PDF THE TEA CUP RUNNETH OVER

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THE TEA CUP RUNNETH OVER

Why Less Really Is More

By N. Michael Langenborg

TRADITIONAL MEDICINALS

Consumers are drowning in a veritable sea of tea. And, unfortunately, we have only ourselves to blame. The "we" in this case is manufacturers and retailers of tea products. How did we get in this mess? It's simple, we haven't been paying attention to the consumer research regarding attitudes and usage because we've been fixated on the sales growth. Lurking underneath that sales growth are some fundamental unfulfilled con-

sumer issues of trust, quality and value.

WHAT CONSUMERS ARE SAYING ABOUT HERBAL SUPPLEMENT TEAS TODAY Over the past four years the number of teas offered to consumers in natural food stores has risen from a little over 900 items to over 2,200! And this proliferation is just the packaged tea varieties we're talking about. The R-T-D

(Ready-To-Drink) side of the tea business appears to be equally as robust with respect to the SKU propagation (think Arizona, Snapple, Tribal Tonics, SoBe, Lipton, Nestea, etc.). The point here is that even with all these new products only 12% of the SKUs in the packaged tea category do 80% of the business. So, the other 1,936 items that consumers are being bombarded with that retailers are carrying inventory costs on

Note: For the purposes of this article, "herbal supplement tea" is defined as tea purchased or used specifically as a dietary supplement, as reported by consumers.

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and that manufacturers are spending money to promote are a combination of a very inefficient use of resources.

But more than the economic malaise, these SKUs are creating states of confusion among the consuming public. So much confusion that most can only describe their product benefits as promoting "general health and wellness" (see Figure 1). Conversely, consumers can quickly, and with great statistical confidence, cite the many health concerns facing them today (i.e. heart disease, cancer, cholesterol levels, stress, anxiety, sleeplessness, exhaustion, colds and flus, digestive problems, poor eyesight, muscle pains, immune system deficiencies, hair loss, bone density, arthritis, weight control, etc., etc., etc.) Yet, when asked about their health problems related to their herbal supplement usage, they simply cite the catchall phrase "general health and wellness" (see Figure 2). There are two possible explanations for this phenomenon: 1) consumers are becoming much more proactive about their own health, and by citing "wellness" they are endorsing their preventative medicine, while assuming their long-term benefits; or 2) these consumers are confused about the health benefits of specific products and, therefore, are signaling a true marketing malfunction.

THE PROBLEM IS NOT THE CONSUMER...IT IS US We, as manufacturers and retailers, have done a horrible job in describing our consumer benefits on either a product level or a brand level to affect any type of significant product or brand loyalty. So much so, that the number two source of information about supplements ? a self-medication process that is fraught with potential ill side effects due to im-

proper dosing, patient compliance and phytopharmaceutical potency ? is not coming from the trusted pharmacist or physician but from "a friend or relative." Even more alarming may be that 50% of non-users and 35% of users are "confused about how to use supplements." And, finally, brands are meaningless as only 18% agree that "it's important to buy only nationally known brands of herbal supplements," which is down from 20% a year ago.1 So, brand importance is insignificant, confusion is widespread among users and non-users alike, and sources of information are based on hearsay versus well-presented consumer education campaigns.

I offer the reasons for this backward brand phenomenon to be the pure lack of product differentiation, mindless SKU proliferation and baseless product substantiation. The greatest threat to this industry is not more government regulation but the market opportunists who are driving truck loads of profits through ill-conceived and poorly constructed products that are touted as

figure 1

Top Ten Reasons for Using Teas as Supplements

TOTAL USAGES

General health & wellness Stress Colds Increase energy level Digestive problems Fatigue Insomnia Weight control Supplement nutrition Nervousness/anxiety

30% 10%

8% 5% 5% 5% 4% 3% 3% 2%

Source: Natural Products Census: Supplement Report. The Hartman Group, 1998 and 1999 data.

"magic bullets." The result is that our intelligent, self-medicating consumer is wising up to the hoaxes and the overpromises. The category is settling down because consumers have been given too much to choose from and consequently have shut down their purchase behavior until they find out more about the companies behind the herbs whose benefits they are just beginning to understand. The opportunity for manufacturers and retailers is to seize the moment by focusing on branding and its incumbent promise of quality, trust and value.

CUSTOMERS VIEW RETAIL STORES IN ONE OF THREE WAYS The first step towards a branded strategy is to realize that all customers are not created equal, nor do they view stores in the same role. Those customers who value a store as a regular provider of goods and services will continue to loyally shop that store ("loyals" are defined as spending in excess of 50% of total category purchases in one store). Others see a store as an opportunity to get a bargain ("switchers"), while most view them as

figure 2

Top Ten Reasons for Using Herbal Supplements

TOTAL USAGES

General health & wellness

37%

Memory loss/Absentmindedness 6%

Supplement nutrition

5%

Arthritis

5%

Increase energy level

4%

High cholesterol

4%

Aging

3%

Depression

3%

Insomnia

3%

Stress

2%

Source: Natural Products Census: Supplement Report. The Hartman Group, 1998 and 1999 data.

1 Integrated Health Care: Consumer Use and Attitudes. The Hartman Group, Fall 1998.

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a place to grab something and go ("fillin") (see Figure 3). The key is to distinguish one customer from the other. The concept of category management is to manage your business by looking at individual categories as strategic business units. The concept of customer management is the practice of managing a business based upon the premise that customers are different and will make different economic contributions to your business. The manifestation of this concept has spawned the loyalty and frequent-shopper card programs that have become increasingly employed by leading-edge retailers. Within the data being collected is a wealth of knowledge that can be used in category management efforts.

ALL CUSTOMERS ARE NOT CREATED EQUAL Figure 4 provides a categorical viewpoint of a retail business by showing the effect of six distinct groups of customers culled from a loyalty-card program database with a focus on tea purchases. The first groups are described as: Heavy, Medium and Light users. They represent the differing levels of purchasing impact an individual customer has to the total sales within a category, in this case the tea category. While some customers buy 10 boxes a year (Heavy), others buy five a year (Medium), and some only buy two every year (Light). In this analysis the Heavy user contributes 60% to the to-

tal category sales, the Medium user adds 30% and the Light user brings in 10%.

The second group includes the Loyal and Non-Loyal customers. They represent the differing levels of loyalty to a brand, a store, a particular size, a flavor or some other characteristic. Taken independently of their frequency of usage the Loyal group contributes 60% to sales, while the Non-Loyal group generates the remaining 40%.

CUSTOMER MANAGEMENT FOCUSES ON PROFITS FROM LOYAL CUSTOMERS Figure 5 provides a categorical viewpoint of the same business by showing the effect of those same six distinct groups of consumers, only now it provides a picture of profitability. As you can see, different consumers yield widely differing levels of profit contributions. In this case the Heavy user still contributes 60% to total sales, the Medium user 30% and the Light 10%. The difference is in the loyalty. Taken independently of usage the Loyal group now contributes 88% to profits, while the Non-Loyal group generates only 12%. Why? Because the loyal shopper buys more products at regular prices, takes less time to sell to, is less sensitive to price, brings in new customers and has fewer acquisition costs. The efficiency in selling to the loyal customer is almost devoid of improvement. Con-

versely, the Non-Loyal shopper is the one who cherry-picks deals, buys long on discounted products, gravitates to lowmargin items, hoards sale items and takes advantage of special pricing programs. More painful may be that these customers also cost money to acquire via advertising, couponing and discounting. Not a very pretty picture. The two charts demonstrate the difference in how consumers influence your profitability. The sooner you begin learning about them, the more efficient your store will become as you apply category management principles and disciplines to maximize the value among your loyalty groups.

THE TEA CATEGORY MANAGEMENT PROCESS The average retail store may be subdivided into about 200 categories. One of those categories is tea. To be successful with category management, any category must be defined by the consumer purchase criteria. A category partner, such as a manufacturer, should be able to provide that information from its own proprietary consumer research. An example of the consumer decision process across the five major subcategories of tea appears in Figures 6.

The first step in this definition of tea is to separate the two major groups of tea: Beverage/Non-Medicinal group from the Medicinal/Functional group. The differences between the groups are

figure 3

The Value of Loyalty

% OF TRAFFIC

Loyal Switcher Fill-in

21% 19% 60%

Source: Supermarket Business

% OF SALES

60% 25% 15%

figure 4

Source of Business

($ Sales Contribution)

% OF

% OF % OF

HEAVY MEDIUM LIGHT

Loyal Non-Loyal TOTAL

36% 24% 60%

18% 12% 30%

6% 4% 10%

Source: Traditional Medicinals Proprietary Retailer Databank

figure 5

Source of Profit

($ Sales Contribution)

% OF

% OF % OF

HEAVY MEDIUM LIGHT

Loyal Non-Loyal TOTAL

54% 6%

60%

26% 4%

30%

8% 2% 10%

Source: Traditional Medicinals Proprietary Retailer Databank

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simple: the former is purchased primarily for taste, the latter is purchased primarily for its phytopharmaceutical effects. Because black tea contains caffeine ? with its incumbent powerful phytopharmaceutical effect ? one might believe that it belongs in the Medicinal/Functional group. However, information gleaned from focus groups supports its inclusion in the Beverage/Non-Medicinal subcategory because consumer's stated perception was that black tea is used as a beverage primarily for taste (this is due to the fact that more than 70% of black tea is used as an iced tea product where taste is the primary purchase criteria over caffeine). Once we've established the larger subcategories, we further subdivide them into the types of teas available: Medicinal/Functional includes Medicinal Blends, Medicinal Singles and Green Teas; while Beverage/Non-Medicinal includes Black and Herbal Beverages. Further within those subcategories we find the different and specific reasons for purchase interest (see Figure 7). Establishing a category plan that leverages this understanding can lead to a unique and defensible position in the marketplace.

SETTING THE ALL-IMPORTANT SUBCATEGORY STRATEGIES Subcategory strategies may be your most closely guarded competitive secret as they will ultimately determine your ability to compete. This is the area where creative marketers and retailers armed with knowledge can excel. For example, a retailer may have a category called "medicinal tea." He or she may want to make the store "the place to shop for medicinal tea" in its trading

territory. The category would, therefore, have a "destination" role. Decisions about pricing, assortment, shelf layout and promotion would be made with this category role in mind. Manufacturers who understand this role would then bring to market medicinal teas of sufficient variety and benefit to meet the consumers' health needs.

Within the category individual products would be assigned to specific subcat-

figure 6

Extended Subcategories for Tea

HOT SPECIALTY TEA

BEVERAGE/NON-MEDICINAL

HERBAL BEVERAGE: Herb based in regular and organic varieties with a primary emphasis on taste (May contain artificial flavors)

BLACK TEA: Fermented Camelia sinesis (Tea Leaf) based in regular and organic varieties sold in tea bags or loose

Source: Traditional Medicinals

MEDICINAL/FUNCTIONAL

MEDICINAL BLENDS: Herb tea with a primary emphasis on the medicinal properties of the herbs comprising the blend

MEDICINAL SINGLES: Herb tea with a primary emphasis on the medicinal properties of the single herb

GREEN TEA: Steamed Camellia sinesis (Tea Leaf) based in regular and organic varieties sold in tea bags or loose

figure 7

Consumer Decision Tree for Tea

BEVERAGE TEAS

MEDICINAL TEAS

BLACK

Caff/Decaf Flavor/Non Bags/Loose Organic/Non

Brand Price

HERBAL BEVERAGE

Flavor/Non Bags/Loose Organic/Non

Brand Price

Source: Traditional Medicinals

GREEN

Caff/Decaf Flavor/Non Organic/Non

Brand Bags/Loose

Price

MEDICINAL MEDICINAL BLENDS SINGLES

Maintain/ Protect/

Treat

Maintain/ Protect/

Treat

Condition to Affect

Condition to Affect

Brand

Brand

Availability/ Substitutes

Availability/ Substitutes

Organic/Non Organic/Non

Price

Price

figure 8

The Subcategory Strategies

CATEGORY ROLE Destination

Routine Convenience

Occasional/ Seasonal

IMPLIED STRATEGIES

Traffic Building Turf Protecting Transaction Building Excitement Creating Cash Generating

Transaction Building Profit Generating

Transaction Building Profit Generating Image Enhancing

Traffic Building Excitement Creating Profit Generating

Source: Food Marketing Institute

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egory strategies, such as:

? Traffic Builder ? provide high consumer draw.

? Transaction Builder ? increase the total register ring.

? Profit Generator ? improve category gross margin.

? Turf Protector ? defend sales and share.

? Cash Generator ? increase category cash flow.

? Image Enhancer ? reinforce retailers desired image.

? Excitement Creator ? generate sense of urgency.

Herein lies the creative challenge: which SKUs optimize which strategy and lead to a destination role for the consumer? Even retailers who compete within the same trading territory can establish a unique and defensible position by selecting distinctly different SKUs to meet the subcategory strategy. This learning is developed over time through consumer purchase trial and

error as well as based on the changing consumer dynamic, for this is not a static market. This is a very fast-moving category with new information constantly being fed to consumers that can and has dramatically altered the sales of teas (think of the more recent green tea phenomenon to bear witness to the power of consumer choice fed by positive media). In essence, the retailer and manufacturer must be quick-acting, quick-thinking and ready to make a play into emerging market segments if they wish to maintain the destination category role desired by consumers.

For a little role play, consider for a moment that you selected tea as a destination category. What subcategory role would medicinal blend teas play? Traffic builder? Image enhancer?... What about green tea? Cash generator? Excitement creator?... What role will black tea play? Cash generator? This level of questioning is what category management is all about, making decisions based on your goals versus those of the con-

figure 9

Distribution Channels

ALL HERBAL

HERBAL

SUPPLEMENTS SUPPLEMENT TEAS

% of purchases

% of purchases INDEX

Grocery Store/Supermarket

12%

35%

287

Direct from Sales Representative

7%

15%

218

Health Food Store

8%

14%

182

Vitamin/Supplement Store

8%

11%

140

Direct Mail/Catalog

16%

7%

40

Pharmacy/Drug Store

12%

7%

59

Mass Market Store

20%

3%

15

No Answer

4%

2%

54

Health Care Practitioner

3%

1%

44

Club Store

4%

0%

0

Natural Health Food Supermarket

2%

0%

0

Over the Internet

1%

0%

0

Other

3%

6%

168

Source: Natural Products Census: Supplement Report. The Hartman Group, 1998 and 1999 data.

sumers. The proper balance will yield highly profitable long-term results.

YOUR PLACE OR MINE Beyond the choice of a particular item or brand is the issue of choice of channel. To develop a total consumer strategy one must recognize that the herbal supplement tea category is available in multiple channels. For example, there are some significant differences in the channels used in which to purchase herbal supplement teas versus herbal supplements. Figure 9 begins to tell the story.

When you examine the channels in which users purchase herbal supplement teas, the Grocery Store/Supermarket dominates with 35% of total purchases. This is even more remarkable when you consider that this represents a 187% higher incidence versus herbal supplement purchases in that same channel. More importantly, it is more than twice the level of the number two channel, Direct from Sales Representative at 15%. When looking at herbal supplement purchases, we see a much closer bunching of outlets with Mass Market at 20%, Direct Mail at 16% and Pharmacy/Drug Store as well as Grocery/Supermarket at 12%, respectively.

The implications of these channel disparities is threefold: First, Grocery/Supermarkets have a unique and defensible channel opportunity in merchandising herbal supplement teas as part of their normal food offering. More importantly, it begs the question of placement of herbal supplement teas. Rather than being segregated with other health and natural products in an isolated storewithin-a-store section the high incidence of tea purchases occurring in grocery stores indicates that critical mass has already been achieved. It is now the responsibility of the individual re-

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