I have a confession to make. Along with apparently every wino and drop-out in the country, I am a sucker for Tennents Super, the strong lager. So much so that most evenings I down a can (only one, mind you). Recently, I discovered something. Shopping for Tennents Super is a hassle. If I drink seven cans a week, that’s two four-packs which usually involves two separate journeys, of ten minutes each. But if I buy a crate from my local off-licence, not only do I effectively save myself an hour’s wasted shopping time each month, I also get a volume discount which makes it about 25 per cent cheaper than my local supermarkets.
Why not extend the idea? Why doesn’t Bass simply deliver straight to my door once every six months or so? That way Bass wins many times over. For a start, a bulk-buying arrangement like this brilliantly excludes its rivals from the market, not only because the deal effectively takes out any competitor brands for the next six months, but also because, to persuade me it was worthwhile switching, any rival brand would now have enormous extra hurdles to clear in terms of convenience and price.
Done efficiently, Bass would save money by cutting out the middleman and his margin, while gaining valuable data about, and contact with, its customers. In the meantime, I get the double win of extra convenience and better price – a slice of the saved margin.
True, there are logistics problems and costs. But they would be greatly alleviated if Bass had the good sense to get together with other suppliers of similar products: mineral waters, soft drinks, fruit juices, and perhaps even wine, to share these operational costs – and to offer an even greater benefit to customers.
This isn’t another tedious rehearsal of the possible benefits of home shopping. Rather, it shows how focusing on the idea of replenishment, rather than choice, throws a different light on familiar concepts such as brands, brand loyalty and choice, and relationship marketing.
For a start, it suggests that by adding replenishment to their agenda, marketers could add a powerful new element of service to what they offer in total. It also suggests that, instead of thinking about brands as members of a particular product category, it may sometimes be useful to cut the cake differently and looking at replenishment characteristics instead, as retailers do: the items mentioned above are all long-life, ambient, bulk and/or heavy goods. Why not add petfood and toilet paper?
It also raises the possibility that the marketing strategies and tactics required for routine, replenishment purposes could differ sharply from those needed for choice and impulse (even if it is for the same brand).
Indeed, at last week’s Institute of Direct Marketing conference Donald Libey, president of US firm Libey Incorporated, suggested that the two key principles of this approach offer a way forward for marketers across many markets. The first principle is what he calls “pods”, where instead of replicating infrastructure and costs, a number of different complementary and even competing firms get together to share one system – thereby being able to offer customers both improved service and reduced prices at the same time.
The second principle is what he calls “managed marketing”, where the marketer says to the customer “give me all your routine purchases and I’ll manage them for you”. (A similar notion, currently being explored by some marketers, is that companies from different categories, say, motor manufacturing, car hire, taxi, financial services, motor repair and servicing, and petrol supply/car wash get together to supply a bundle of personal mobility services. But this has one key difference. It is strictly focused on replenishment.
That’s no surprise: Libey’s expertise is in business-to-business marketing and what he’s really suggesting is simply that the ideas of partnership sourcing and outsourcing that have revolutionised company-to-company relationships in industry could have a similar effect in the consumer (and indeed, agency) arena. After all, if a car manufacturer can outsource the responsibility for supplying (and, in the case of VW, even installing) component systems such as seats, gears, brakes and so on, why shouldn’t consumers apply the same outsourcing concept to areas like groceries?
Some interesting thoughts follow. First, the partnership sourcing/managed marketing approach underlines just how obsessed most marketers are with one-off transactions: the notion of loyalty is merely the marketer’s fantasy of a one-off transaction repeated many times over. Why not come at it from the opposite direction and seek, as it were, a long-term supply contract?
Relationship marketers have traditionally focused on increasing the empathy consumers have with their brands. Partnership sourcing, however, seeks to maximise customer commitment in an entirely different way – by creating structural, operational and even contractual links with them. Banks and utilities have done this since the year dot and, naughty as it may sound, brand marketers perhaps could learn something from how they use these structural links with customers to create inertia, thereby sidestepping the issue of choice.
This all raises questions about brands and brand communications. In outsourcing, the brand itself becomes less, not more, important. Once the brand choice is made, the focus of interest moves to the cost and convenience of replenishment. As Libey told the IDM conference, the customer’s attitude becomes “just keep me supplied. Don’t make me do this routine stuff. Don’t make me have to think about it”.
Indeed, you could argue that in such circumstances spending money and time on elaborate marketing communications campaigns to build the brand becomes almost irrelevant to the process of getting closer to the customer – which is what marketing is supposed to be all about. Perhaps, just perhaps, that’s why so many packaged goods marketing departments have recently had so much trouble proving they deliver value for money to their senior management.