The route to market

The route to market is the path of goods and services to the shopper and the flow of money from shopper back to the company. The key role of the route to market is to ensure the implementation of brand, product and service strategies at the point of purchase in the most profitable manner. Without the availability of products and sendees at the right place and time, there is no shopper conversion and no sale. The point of purchase is the meeting point between shoppers and products and services. Points of purchase are segmented by their role to the shopper, their importance and their cooperation pattern. The route to market strategy needs to optimize effectiveness and cost efficiency of developing a competitive position, sales and order taking, and operations that ensure that products, services, equipment and materials are present at the right place and time. Points of purchase belong to three main sales channels: traditional or fragmented; modem, organized or consolidated; and e-commerce channels. Traditional sales channels have less bargaining power, but are complex to manage due to their often low individual sales in numerous outlets. Modem channels require a key account and collaboration approach, like category management, ECR, and jointly agreed growth (JAG). E-commerce means sales generated by connected activities, such as websites, mobile devices, and applications, and covers channels like websites, online retailers, and brokerage platforms, e.g. marketplaces, affiliates, social media, and search engines. Analytics and search engine optimization (SEO) are key. E-commerce adds a new cost-to-serve challenge by incorporating the last yard delivery, e.g. goods and returns directly to and from shoppers, into the route to market cost. The emergence of omnichannel, the interaction between different sales channels, has increased the complexity of the route to market management.

Introduction

Route to market can be defined as the path of goods from manufacturer to shopper and the flow of money from the shopper to the manufacturer.

The economic changes from an economy of scarcity to an economy of oversupply, fragmentation of media and sales channels, and more critical shoppers has made the management of the route to market more challenging.

The development from a traditional sales channel into a multichannel and now omnichannel reality has increased the complexity of channel management. This includes understanding the role of sales channels, their interaction, and how to optimize investment and resource allocation in terms of channel support and management. There are differences in the way traditional, modem and digital sales channels work, and therefore how they need to be activated.

The key role of the route to market strategy is to ensure the implementation of the brand, product and service strategy, to ensure the encounter with the shopper at the right place and time. The opportunity detected in the route to purchase to generate preference, usage and sales of brands, products and services has to be implemented by the route to market by ensuring the encounter with the shopper through availability and activation, while optimizing profitability. If the cost of developing a sales channel surpasses the sales opportunity, new ways of selling need to be developed to optimize sales and investments.

With the digital revolution the route to market has gone from realizing brand, product and service strategies to, at times, becoming the strategy itself. Examples are Facebook, WliatsApp, Instagram or YouTube. Here the consumer and shopper have emerged from being mere users and buyers to become producers of content to be shared and presented. At times, with a sufficient audience and likes, the users become brands themselves and influencers build preference for specific brands, products and services. New channels open the possibility of reaching consumers and shoppers in new ways, and change the rules of the game, not only in how to sell, but what to sell. Examples are MPESA in Kenya (the transfer of money through cell phones) or the possibility of obtaining medical and veterinary services in remote areas through cell phones. Other services bring more transparency to the market, e.g. through price comparison internet sites for products and services. Before, price information for travel was accessed mainly through travel agencies, but can now be done by shoppers directly. The internet channel, both for information and buying has fundamentally changed the travel industry.

The development of a route to market strategy is often something organic, which develops over time and depends on the development of sales channels, distribution systems and competition. A company’s route to market is something that is adapting, continually changing, due to influences external to the company. One classical example is Coca-Cola. Founded in 1892, its key product was and still is the beverage Coca-Cola. When Coca-Cola was founded, the predominant sales channels were what we today call traditional sales channels. A key differentiation can be made between home and immediate consumption. Home consumption is normally served through grocery stores, and immediate consumption through outlets, like restaurants and cafés. Immediate consumption is of course also possible in grocery stores, if a product is bought, e.g. during a shopping trip, for immediate consumption or almost immediate consumption directly after the visit to the store. A key challenge that Coca-Cola faced at the beginning was the availability and competitive position in store of its products. Pepsi was founded just one year after the Coca-Cola Company in 1893. A high level of availability, i.e. penetration of potential sales outlets, and adequate activation of the same, would not only have been difficult to organize and manage in a centralized manner, but very costly, as well. It would have required a high level of investment at the outset of the founding of the company. Coca-Cola, as well as Pepsi, developed a bottling system, leaving investment and control of local markets to local entrepreneurs. In many countries and territories, the strategy was to collaborate with existing strong companies in non-competitive categories, but with strong control and knowledge of the local market, and well-developed customer relationships. Logical allies in many countries were beer companies and with different strategies depending on the situation of the local market. For example, in Germany, which has a multitude of local breweries, Coca-Cola worked with many different local bottlers and breweries to ensure local reach and dominance. On the other hand, in Scandinavia, where the brewery business was consolidated relatively early, Coca-Cola worked with just a few national companies. In northern Germany, in Hamburg, bottling rights were given not to a brewery, but rather to the famous boxer and world champion Max Schmelling, a person of immense popularity in Germany. Coca-Cola has followed a “gjocal” strategy, even before the word was used in academic research in the 1990s to describe multinational companies with global strategies adapted to the specific local situations and challenges. Coca-Cola was, and still is, responsible for consumer marketing, and the bottler for the sales channel management, distribution and production. As sales channels and shopper marketing have evolved the clear division between consumer and sales has become less clear and has affected the way the Coca-Cola system is working. The growth and increasing importance of the modem sales channel, dominated by national and international retail chains, has limited the negotiating power of local, regional or even national bottlers. Retail chains are more than mere distributors of goods that implement manufacturer strategies in their outlets. They are marketers themselves, with their target shoppers, market positioning, marketing, loyalty programs and own brands, as well as being a marketing channel for manufacturers. As retail chains grew in importance “power wars” between retailers and leading manufacturers unfolded. The main argument was about who was more important in developing the market and generating sales. Did brands generate traffic in stores, or did retail chains, due to their size and appeal to shoppers, ensure distribution and sales of brands, products and services of the manufacturers? Who is more important, the consumer or the shopper? The power wars even led to the delisting of brands and products by retail chains, or to lower promotional and activation initiatives by manufacturers at certain retailers. The importance of retailers has been one of the reasons that has forced manufacturers to focus more on shoppers. As modem retailers grew in importance, Coca-Cola had to develop key account management approaches. Key account management is difficult on a regional level, and national and international solutions were and are necessary. Managing big retailers also goes beyond just sales, and includes shopper marketing initiatives. In Germany, Coca-Cola introduced an overlayer organization to coordinate and manage national retailers across the different bottler territories. However, it is not only the sales channel reality that has been changing and consolidating, the same is true of the intermediary market, distributors and wholesalers. In order to gain efficiencies in production, distribution and bargaining power the idea of key bottlers (anchor bottlers) developed. These are very large, multinational bottlers, focused on the products of the Coca-Cola Company. They also sell complementary products to offer a complete portfolio to consumers, shoppers and retailers. Still, the bottler system and the cooperation with retailers and distributors can lead to opposing interests, especially when it comes to product innovation and introduction. While innovation is key from a marketing perspective, it can be less interesting for an independent sales arm, if bigger sales and profits can be generated with already successful products that need little investment in activation.

The development of category management and ECR was a response to the ongoing power struggle between retailers and manufacturers. Over the years, retail has gained in power, but the development of digital and e-cornmerce with the emergence of e-tailers, and the possibility for manufacturers to sell directly to shoppers is affecting the current power situation.

To ensure a sttccessfiil route to market strategy it needs to be well linked with the route to purchase strategy to ensure shared interests and integration of the different activities, either between different departments, or, as in the case of Coca-Cola, between different stakeholders. In addition, across different sales channels and intermediaries there are different route to market alternatives to reach the objectives set out in the route to purchase strategy.

Linking and aligning the route to purchase and the route to market into a coherent strategy starts with a clear understanding of the consumption need states to be served. In developing the route to market strategy the point of purchase is key as the point of encounter of the shopper and the brand, product or service. It is where the route to purchase is linked to the route to market, and it is where the conversion from shopper to buyer takes place. The objective of the route to purchase strategy is to influence the shopper in the interest of the company, while the route to market strategy is about managing the point of purchase and availability to ensure shopper preference through sales, distribution and warehousing, with the right organizational structure and control systems in place. In the case of indirect selling models, where the point of purchase is not under the ownership or direct control of the manufacturer, the route to market strategy needs to manage intermediaries in a systems approach to ensure the availability of products and services. The shopper embarks on his shopping trip with a mental proposal of a solution to the intended consumption need state, obviously with some flexibility.¹ The offer available at the point of purchase has a direct impact on the selection of products and services.² Availability can be divided into products that are not available at the point of purchase, out of stock, or out of shelf, implying that the product and service is theoretically available at the point of purchase, but not accessible to the shopper. When products and services are not accessible, this is usually due to poor point of purchase management. In the case of brick-and-mortar stores, this would imply poor management of shelves and store activation. If products and services are not available, they cannot be bought. This not only has implications on sales, but on the shopping experience as well. Effective management of the point of purchase and good cooperation with the retailer has an important positive impact on product and service availability.³ This impact is true for brick-and-mortar stores, as well as for digital points of purchase.⁴ The impact of missing products and services at the point of purchase is moderated by favorable shopper attitudes, price and loyalty towards both the point of purchase and the preferred brand.⁵ There are cultural differences in how shoppers react to availability issues.⁶ There are important situational factors at the point of purchase that influence shopper decision and spending, with some differences between categories.⁷ In the case of brick-and-mortar stores, different stimuli influence the buying behavior of shoppers both outside and inside the store.⁸ The shopping environment’ and sensory stimuli influence the shopper preference for specific points of purchase.¹⁰ Music has a strong impact on the purchase intentions of shoppers.¹¹ A well-designed, exciting and innovative shopping environment can have a positive impact on the purchase intention, but depending on the design, the experience can also turn negative.¹² In the case of digital sales channels, the design and type of interaction have a direct impact on the willingness to buy online.¹³ Employees in brick-and-mortar stores play an important role when it comes to shopper loyalty with the point of purchase.¹⁴ The advice and support given need to be congruent with the expectations of the shopper.¹⁵ Brands influence the image of points of purchase and therefore coherency between positioning and messages fr om before purchase to the point of purchase is key.¹⁶ Moreover, the image of brick-and-mortar stores influences shopping behavior.¹⁷