FROM THE BGES — Where There's Dirt, There Should Be Plants
What can you do to generate more revenue for your business? Create a solid marketing plan using the PITA formula.
The lifeblood of every business is revenue, and we all want more of it. When it comes to generating it, you only have four options:
1. Sell more of the same stuff to existing clients (greater market penetration).
2. Sell to new clients (market development).
3. Develop new products and services to obtain a greater “share of wallet” (product development).
4. Diversify your business.
Solid marketing plans make some educated guesses where new sources of volume will come from and how much will come from each of the four “buckets” above.
As an industry, when defining market penetration we often take a limited view. I often hear, “If only we could get more people to garden.” The problem I have with this statement is the underlying assumption is that “gardening” and “willingness to buy plants” are not mutually exclusive. Put another way, there are likely a lot of households that do (or could) buy plants that don’t really “like gardening” — the activity.
In most consumer industries, marketing effectiveness is based on household penetration. Of the 100 million plus households in this country (or your part of the country), what proportion buys your products? Whether or not the household “likes gardening” is irrelevant. Coca-Cola famously states its goal is to put its products within arm’s reach of every person on the planet. Why couldn’t the industry’s goal be to put product wherever there is soil?
We recently re-calculated statistics from the National Gardening Survey, and re-based results to all households. That is, the numerator was the number of people who said they bought annuals (for example) and the denominator was the total number of people in the survey. The way the study was designed, each survey respondent represented a U.S. household. The results may surprise you.
In 2012 (the latest data we have), 43 percent of all U.S. households purchased some kind of plant. Not bad, but the obvious question is why didn’t the other 57 percent purchase?
One way to achieve incremental revenue growth is converting these non-buying households into buyers. We have a lot of theories regarding barriers to purchase, but we have no empirical data on the barriers and if they are even surmountable. We spend a lot of time (and money) talking to people already “in the club.” A better understanding of non-buyer needs may reveal some insight on how to encourage a fraction of them to buy next year.
If we examine household purchases by type of plant, we see even more potential. Despite the blanket of color (and crowds) in garden centers this time of year, less than 20% of households self-reported a purchase of annuals.
It is for these mathematical reasons that I advocate your customer is anyone who loves plants.
Let’s take the conversation a bit farther. Generating sources of volume is really a mathematical formula, and it is important to understand which “levers” you are going to pull. Understanding the formula should help unlock some possibilities on how to generate new sales volume.
SoV = (P)*(I)*(T)*(A)
SoV is shorthand for Sources of Volume and is derived by multiplying P, I, T and A, where P is population, I is incidence, T is turns, and A is amount.
Let’s break each variable down and examine the evidence.
Historically, the target customer for plant material has been owners of single-family dwellings with a yard. What if I told you this only addresses about 50 percent of all U.S. households? How would your innovation strategy change if we broadened the definition to “population” as all households or all people?
How could your product assortment change for apartment dwellers, kids and other under-represented target customers? If you are looking for growth opportunities, think about your target population more broadly.
Incidence is the proportion of the target population that has (or would) purchase what you are selling. As we calculated above, only 43 percent of all households bought something with chlorophyll. Annuals are the most widely purchased plant (only purchased by 19 percent of all households in 2012).
In most consumer goods industries, non-consumers are constantly studied. In many cases, the barriers to purchase are fixable by tweaks to the marketing mix: new product assortment, price and place (distribution channel). If the industry were to increase incidence of purchase by a mere 1 percent, this could translate into substantial dollars.
What are some things within your control that could potentially increase the proportion of households to buy? We have some thoughts:
• New distribution channels. Not everyone goes to garden centers. The number of independent garden centers has declined and the number of new store openings for the “Big Three” (Home Depot, Lowe’s and Walmart) is slowing. Those that do go to garden centers may only do so two to three times a year. Pop-up garden centers have been popular among some independent retailers for the past couple of years. A fast-growing franchise concept is the “Flower Tent.” Where else do consumers shop where the occasion is conducive to plant purchases? The gum and mint industry is now experimenting with selling its products at Subway sandwich shops, which has nearly 26,000 outlets in the United States. What is the likelihood that someone leaving with a footlong BMT with double onions will pick up some gum or mints? I think pretty high.
• Unconventional placement. Not everyone visiting Walmart, Home Depot and Lowe’s steps foot in the garden center. How many of these typical non-consumers could you convert into a sale if the right assortment were in a spot inside the store where they were more likely to encounter?
• New claims and new benefits. Would some consumers be motivated to buy a plant beyond the fact that it is pretty? Research we’ve conducted certainly suggests this is the case. In fact, we conducted a two-hour brainstorming session with non-consumers to generate new claims and uses for plants. From this, we’ve created several new product concepts that showed strong purchase intent from those not in the category. We are also big fans of the O2 for You and Plants of Steel program developed by Costa Farms. Both of these programs do an incredible job of highlighting new claims and benefits in a very consumer-friendly manner.
• Stimulate industry-wide demand. This is certainly an option for the industry. Significant money was spent on the Got Milk campaign. While per capita milk consumption was unchanged, significant consumption increases were seen in some target groups, particularly women interested in weight loss.
Turns have been the lifeblood of the industry and are essential in a seasonal product category. But, turns are only one part of the total equation and must be weighed in the context of a smaller proportion of households in the category.
The industry has done a good job with branding, promotions and point-of-purchase materials that all serve an important role in raising product visibility, generating impulse sales and building consumer pull. Have we tapped out here? While much improved, I still believe that merchandising and retail presentation are the weakest links in the consumer journey.
The levers that impact the rate of turns are numerous and include price, merchandising support, location in the store, product assortment, product freshness, weather, retail staffing levels and more.
Are there new ways to display your products that increase shelf appeal and turns? Can we achieve high turns with specific items by displaying them in an unconventional manner? How can the product or packaging be enhanced to spur even greater impulse sales? What more can we do in bundling items?
Do new retail formats or channels of distribution help us achieve faster turns than what is experienced in the independent garden centers and the “Big Three?”
Would there be a payoff if we staffed sellers in select stores? Costco and Sam’s Club achieve incredible turns on products supported by in-store demonstrations.
And, do we know empirically the price points that simultaneously maximize turns and the overall profitability of the selling space?
All the things we mention here are within the industry’s control and easily validated before a full-scale rollout.
The final variable in the PITA formula is amount — or the price consumers (or merchants) are willing to pay. Raising prices is the obvious path to increased dollar volume but is easier said than done. A defining characteristic of a mature industry is more sophisticated buyers demanding discounts and bargains. Sound familiar?
Study after study has shown that for many plants, consumer price sensitivity is low (within limits). From the consumer’s point of view, what’s the difference between $4.25 and $4.50? Not much. For growers selling millions of units, a 25-cent differential really adds up. On the flip side, that same 25-cent differential is a huge chasm for the merchant who has nightmares about a pricing response from a rival retailer.
As an industry, however, I think we lack confidence when negotiating prices. Confidence is derived from knowledge, and it can be frustrating to have a conversation with a business owner about pricing when they don’t have full knowledge of their costs. No amount of revenue is worth the effort if it fails to generate profit. Businesses with a long-term focus sometimes have to be willing to walk away from the allure of significant volumes. As we all know, some learned this lesson too late.
As it relates to your marketing strategy, where will you focus in the PITA formula? Is your target customer broader than owners of single-family homes? Can you influence incidence of purchase by influencing the non-purchaser? Have you done everything you can to stimulate greater turns? Or, is it time to ask for a raise?