For channel customers, profit margin, the ability to drive traffic, trade terms, and delivery consistency all tend to play into the value equation, along with many other variables that depend on the nature of the business. An understanding of the channel customer value equation can help inform both the businesses you should be in and how you can win there. Understanding the channel value equation was particularly helpful to repositioning in oral care for P&G. At one time, P&Gâs non-toothpaste oral-care products were not terribly appealing to the retailers. Inexpensive toothbrushes and largely undifferentiated rinses or flosses sold at lower volume than toothpastes did and at a lower marginâwhich meant that retailers were fairly ambivalent about them. Higher-end items, like electric toothbrushes, might have offered attractive margins but little in the way of volume; they sat for a long time on the shelves without turning or earning the retailers that high margin.
Retailers wanted products that would increase the total amount spent on oral care per visitâin other words, a balance of profit and volume, driven by greater engagement with the category overall. The answer was innovationâmargin-boosting differentiation on floss (through Teflon technology that would enable the floss to easily slide between teeth without shredding) and category-expanding products like the CrestSpinBrush (an affordable power brush that represented a trade-up from manual brushes) and Crest Whitestrips (a totally new consumer proposition for at-home teeth whitening) that brought in entirely new spending. The dynamics of channel value were also essential to the Olay choice to stay in mass retail rather than moving up to department stores. In department and specialty stores, the manufacturer staffs its own mini beauty store within a larger retail format. Such a structure adds considerable complexity and lots of costs as the numerous cosmetics and skin-care competitors ratchet up the grandeur of their space and their level of staffing. Better to leverage existing retail relationships, the team decided, working with these retailers to create new value through an Olay premium-priced masstige positioning, which traded up current mass customers and attracted prestige customers from department and specialty stores. This strategy created more volume, profit, and margin for the mass retailers.