receptivity to advice limit how much a CPG can manipulate selection, many methods influence are available.

Affecting convenience has more constraints. CPGs can design products for convenience in terms of bundling, such as Kraft’s Lunchables, or in terms of serving size, such as Crystal Light’s on the go sticks. End caps can be purchased to improve in store accessibility. CPGs have little say over where the stores are located, which is a major factor of convenience; their influence on this aspect of the RVP is not as powerful as it is over price and selection.

Experience is the hardest aspect for CPGs to direct. They can relay information via packaging, advertising, and POP displays, but consumers will only read so much. An in store employee can provide relevant information, attention, and service to the consumer. Cosmetic companies do this well in major department stores. However, tighter margins and more distribution outlets make this strategy unfeasible in grocery.

Traditionally, CPGs do not dictate the store’s atmosphere. However, Kraft* has decided to ignore these boundaries for premium Starbucks coffee grounds in grocery. In order to affect the customer’s coffee buying experience, Kraft implemented the Center Store Café concept in 400 select grocery stores in the United States. They installed their own shelving and lighting so that shopping in the coffee aisle becomes similar to shopping in a coffee café.

Will it work? The most recent public results (August 2007) say testing results are “encouraging.” There are limitations to the idea, however. Full retailer buy-in is unlikely and unwanted. Installing the fixtures will disrupt the store; some stores may not sell enough premium coffee to warrant the hassle. Kraft may not wish to roll this out to every store either if incremental sales do not generate a satisfactory return, a likely scenario in discounters such as Food Basics.

It is unreasonable to believe that one idea could solve the critical experience issue at so many different retailers. Kraft has at least has started to find creative solutions to influencing the future’s most important RVP component.

*Kraft distributes Starbucks coffee grounds to grocers and mass merchants.

Sources:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12358 http://www.creativemag.com/groconline.html