The Supermarket Battle
For Your Attention

In their fight to win the attention of harried consumers, household-goods companies are taking the battle to the supermarket floor.

Even as marketers ratchet up spending on traditional marketing such as television spots, they are also pouring more into deals with retailers to reach shoppers in the stores when and where they actually buy their shampoo, soft drinks or breakfast cereal.

THIS MONTH'S COVER STORY: ALL ABOUT THE CUSTOMER

How Can We Help You? Ingenuity has taken an extreme turn in the high-stakes world of product development. Desperate to increase sales and market share, companies are digging deeper into shoppers' homes and habits to discover "unmet needs" and then design new products to meet them. THE SUPERMARKET BATTLE FOR YOUR ATTENTION

Check This Out Some e-commerce Web sites are rolling out new software that streamlines and speeds up the checkout process as they try to persuade more people to finish their online purchases.

Get the Party Started Direct sales, an old-school marketing strategy long associated with Avon ladies and Tupperware parties, is making a comeback among small-business people. Instead of waiting for customers to come to them, these entrepreneurs take their products to the customer.

The Customer Isn't Always Right Each day, about 1.5 million customers come into a Best Buy store. Best Buy wishes some of them wouldn't. CEO Brad Anderson says he wants to separate "angel" customers from the "devils" The angels are customers who boost profits by snapping up HDTVs, portable electronics and newly released DVDs without waiting for markdowns or rebates. The devils are its worst customers. They buy products, apply for rebates, return the purchases, then buy them back at returned-goods discounts.

With consumers now facing up to 100,000 different items in superstores, manufacturers are battling for space and visibility. As a result, their spending on in-store promotions has grown, to 17.4% of sales in 2003 from 14% in 1999, according to marketing consulting firm Cannondale Associates. That's on top of an additional 5% to 10% of revenue that consumer-goods companies have budgeted for traditional advertising spending.

Such promotions can include price discounts, buy-one-get-one-free deals or hiring people to offer shoppers free samples of cheese or ice cream in the aisle. Traditional supermarkets are asking manufacturers to shoulder more of the cost of these promotions as they try to lower their prices to compete with Wal-Mart Stores and Costco Wholesale. As a result, 51% of laundry detergents and 75% of carbonated beverages were sold on promotion last year in the U.S., according to Bain, a consulting firm.

A bigger slice of these budgets now is going to flashy in-store promotions aimed at making consumers, who increasingly tune out traditional advertising, take notice of their goods when they walk in the store. For instance, when Unilever launched Axe men's deodorant spray in the U.S. in late 2002, it hired squads of female perfume models to spritz male customers in Wal-Mart and Costco stores. The launch helped push Axe's global sales growth rate to 22% in the first half of 2004.

When Procter & Gamble launched a new version of Tide laundry detergent containing Downy fabric softener this fall, it made deals with Wal-Mart, Kroger and others to set up in-store displays with pillows, posters and balloons. Unilever and P&G declined to disclose the cost of these promotions, but industry analysts say the cost of major new product launches in the U.S. can top $50 million between traditional ads and in-store promotions.

Retailers, though, are demanding higher fees to secure shelf space and prime displays at grocery stores. "We can't stretch the shelf, in length or in width," says Jack H. Brown, chairman of State Bros. supermarket chain in Colton, Calif.

"The manufacturers are in a no-win situation," says Cyrus Jilla, head of the European consumer-goods practice at Bain. "In an ideal world, they wouldn't do so much promotion. But if they don't, the danger is that retailers will decrease their shelf space."

Both Unilever, maker of Dove soap and SlimFast diet products, and Colgate-Palmolive, maker of Colgate toothpaste and Speed Stick deodorants, have warned that 2004 profits will be lower because they need to spend more on promotional deals with retailers.

"Nobody wants to spend more but everybody is afraid to spend less," says Jim Coleman, partner in retail and consumer goods with Accenture. "The real hope is that these guys can improve the way they track these deals and figure out how to be more effective."

--Deborah Ball