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May 2008 

Dealer Co-op Programs

on the Web

I was having a conversation recently with a friend who works in the newspaper industry. This person, as befits a clear-eyed observer of current trends, was a bit downbeat as we discussed the future of his medium, particularly as related to the co-op advertising programs that have long been among newspapers’ major sources of income.

That newspaper circulation, ad linage, and income are plummeting is too well known to bother detailing. Perhaps less known is that more people than ever are reading newspaper – it’s just that they are doing so on-line. Newspaper web sites are among the most frequently visited sites, garnering more than enough visits to offset the many (myself included) who have cancelled their print subscriptions. The problem, my friend lamented, was that the papers had proven unable to translate these web visits into advertising revenue.

Classified ads have moved to Craigslist or Cars.com or Auto Trader, and the biggest stores are diverting more of their advertising to in-store promos. Which leaves the papers more and more dependent on that oft-neglected stalwart, the independent local retailer (aka, Mom & Pop).

Neither Mom nor Pop is a fool, and they recognize the declining readership of the papers, and therefore question the value of continuing to advertise there, especially given the rates the papers charge. (As an aside, the newspapers seem to think that the way to offset declining circulation revenue is to raise ad rates -- is there any question why they're in trouble with thinking like that?) But, to return to Mom & Pop, they can’t move to the web because they don’t have the slightest idea how to create a web ad (do you? me neither), and because their vendors won’t pay for it.

The vendors won’t pay for it because they don’t trust the rates for web advertising, and because they’re tired of the administrative burden of dealer co-op generally and have no intention of adding another difficult medium. 

To survive, the newspapers need to move their advertisers to the web, and to do so, they need to offer the manufacturers three things: 

  • Transparent pricing
  • Reduced administration
  • Measurable results 

Concurrently, they need to offer Mom & Pop three things:

  • Ease of use
  • Reasonable pricing
  • Measurable results

These things are do-able. Although the newspaper industry has a history of offering the most bizarre rate cards imaginable, they realize (I hope) that that has to end, and the web offers the capability to offer measurable pricing via pay-per-click. Sites have recently been developed (here’s one of them, AdReady) that allow the rankest amateur to easily build a web ad in multiple sizes and formats from templates (I created one in less than five minutes on my first try). If a newspaper licensed such technology and stored manufacturers’ templates, local dealers would have an incentive to run ads, which could then be billed directly to the manufacturer (no claims) on a per-click basis, with both manufacturer and dealer getting a record of the clicks.

The manufacturers would have their transparent pricing, no administrative burden, and measurable results. The dealers would have ease of use, reasonable pricing (since the web is, for now at least, much cheaper than print), and measurable results. The newspaper would get … advertising.

It’s a win-win-win.

It’s going to take an honest broker to get the newspapers and a decent core of manufacturers together to work out the mechanism for a test of such a system. I suggest the TPMA (I would suggest the Newspaper Association of America, but their track record in putting anything together, in my experience, is not good).

A Visit to Fresh & Easy

On a recent evening, while on assignment in Los Angeles, I went out with two of my colleagues, Andrew Wilson and Dhruthi Murthy, to visit one of Tesco's new Fresh & Easy stores.

The first conclusion to be drawn from this is that all three of us need to seriously examine our priorities if the best thing we can think of to do with a free evening is to check out new store formats.

The second is that Tesco has a lot of work to do.

I had heard that one of the problems Fresh & Easy has faced during its intro period is that Tesco was in such a hurry to get a lot of stores opened that they selected some poor locations. This seems to be confirmed by the fact that our client advised us not to visit the first location we mentioned, since we would be unlikely to survive to return to work the next day (the client's concern, of course, was that deadlines might be missed).

Our second choice, in Long Beach, was in a reasonably nice mid-level strip mall. The Fresh & Easy had apparently replaced a departed retailer, so maybe it wasn't indicative of their built-from-scratch locations, but we noted immediately the bare concrete floors. More important, though, were the bare shelves. The number of out-of-stocks was terrible and no one had taken the trouble to at least rearrange the shelves as a cover-up.

Most categories consisted entirely of private label products (a strategy Tesco apparently intends to expand, according to this item reporting that they will add 250 more PL products). This is fine, although their choice of branded products didn't seem to follow any discernible pattern. They also had a habit of putting the same product in multiple parts of the store, which would make more sense, it seems, in a larger store. We saw three stack-outs as well as shelf space for a 24-pack of bottled water on promo. In addition, there were strange juxtapositions of products -- such as ice cream mixed in with frozen fish in the freezer.

There are reports that shoppers are positive about Fresh & Easy. This report gives them overwhelmingly good reviews from customers.

The researchers found that customers who did visit Fresh & Easy liked what they saw. The chain was rated higher than Trader Joe's and Whole Foods on freshness of product, and it even managed to beat Wal-Mart on value for money.

[The research company] said that it expected shopper numbers - the stores they were monitoring had only 20-30 customers through the door every hour - to increase as the brand grew.

Nearly nine in 10 shoppers said they would "highly recommend" the stores to friends and family - the highest recommendation score in 200 brand evaluations undertaken by the team.

Needless to say, we weren't interviewed.

Part of the problem may be that Fresh & Easy is trying to create a new niche, a high end convenience store with lots of fresh produce and prepared meals -- a mix of 7-11 and Trader Joes. It will take time to fully define a format that will do this right. Certainly a big part of the problem is that it's still very early in the life of this chain -- they need to be given time to develop. Given Tesco's track record, I'm not prepared to bet against them.

Neither, apparently, is Wal-Mart, which is planning to open very similar stores in Phoenix, going head-to-head in one of Fresh & Easy's markets.

Wal-Mart Stores Inc intends to prepare and serve food in its planned small-format stores, the Financial Times said on Friday, as it competes with British retailer Tesco's Fresh & Easy markets.
The smaller-format stores will include a kitchen, food counters and seating for up to nine people, the FT said, citing planning documents. 

 

Meanwhile, back at the blog ...

 

For more news and comment, visit my blog, TPMtoday. Some recent topics:

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