Retail Marketing Models… On the Brink of Change

1. Retail Marketing Models… On the Brink of Change October 2005 DWOConnor@Mventures.com

2. Discussion Points…. • How Leading Retailers Are Going to Compete • How Brands Are Going to Win

3. Shelf of the Future?

4. Shopping Basket of the Future?

5. Retail Environment For BrandsIs Deteriorating Quickly • Retailer differentiation strategies – make me different everyday does not fit well with large brands • Shelf compression • New categories • Private Label • SKU rationalization • OPP Pricing strategies • Shelf conditions • POS and other signage execution

6. Advertisers Want Change … Advertisers want • to increase effectiveness or reduce • mass advertising outlays • Trade promotion • Conversion - in store - to better influence the “moment of truth” • 1:1 relationship marketing with consumers • Localized marketing/promotions • Optimized content/campaign investments • Target-ability • Equity enhancement • Measurement

7. Shifting Dollars to In-Store Source Retail Media Link, LLC 7

8. The last 20 yards has become “FMOT” for retailers and brands Total Target Market 80% Aware Traditional Marketing Understand Believe Want Retail Marketing & Merchandising Find Buy Like Prefer 4.8% Source: Tesco

9. Market Forces Shopper Lifestyles & Behaviors Technology Globalization Speed – need for Capital markets Retail Industry Competitive Forces Consolidation, Concentration, Substitution Saturation Impact of Discounters Margin compression Labor relations & productivity Demand Driven Supply Chains Key Trends That are Impacting theNorth American Market

10. Chain Retail Share of North America 0% 51% 100% “Chain Retailers” Organized Local Retail Formal Retail Note: The market size would be @ least 10% larger if the informal market were included here. And the “Chain Retailer” market share would decrease.

11. Only 89 Retailers in North American will Gain Share!(North America Ops only, Period Evaluated = 2003 through 2008E) Gainer Segments Source: www.mventures.com

12. Share Gainers Key Initiatives.. Examples • Re-engineered revenue streams • Clear differentiation strategies • On-going Brand enrichment … Strong brand stand (positioning), right marketing messages & platforms • Right format positioning – targeted or mass • Innovative merchandising, products • Right people and capabilities • Right Market Development models • Demand driven supply chains • Credible, timely information across the value chain • Strong financial performance and capital structures

14. Retailers Want to Monetize Their Shopping Trips, Improve Own Messaging Source: Tesco

15. Brand Enrichment Shopper Insights Communication /Marketing Platforms Brand Guideposts Organization

16. Shopper Insights:They are what they buy What do my customers spend? Who are my best customers? What are their churn rates? What days what times do they shop? What’s my share of their wallet? What sections do they shop? How price sensitive are they? Will they substitute when OOS? What other items do they buy? Which items drive price sensitivity? How promotion responsive are they ? What brands do they prefer? Which promotional vehicles do they respond to? Source: Ahold

17. Brand Guideposts

18. Right merchandising Department & Category Strategies for: Private label Pricing & promotion Localization New Right Assortment Fresh Ancillary/SWAS GM/HBC Apparel All other Food Brand Enrichment Strategies Require New Operating Paradigm Right marketing • Clear consumer target • Clear positioning • Marketing Overlays • In & out of store media platforms • Vendor tie-ins/co-marketing

19. Brand Enrichment Shopper Insights Communication /Marketing Platforms Brand Guideposts Organization

20. Major Retailers Spend at Considerable Levels and on Media of Declining Effectiveness Repurposing just 10% of the leaders TV/Cable Spend to an in-house network will add $288 Million to RMN Revenues / Media Value Source: AdAge

21. Retailers Have A Increasing Number of Captive Marketing Platforms… Retail Media Networks In-store POP Targeted Media Mass Media Customer Acquisition Personal Relationships Community Involvement Targeted Publications

22. Digital Signage to Retail Media Networks:An Industry Evolving Rapidly Retail Media Networks (RMN) Shopper Marketing Capabilities Operations Focus Integrated RMN Advanced RMN Basic RMN Digital POS Signage Backroom Digital Signs 2001 2010 Today Source: Intel, Premier Retail Networks

23. Historical Business Models Operations/Employee Communication Solutions: Primary role in-store operations, training and communication. These are especially useful to merchants and store operations people communicating new programs, initiatives, for personnel focus as well as for training and policy communication. Digital Signage – Initially a traditional Point of Purchase (POP) alternative substitution strategy for printed POP signage, which competes on efficacy and cost. Extends to in-store navigation and announcements. Transfers greater control and resources to the retailer over in-store conditions and shopper communications. There are two basic approaches for these sales oriented networks: Electronic POP – static networked screens replace the high cost and sometimes ineffective printed point of purchase (POP) materials. This ranges from relatively static brand image screens to electronic shelf tags which can also deliver promotional messaging. They enabled central control over store level signage, pricing and related merchandising messages. They save labor, simplify complex product messages for shoppers and remove most of the work at the retail store and improve execution. Digital Displays Networked together to simply make physical product comparisons. These networks are especially prevalent in categories such as TV departments, where consistent content displayed across the available products help the shoppers “see” the difference. Source: Intel, Premier Retail Networks

24. Retail Media Networks (RMN’s)distribute various digital content including paid advertising, instructional content and news through a network of digital displays.

25. New Model: Retail Media Networks (RMNs • Retailer or Advertiser sponsored digital advertising and media networks targeting specific zones or “customer viewing areas” (CVA’s) with digital content to engage and activate shoppers. • RMN’s use broadcast and/or narrowcast in the store. • Expanded capability for greater in-store targeting, interactivity, tracking and integration with parallel customer development systems. • Devices and displays configured with high quality, directed sound and interactive capabilities – with centralized control over the content and device operations. • Ultimately RMN’s will include multiple network platforms (wired, wifi, cellular etc). RMNs can be utilized in three distinct ways: • Broadcast- transmitting a message over a wide area or to everyone connected to a network or service • Narrowcast– transmitting a message to a group in a specific target area. Sectional LCD panels are common in an RMN’s that address specific products @ the modular level • Interactive (1:1)– Devices that allow for consumer interaction, often including input to obtain product recommendations. The most common form of interactive system is a touch screen or buttons on a kiosk type display device Source: Intel, Premier Retail Networks

26. RMN Decisions Development and Deployment Considerations: Retail Network Configurations • Business Model – Backroom, Digital POP, RMN (as discussed above) • Network Options (ie the medium the content will travel through) and Operation and op– Wired or wireless, owned or leased for example are important choices. RMN’s operate the same hours as the store – retailers may choose to operate in-house or outsource to companies such as Premier Retail Networks (PRN). • Consumer Viewing Area (CVA’s) Configurations – The number and location of screens (in a fixed network) • Device Options/Consumer Reach Strategy – The output device that will be used to view the advertiser and store related content. These can range from very simple screens to more complex 1:1 interactive devices and will depend on consumer acceptance. • Content Objectives – There are at lease six common objectives for the content: • Branding – Establishing or re-enforcing the brand with the shopper with intensive in-store advertising • Merchandising – Merchandise and Promotional call outs (Features) • Attraction – To draw people to departments and categories • Direction – To help shoppers navigate the store • Enhancement – To support and create store environment • POS Enrichment – To improve and enhance the checkout experience • Content Development and Acquisition Process – In an RMN, much of the content is advertiser provided. However, it is not effective to simply re-purpose existing 30 second spots. 15 seconds or less is often the most effective message length. This requires development capabilities including talent acquisition and digital rights management. • Computing Power – Where the business intelligence resides in the network • Key Applications – These include content management tools that guide how content is managed with the Networks. Source: Intel, Premier Retail Networks

27. A Number of Important choices Source: Intel, Premier Retail Networks

28. Multiple Networks in Any given StoreWith Ability to Target In & Outside the Store Store IN Wifi/Bluetooth Wired Media Networks Activation WiMax Cellular Mode OUT IN Awareness Activation OUT

29. 2m 39s 5m 18s 5 m 3m 03s 3m 55s 5m 18s 2m 44s Retailers have natural dwell zones in their stores.. Which are really valuable? 21m51s

30. Content: The MOST important consideration • 5 to 10 second spots… VERY captivating for the shopper • Content development complex • Acquisition/ re-purposing • Talent acquisition • Digital rights • Future: digital libraries – standard content • DIY for shoppers - Menus, patterns, building plans

31. Attention grabbing Pertinent vs. entertaining Recognition vs. recall to better connect More promotion, frequency Tie active messaging to all brand points Demos Shelf signage Floor graphics Packaging Associate program – educate them on the message Retailers own overlay programs – Hispanic, Health & Wellness, Trend Content

32. A Number of Important choices

33. Retailers Can Ramp Up Their CVA’s Over Time Big Stores – Hypers, Club stores Medium size (Chain Drug, Supers) Small box (c-store, Value discounters) 25 20 15 10 5 # of CVA’s Initial Final

34. RMN’s face numerous challenges • Shopper Adoption • Understanding –. • Measurement – • Advertising agency readiness.. • Advertising Sales Force • Media Plan Integration

35. What is currently measured is aggregate Viewer-ship Gross impressions Department traffic View Times Recall Attitude A good thing to offer customers Informative Entertaining Provides relevant advertising These are sorted by Aggregate Demographics Selected CVA’s - Interactive Usage What may be measured in the future Retail GRP’s Data synchronization with traditional media planning tools Whatever tools metrics that planner uses Predictable reach & frequency Copy optimization – how to optimize the message for retail Frequency Respondent level data – enable aggregate and segmented analysis Demographics, CVA’s Most Important – Shopper Acceptance! What We Know About Today and the Future

36. Viewership From 35.8% viewer-ship 120 million gross impressions per 4-week flight View Times Duration/viewer Growing! % of time viewing 14% Recall Unaided 42% Aided & Unaided 65% Attitude A good thing to offer customers 84% Informative 80% Entertaining Provides relevant advertising 78% Consumer Response is Impressive

37. Qualitative Shopper Feedback • “Do not interfere with me getting shopping done- if you get my attention fine, but don’t get in the way” • Highlights prevalence of precision shopping and need to incorporate in-store navigation • Provide more relevant, useful and practical information in terms of better navigation assistance and product information. • Makes sense given shoppers time compression they appreciate concise, clear and to the point information, • Provide new/unique entertaining advertising content that fits me and the shopping environment, rather than a recycle of what I can see at home on the television. • Content counts: Make it new, make it interesting • Provide a blend of content that makes the store environment more relevant and feel like my store. • Make it local. … community news, weather, announcements, sponsorships, initiatives, etc

38. Measurement: Advertisers Want Balanced Scorecards • Goal: Accountability through consistent measurement – impact on cases & equity • Measurable value vs. alternatives • Advertising/brand development scores • Retail execution (in store media forces execution) Balanced Scorecards Brand Equity P&L’s – Customer & Brand Brand Advertising Metrics Trade Spend Metrics Impressions (CPM) Recall Reach & frequency Retail Execution Cases (Sales $)

39. Funding: Shopper Marketing Funding Equity Advertising Trade Spend Shopper Marketing Re-purposed and/or reduced Mining Retailer A Retailer B Retailer C Retail D Reporting

40. RMN’s face numerous challenges • Shopper Adoption • Understanding –. • Measurement – • Advertising agency readiness.. • Advertising Sales Force • Media Plan Integration

41. RMN’s face numerous challenges • Shopper Adoption • Understanding –. • Measurement – • Advertising agency readiness.. • Advertising Sales Force • Media Plan Integration

42. RMN Forecast • Some form of a RMN will be right for up to 65 major US retailers covering over 100,000 U.S. stores(2004) • This is based on a combination of factors including scale, consumer traffic, retailer marketing orientation and product strategy, and growth viability. • There will be many more attempts – unlikely successful outside of these 65 • Once fully installed there will be over 1,100,000 CVA’s. • In the US, RMN’s will provide consumer impressions greater than all but the largest television networks using the most conservative estimates. The reach is impressive, repeatable and measurable. • Advertising revenue will reach $3.3 Billion – a major revenue opportunity for these retailers and third party providers yet still less than 10% of the top advertisers annual media spend. • The capital investment required to support this system is in the magnitude of $2.5 Billion. This will require greater commitment by retailers or capitalization of third party providers. • ROA will always be a focus – and plans will change with the returns

43. Retail Media Forecasted Penetration of 9.1% for at the highest levels of participation Retail Media Forecasts represent a small portion of the total TV (broadcast and cable) Industry Advanced and Intermediate Networks represent 4.7% penetration $60.7B Source: AdAge 2005 Adfacts

44. Summary & Implications • Environment for brands weakening while traditional media weakens faster • Retail market changing… important distinctive strategies among retail leaders • On-going Brand Enrichment critical • Shopper insights • Brand Guideposts • Organization • Communication platforms • Retail Media Networks one of many in-store options • Has some real advantages • Retailers have some real choices – network configuration • RMN’s face some very real challenges • Adoption • Profit-ablilty/ROI • Measurement

45. Summary & Implications • Retailers will form business units to manage their marketing options – including RMN’s/In-store TV – to both monetize their traffic AND to improve own marketing spend/effectiveness • Retail Media Networks/In-store TV will be a big part of the market • Winners will find a way to test and re-fine before they scale any model • Retailers will capture about 50% of the marketing capacity on their platforms • Revenue streams could grow to 5% of typical large scale retailer • Success is not about technology – its about getting business model right

46. Thank you …. Questions?