Since the early 1990s, the world has grown much more challenging for consumer products manufacturers. Consumers no longer respond as readily as they once did to conventional advertising and marketing; research shows that they make more and more decisions at the point of sale, while facing a retailer’s shelf. Needing to keep the price of their goods at the lowest possible level and burdened by the rising expenses of promoting and marketing their brands, many sales managers have turned to field merchandising as a place to cut costs.
Field merchandising refers to the marketing done by the “feet on the street” — the sales force members who travel to individual stores to place products and to negotiate for better display presence. Many consumer products companies have outsourced most or all of their merchandising force — a cost-cutting move that often reduces merchandising costs by 50 percent right off the bat. But in many cases, this initial benefit is frittered away, because these manufacturers do not manage their new merchandising force strategically.
When companies do not take a strategic approach to the decision of whether and when to outsource, they experience two unfortunate outcomes. First, they pay outsourcing vendors more than they need to pay. Second, they fail to build the capabilities needed — in both themselves and their vendors — to support high standards of retail marketing effectiveness, and as a result they lose shelf space and other forms of marketing ground to competitors. In contrast, the more adaptive, responsive, and intelligently deployed the sales force, the lower the costs and the higher the sales and profitability the company can achieve.
The optimal sales force mix is different for every company, and conceivably for every product line. The best model for any company depends on the company’s unique combination of retail channels and product categories; a company selling large numbers of cigarettes through convenience outlets would merchandise them differently from a company producing detergents for supermarkets or shampoos for boutiques. Some manufacturers will do best with a merchandising model based entirely on outsourcing; others with an in-house merchandising operation; and many with an approach that integrates in-house “hands” with outsourced “feet.” The trick is to design and implement a merchandising model that reflects the manufacturer’s own circumstances and requirements.
There are three steps to creating an optimal sales force mix:
1. Develop a thorough understanding of the requirements of each retail channel. As many companies know intuitively but cannot prove analytically, different channels and accounts require significantly different retail coverage. Typically, the allocation of field merchandising resources depends not only on an account’s strategic importance, but also on its control structure (i.e., the degree to which decision making is centralized) and shelf execution (how attentively the product is restocked and how effectively pricing and promotions are communicated). Field forces are most effective when they can influence how their products are ordered, priced, and merchandised in each store.
Understanding the channel and account requirements, and the appropriate mix of selling activities, is also a prerequisite for determining the right merchandising force model and the skill set that members of the force need. Whereas certain channels demand a highly skilled, dedicated in-house sales force, others can thrive with an outsourced sales force. In addition, industry dynamics or channel characteristics often enable companies to separate selling from sales execution, creating a two-tier sales structure that maximizes the time available for in-depth sales calls by highly skilled salespeople, while allowing less-skilled salespeople to conduct basic merchandising and audit activities. One successful consumer products company, for example, divided its merchandising force between a highly paid “selling” group and an outsourced “execution” group. The selling group targeted independent accounts, going to mom-and-pop convenience stores and independent community-based stores. The execution group focused on more rote selling activities at chains.
2. Gain a firm grasp of the outsourcing vendor’s expenses, overhead, and deployment models. In the U.S. today, a handful of national vendors — Acosta, Crossmark, and Advantage Sales and Marketing among them — and a larger number of regional firms manage the typical outsourced merchandising staff. These vendors all employ large forces of mostly part-time sales associates who visit food, drug, convenience, and mass-merchandiser stores. These associates are generally paid less than the in-house merchandising staff, and since they represent and promote a variety of clients during every store visit, the cost of running a large sales force is spread out over more products. But the vendor’s overhead and other indirect costs and fees can erode the value that managers gain from lower labor charges.
In addition, the choice of which outsourcing models to implement must be made wisely. There are three principal models:
Syndicated or “continuity” coverage: A manufacturer hires a single outsourcing vendor, one that handles services for many manufacturers, for multiple projects.
Project or retail coverage: A manufacturer purchases the vendor’s services for one project at a time.
Dedicated or exclusive resource coverage: A manufacturer contracts with an outsourcer to manage merchandising solely for that manufacturer, which increases focus and flexibility but comes at a higher cost.
Several companies have successfully developed an outsourcing strategy that mixes the three outsourcing models in different combinations depending on the channel. For example, one consumer company built a powerful and highly efficient merchandising force by combining “dedicated” coverage in the mass-merchandiser channel, “syndicated” coverage in the grocery channel, and “project” coverage in lower-impact channels such as drugstores.
3. Build outsourcing management capability. Manufacturers are often surprised at the sophistication of the services vendors offer them. Many vendors have invested heavily in technology and can customize how they report the costs of every promotion and visit, with capabilities that are often better than those of the in-house merchandising departments those vendors have replaced. In many cases, outsourcing makes it easier for companies to become more disciplined with their merchandising budgets, trading the fixed cost of an in-house sales force for the variable cost of vendor-provided services.
But these benefits accrue only to manufacturers who have a management team that can work with vendors in a disciplined, comprehensive fashion and support high standards of retail effectiveness. This capability is the critical factor in reducing costs without losing effectiveness. In our experience, a sustainable vendor management capability is based on four building blocks:
Processes: Manufacturers must build advanced retail cycle–planning processes. Cycle planning manages the scheduling and mix of merchandising resources, a process that serves the needs of vendors and manufacturers alike. Vendors require accurate estimates of annual, quarterly, and monthly coverage requirements. Monthly cycle scheduling forces manufacturers to lock in commitments well in advance of execution dates. Further, the cycle-planning process is dynamic; it reflects changing account team requirements and can accommodate changes that must be made in response to competitors’ activity.
Organization: Typically, the retail merchandising organization shrinks to reflect its new role, organizes by channel (or geography) to parallel the outsourcer’s organizational alignment, and rebalances its staff to include a planning coordinator and analyst resources. In one case, a manufacturer replaced an in-house sales staff of more than 20 people (who were supporting an in-house, dedicated merchandising force of more than 200) with a highly skilled and experienced staff of 10. To ensure accountability, successful manufacturers directly link performance scorecards to vendor compensation and establish incentives for their own managers linked to merchandising profitability.
Analytics: High standards of retail effectiveness require in-depth assessments of segmentation, deployment modeling, and target setting. Analyses of account and outlet segmentation data help focus resources and increase incremental volume. Deployment modeling combines the segmentation results with a detailed understanding of the in-store activities that generate the most value.
Systems: The data collected by merchandisers during store visits (often compiled on the spot using handheld and laptop computers) feeds the analytical engine that supports the cycle-planning process and enables the measurement of vendor performance. It also helps manufacturers to better understand the availability and visibility of their products in a particular location.
For most organizations, building all of these capabilities means transforming the current sales organization model. Some manufacturers might fear that they are investing to build the capabilities of a third-party contractor — who could someday use those capabilities on behalf of competitors. But the most important capabilities are those of the manufacturers themselves: to choose vendors effectively, synchronize processes, garner the loyalty of vendors, track their results, and manage the whole process. Once developed and internalized, these are capabilities that no competitor can borrow or steal.
Edward Landry ([email protected]) is a vice president with Booz Allen Hamilton in New York. He focuses on strategy and sales and marketing effectiveness for consumer packaged-goods and health-care companies.
Jaya Pandrangi ([email protected]) is a senior associate with Booz Allen Hamilton in Cleveland. Her work focuses on strategy and sales and marketing effectiveness for consumer packaged-goods companies.
Also contributing to this article was Booz Allen Senior Vice President Cesare Mainardi.