Report: 'Tier 2' Retailers

When talking shopper marketing, political correctness usually doesn't enter into the conversation. But word choice can be tricky when it comes to describing retailers that aren't quite national in scope yet still command a presence.Terry Mangano, executive vice president and group director at Westport, Conn.-based CatapultRPM, says the common vernacular is "Tier 2," although others clearly dance away from that term. "I'm sure someone could make a lot of money coining a term," Mangano says. "In my opinion, [Tier 2] is not a derogatory term.""I've heard the term Tier 2. I don't particularly like it," says Spencer Blaker, global director of retail marketing at Durham, N.C.-based Burt's Bees. "It's a misrepresentation of what the retailers actually are. They're not Tier 2. They're not national chains, either. … And I don't view regional chains – nor does my company – as Tier 2."Burt's Bees mostly just refers to retailers by their name, although Blaker isn't against a term like "leader-thinkers." Steve Frenda, managing director, strategy and development, for the Path to Purchase Institute, prefers the term "regional thought leaders." But, he says, "If you ask five companies, you're probably going to get five different answers."Del Monte Foods, Warrenville, Ill., uses "partnership" (Tier 1) and "membership" (Tier 2), for example, says Rosa Ziebell, formerly head of marketing and creative services. [Note: Since being interviewed, Ziebell moved on to Meyer Corp., where she is vice president, marketing.]Integrated Marketing Services, Norwalk, Conn., refers to such retailers as "regionals," while the agency's clients have various other terms. "Each client has a little different terminology – Tier 2, 'non-segmented,' things like that," says Sara Riley, vice president of client services. "But I think everyone's on the path toward referring to them as 'regionals.' Some people feel like [Tier 2] is a secondary-type term."Sue Golden, senior vice president of the channel team at MARS Advertising, Southfield, Mich., says her company's larger clients tend to use the "Tier 1" and "Tier 2" designation, while smaller clients just refer to "nationals" and "regionals." "Every client we touch has different terminology." But, she says, "Once you define someone as Tier 2, you pretty much undermine the value of that retailer. You don't want to undermine that retailer because their importance is fluid depending on what we're trying to accomplish."Classifying Tier 1 vs. Tier 2Considerably less controversy exists over which retailers fall into which category, how to categorize them, and what each brings to the table strategically from a brand's perspective. Estimates of what percentage of shopper marketing budgets go toward each category range from 70% to 90% for national players and the remainder for regionals.The list of Tier 1 or national retailers typically includes Walmart, Target, Sam's Club, Costco, Kroger, Safeway, Supervalu, CVS/pharmacy and Walgreens, while sometimes including 7-Eleven, Dollar General, Home Depot, Lowe's, Petco and PetSmart. The list of Tier 2 or regional players varies a bit more widely but often includes Wegmans, Ahold, Delhaize/Food Lion, Meijer, Giant Eagle, H-E-B, Hy-Vee, Raley's, Schnucks, Harris Teeter, Publix and Wakefern/ShopRite.Brands and agencies use a range of characteristics to delineate which retailers belong in which category, including sales volume, number of stores, scope and geographic reach, as well as level of shopper marketing support."Tier 1 has to be national, it has to be extremely high volume, and it has to be a direct call from an account manager, not from a broker. It has to be within their direct distribution chain," says Mangano. "Tier 2, on the other hand, tends to be more regional, like a Wegmans [Mid-Atlantic], and controls high market share in the markets where it competes." (See Mangano's presentation, "Supercharge Regional Retailers: Why It's a Winning Investment," in Related Videos.)To John Andrews, CEO of Bentonville, Ark.-based Collective Bias, the categorization question comes down to dedicated staff and marketing funds. "The Krogers and the Targets and the Walmarts, there's going to be whole offices, a lot of times, that are dedicated to them," he says. "Smaller players, you may have somebody who's responsible for 10 different regional retailers. The other thing is dedicated marketing funds being spent at a national level."The Institute's Frenda classifies retailers by sales volume and the presence (or absence) of embedded national account teams. These "regional thought leaders" tend to have brokers or sales agencies – like Acosta Sales & Marketing, Jacksonville, Fla.; Advantage Sales & Marketing, Irvine, Calif.; and Crossmark, Plano, Texas – handling their relationships rather than being serviced directly by the brand. "It's a regional network as opposed to a key account," Frenda says.Del Monte, which works directly with about 10 retailers (based on size, reach and scale), sends "turnkey" shopper marketing materials to the next 10 or so on the list, Ziebell says. "We've built a toolkit and guidelines, and give them the tools and platforms to work with, so they have some corporate-developed assets." The company planned to retain an agency this fall to work with regional players a little more systematically, she adds.Burt's Bees takes into account size, location, sales volume, shopper marketing spend and business potential, Blaker says. Plus, the company thinks about "access to leadership, ease of conversation, business relationship – all of those things." It uses Acosta to service some of the regional players, he says, although even then, "in some instances, we'll do the bulk of the conversation."MARS considers account budgets, scope and the strength of the brand or category in a given region, Golden says. But it's mostly the agency's smaller clients that look for direction on this classification, she says, adding that MARS sometimes turns to Crossmark as an on-site staffing resource. "Larger clients are defining the importance to us. Others look to us to help them define where the importance should be and where their resources should be focused."The question of where and how to focus resources often comes down to return on investment. The Coca-Cola Co. pays closer attention to a retailer's growth prospects and category profitability rather than overall size, says Andy McMillin, vice president of shopper marketing. "Coca-Cola works with each customer to build relevance based on their overall value proposition rather than developing an approach based on geographic scale," he says.Del Monte is only in the beginning stages of classifying retailers by who's "easy to work with, willing to play, [where] we're getting something for what we're spending," Ziebell says. "We're still in the rudimentary stages of segmentation on our retailers." The brand has found that smaller retailers often bring "really good lifts, or ROI, but they're so small that we're not getting the volume drivers we need." Larger customers often require shopper marketing support in any case, which means "building those relationships, figuring out win-wins for them and us."Working with Tier 2/RegionalsBlaker believes strongly that regional players provide more bang for the buck as well as a place to test out new ideas on a smaller scale. "Their willingness and desire to differentiate drives them to try new things," he says. "Our brand … grew through word of mouth and people discovering us at local locations. To go super-mass and put all your eggs in one basket probably isn't our growth path for the future. We're going to continue to innovate."You don't only want to hedge your bet on the big guys," Blaker adds. "You need to have people who are willing to try things – not to say the big guys aren't willing to try things. It just takes more time and can be less consistent as far as execution."Clients of MARS see regionals as a growing group, and shopper marketing budgets are definitely getting larger for those retailers, says Rob Schmitz, vice president of the regional grocery team. "There are some really key innovators within that group," he says. "They're willing to take some risks. They'll try new technologies. They want to partner with us. That's the primary reason you're seeing more of a move to the regionals – they want long-term relationships."Still, national retailers provide the scale, Golden says. "You're part of the mix because it's expected," she says. "They do challenge you to bring unique and customized thinking for just them. That's why you've got so many more resources that are needed – Walmart wants Walmart thinking that is unique for them."Integrated Marketing Services' Riley says that regionals definitely are more collaborative and flexible, but they're less sophisticated due to their limited resources. "That's where we, as agency partners and CPG manufacturers, can work with them to make the difference," she says. "National customers might be more sophisticated, but the spaces for collaboration are fewer and farther between."Mangano sees Tier 2 retailers as the best place to pilot a beta-test of shopper insights. "That will help confirm, refute or adjust your interpretation of how that insight affects shopping behavior," she says. "I'd like to know if it plays in Peoria before it goes to Broadway. Chances are you will have a very loyal shopper base in some of these better Tier 2 retailers. You'd be missing an opportunity if you didn't sprinkle some of that shopper marketing money in Tier 2."National retailers are less likely to be open to collaboration in part because when a brand meets with the retailer, "There are probably 10 other sales guys in that waiting room who will do whatever it takes to get that ad," Mangano says. "Which is not the same as sitting down with a Stater Bros. and saying, 'OK, we need to grow the category, here's the role the brand plays, this is what we need to grow the category, this is what we recommend doing, what are your thoughts?' It's more of a collaboration because there aren't 10 guys waiting in the lobby. … This isn't to say there aren't Tier 1 [retailers] that do it well. There are."For all these reasons, Andrews believes brands are more likely than in the past to roll out a new product or brand extension regionally first – and in some cases, they keep shopper marketing at a regional level. "Five to seven years ago, people might have said, 'If Walmart or Target isn't taking it, we're not going to build it,' " he says. "I'm not sure that's the case anymore. … Sometimes, it might be hard to get on the radar of a national chain. [Now] you've got folks who are saying, 'I could build my brand regionally, and grow the opposite way. "

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