A while ago I wrote a post endorsing Unilever’s move to a zero-based budgeting approach for its marketing spend. It was one of my best-ever read posts (who would have thought that budgeting was such a hot topic!) I argued that Unilever’s move would bring a much more responsive approach to their spend and challenge marketers to ensure that they truly were investing in the right activities. I discussed the post with a Sales Director recently. I suggested that she should adopt a zero-based approach to retail investment too. Her eyes nearly popped out of her head. But if zero-based budgeting is such a good idea for marketing investment, why not for retail investment too?
The alternative to zero-based retail investment budgets doesn’t work
The alternative (which too many organizations still use) is a trade spend budget based on history. Sales Directors start the retail investment planning process, not with their plans, but with what was spent last year. If we spent 25% of sales with Tesco last year, the argument goes, we’ll end up spending at least that. Further, spend is often tied to specific types of activity (we spent x on mailers last year, so we’ll have to spend something similar this year).
There are obvious flaws in such a method. A large retailer is important, for sure. But just because a customer is large, doesn’t necessarily mean that it will drive a large proportion of your growth. Growth could come from any channel: it will depend on who the target shopper is, and what we need them to do. But if spend is tied to past performance, there is little space to flex this spend to fit future plans. Likewise, just because a type of activity worked in the past, doesn’t mean it’s the right activity for the future. How can we invest in growth drivers if our hands are tied by history?
In a changing retail world, current practice is crazy
But the world of retail is changing, a lot! Big retailers aren’t always continuing to grow. Take a look at Walmart-owned Asda in the UK. Asda have just hit their seventh consecutive quarter of sales decline. New retailers such as discounters, and online operators are appearing. Where will sales directors find the funds to invest in these retailers? Sales leaders find themselves trapped between large incumbent retailers who desperately want to hold onto their funding, and new retailers who offer new opportunities to reach shoppers, and are becoming demanding in their own way.
Shoppers are changing their shopping habits rapidly. An investment in the aisles of, let’s say Tesco, might have made sense a few years ago. But what if 50% of the shoppers you were targeting no longer buy that category at Tesco? What if they’ve switched to other channels? That would have a dramatic effect on the economics of the activity, for sure.
Isn’t zero-based budgeting for retail investment just common sense?
In a zero-based budget world, sales leaders and key account managers would have to justify the retailer investment spend each year, rather than just getting a sum of money based on statistics, trends and last year’s budgets. Is the idea of checking that our retail marketing spend goes on the most effective activities in the right stores such a terrible thing? Zero-based budgeting makes sense in any environment. But as the pace of change in retail and shopping gets faster, the alternatives make less and less sense.
Zero-based budgeting for retail investment wipes the slate clean. It allows a business to ask the questions that lie at the heart of effective retail investment, as follows:
- Which shoppers am I targeting?
- In which stores can I influence them?
- Which activities might influence them?
- How can I use my retail investment to support those activities?
There are many benefits from zero-based budgeting of retail investment
Zero-based retail investment budgeting changes all of that. As the name implies, budgets start at zero. Assumptions are parked. Plans are built from scratch, and then costed. There are many benefits from taking this approach; here are a few of the key ones
- Tuning in to shoppers. Without zero-based approaches it is too easy to spend based on habit – a particular activity is repeated because, well, just because it’s what we always do. But shoppers are changing their habits and so assuming that shoppers are still shopping where they used to is dangerous. With zero-based budgeting it is easier to tune retail investment with a brand’s target shopper’s behavior.
- Tuning in to retail trends. As argued earlier, different retailers attract different shoppers, and this changes over time. A zero-based approach allows retail investment to fit much more closely with current and future retail trends, rather than being locked into a picture of the past.
- Closer alignment of retail and consumer marketing investment. Zero-based budgeting allows for the opportunity to be much more flexible on what is spent, where, and on which activity. This creates the opportunity to ensure that investment at retail is better aligned with the brands overall goals.
- Encouraging evaluation. If key account managers need to fight for every dollar, perhaps investments will be put under more scrutiny and evaluations are likely to be pursued more frequently, and with more diligence than currently, if only to create the ammunition to justify future spend. The current approach almost guarantees future spend, so why waste time on evaluation?
I’m not suggesting this is easy. I’m also not suggesting that zero-based budgeting will miraculously re-tune all retail investment so that we can spend it exactly where we want to. Not at all. Big retailers will still be demanding. Precedents from previous practice will limit our flexibility. We’ll be far from perfect. But at least a zero-based approach creates the opportunity for flexibility and change; the opportunity for a bit more creativity in where funds are allocated; the possibility to better align retail investment with our marketing priorities. Even if retail investment patterns only moved a little each year, it would be worth the trouble for the simple reason of the scale of the monies involved.
Zero-based budgeting is a sensible way to approach all business planning: and retail investment is no exception. It ensures that investment is much more closely aligned with plans and priorities, and forces trade marketers and sales leaders to be far more considered and accountable.
Making sensible investments in shoppers and channels change is difficult. Download this free e-book if you’d like to learn more about Channel Strategy in the Age of the Digital Shopper.