The masses of margins
mass de marge model
Masse de Marge or The Masses of Margin, is a model developed by the French retail giant Carrefour in the early 2000s. The model classifies suppliers / retailers into two axis; by the levels of discount given and the level of business development created. This classification resulted in two core types of suppliers. Supplier type ‘A’ who takes a responsible approach by developing the business (Developer / Category Leader), and Supplier type ‘B’ that only gives a lot of discounts (Follower / Copy Cat), to leave the overall growth to the retailers alone.
SUPPLIER ‘A’ (THE DEVELOPER)
Supplier ‘A’ puts a lot of resources to grow the margin for the retailers by developing the business, as well as they give fairly good levels of discounts. The development can take forms of Clients teams, Category Management, Joint business plans, Share data & insights, Tailor made products, Store development projects, Cross Category Sales, Training etc. Over time, suppliers with this transformational way of working, develop the margins for the retailers in a more robust way, than only flushing out discounts the transactional way.
SUPPLIER ‘B’ (THE DISCOUNTER)
Supplier ‘B’ is often a challenger, who is out to grab shares in the simplest way possible, by giving away lots of discounts. This type of suppliers do not take an overall category ownership to grow total margins for the retailers. They leave this job to the Category Captain. Supplier ‘B’ has only one focus, and that is to ‘sell IN’ to retailers. They do give away higher discounts than Supplier ‘A’; hence the margin per unit sold, is better than what products from Supplier ‘A’.
A customer always gain more by having a supplier that puts more focus into developing their business (A) than having a supplier that only focuses on giving high levels of discounts (B).
COMPARING SEPARATE MARGINS (A VS B)
A classical mistake is only to compare margins per unit sold, and not to add in velocity and total amount sold. That is the only true and valuable measure. The extra gain for the retailer by choosing Supplier ‘B’ is the small red area. This extra gain takes form of higher level of discounts per unit, whilst the extra win for selecting Supplier ‘A’ comes through a holistic approach to grow the overall sales, whilst still offering good margins. This is visualized by the green area. At the end of the day, the overall margins from Supplier ‘A’ is by far much bigger than from Supplier ‘B’.
Football Pack (6 x 500 ml + Football) and the mechanic
The mechanic of the Football Pack is rather simple, but even so very effective. The normal 6-pack had a selling price of NOK 60,- whilst the Football Pack was priced at NOK 99,- (65% higher price). So, how did the mechanic works?
When you buy 20,000 footballs, the economies of scale takes place; with unit price of NOK 20,- per football. Due to that this was packed manually, we had an extra charge of NOK 10,- per pack. Combined 60 + 20 + 10 = 90,-
On top of that we had a 10% up-charge, creating a selling price at NOK 99,-
Results:
The Football Pack was seen as a steal, and the 20,000 packs we made was sold out in no time. It became the 5’th most sold unit within the accounts during the period it was sold. The retailer were also pretty happy, that we left more margins on the table. It was a clear win-win-win.
Modular Business Building Techniques secures up-charge
For the Football Pack we did a lot of Modular Changes. We changed the cogs, name, added a collectable and played on fell good indicators. In addition we changed the D-pack and price. This is indeed a different example of an ‘Anti-Gravity’ approach. When modules and benchmark are changing, it does something with price elasticity and demand.
Are shoppers rationale?
As a supplier you can sell anything to anyone. If they do not ‘want’ your products, just change the focus away from what you are selling. I remember overhearing shopper at a gas station saying that the football was a steal. I also remember a lady saying she did not like the product, but that the offer was so tempting that she could not refuse to buy it.
Execution at Gas stations
The Football Packs were displayed on Euro-Pallets outside of Gas Stations. The balls were collectables, and were placed next to generic football sold at NOK 99,- This way the six bottles were perceived as a ‘free’. You can sell anything to anyone, as long as you change focus away from what is actually sold.