Braintrust Query: How Do You Merchandise a 250 Square Foot Store?
Procter & Gamble Co. is undertaking a major effort to reach roughly one billion additional consumers - most of them very poor women living in developing countries.
The primary retail outlets in these markets are small stores no bigger than a closet where customers only have enough money to buy single use containers of items like toiletries or detergents. Shoppers may make several visits a day as needs arise. Besides not having much money, these shoppers don't have places to store bulk containers. They buy the smaller containers even though they're more expensive because they have no place to put the big ones.
According to the Wall Street Journal article, P&G estimates it only reaches about 10 percent of the 20 million "high frequency" stores worldwide. P&G sales in developing countries have increased 150 percent over the past five years to $20 billion, but there is obviously room to expand. P&G's sales to high frequency stores in developing markets are greater than its sales to Wal-Mart. Even in Mexico where Wal-Mart is well established, high frequency stores are visited by 70 percent of the population.
But selling to high frequency stores requires a different skill set.
P&G finds it has to lobby for better shelf space, one tiny store at a time, by offering each special perks that rivals do not. P&G-employed merchandisers visit stores about every two weeks to tidy the shelves of their products, post signs with the items' prices and hand out promotional items. Local agents are now being used to strengthen ties with storeowners. Also, sales representatives deliver inventory to stores themselves, often sparing owners a trip to the distributor.
In marketing to poor consumers, P&G is mindful of budget-constraints and even the coins they carry. Because they are often paid a daily wage, Mexican customers generally carry five- and 10-peso coins. "If you want to sell to low-income consumers, you have to know what's in their pockets," Jose Ramon Riestra, P&G's direct of high frequency stores in Latin America, told the Journal. "It doesn't make sense to have something cost 11 or 12 pesos."
To ensure satisfactory profit margins, P&G uses "reverse engineering." Rather than create an item and then assign a price to it - as in developed markets - P&G considers what consumers can afford. From there, it adjusts the features and manufacturing processes to meet various pricing targets.
Internally, P&G emphasizes to employees that products developed for emerging markets must "delight, not dilute." Quality is still critical.
"You cannot trick a low-income consumer, because they can't afford to buy products that don't work," said Mr. Riestra. If a product doesn't perform, "they won't ever buy you again, and they'll tell everyone they know about it, too."
Discussion Questions: What do you think of P&G's strategy to reach "high frequency" shops in developing regions? Anything particularly stand out to you in the way P&G is merchandising, marketing and even creating products for the world's poorer regions?
[Author's commentary] The thing I find interesting about articles like this is that they really bring you back down to earth. We talk about all the new in-store technology and my local supermarket has shelf talkers that literally yell out at me as I walk the store. But P&G is trying to reach the least affluent shoppers in the world, who really do represent the "Long Tail" of the consumer population.
The obvious answer P&G has found is to get some kind of presence near the "check out counter", whether it is really a counter or just the table where the owner takes the cash. By having signage or product on display in this area, P&G feels they can get in touch with the consumer. This seems to have worked.