Jul 22, 2009 at 06:03 PM
written by Michael Munson

Wal-Mart: The New E.F. Hutton

When Wal-Mart acts, we had better pay attention (for those of you too young to know E.F. Hutton: click here). Given the fact the majority of brands involved in sponsorship sell at Wal-Mart, the world’s largest retailer’s latest move warrants some attention.

As Ad Age reported this week, Wal-Mart is now requiring brands to pony up marketing, media, and promotional budgets to the big dog in the retail kennel, in the same proportion that it sells those brands versus their overall sales. As The Ad Age piece sites, since Wal-Mart is responsible for upward of 30% of all P&G’s sales, P&G will have to fork over north of $1 Billion to Wal-Mart to be held in good standing and be prominently featured in Wal-Mart stores and advertising. Wal-Mart will then take those dollars and pay for its own promotion, or otherwise decide exactly how the brands it carries will be promoted in its stores.

This potentially has major implications for sponsorship marketing.

The Good

It could be a good thing. Those of us who are serious about turning sponsorships into bottom-line results for sponsors know the importance of having a retail partner that sells sponsor goods through third party retail channels. An argument could be made that putting retailers in charge of making sponsorship decisions could lead to more quantifiable results. Since they are the tracking and distribution element of the retail sales cycle, retailers have the expertise to monitor consumer behavior. Moreover, retailers could have greater ability to put together out of store marketing programs to bring customers into their stores, and be more willing to do it because it isn’t their own money. They could even do more, larger deals with more funding sources (more brands than the property could have got on its own). Best of all, decisions about what properties get sponsored could be left to local retailers who understand their markets. This could lead to more face-to-face meetings with properties and decision-makers at the local retailer level that lead to better activations, and less painful forays into to bowels of far flung corporate org charts.

The Bad

If brands are required to hand over their marketing dollars to retailers, those brands are going to have many fewer dollars to spend on sponsorships. In a day and age when so many properties are non-profits, and so many are funded by corporate sponsors (as government funding for all matter of activities evaporates), many events and causes will feel the pinch. It won’t just be non-profits that could have funding dry up from traditional sources, however. For-profit entertainment and sports properties, not to mention Internet media and bloggers could be directly impacted as well. There may not be less money available for brands to spend on themselves. It might just be shifted to another budget, new decision making location, and be based on totally different priorities that puts existing deals at risk.

The Ugly

What happens if brand managers decide to put more money into recognition, recall, and attitude toward brand because so many marketing dollars and messaging decisions in retailer hands prevents them from controlling their brand image, so any marketing they do is totally about branding and nothing else? Surely retailers like AT&T, Verizon, Sprint, etc. have received marketing dollars from LG, Nokia, Samsung, etc. to promote devices in wireless service provider marketing. This may be great for retailers, but it seems dubious this makes sense for individual brands. I have seen so many devices promoted by the carriers that I don’t have any brand identity for the device makers. When I think LG, the Verizon Wireless ad music plays in my head. To me, the device is now a commodity. If you are a brand offering devices, more marketing and promotional dollars in the hands of the retailer prevents you from competing on your own terms.

If manufacturers are forced to put more dollars into branding, sponsorship could be further pigeon-holed as simply a way to plaster brand signage and place ads via TV/radio/web/print, while entertaining corporate executives. Worse, retailers that see sponsorship as just media spending may find they don’t want to engage in sponsorships. It may be too difficult to buy, value, or even execute sponsorship because properties might not have the tools to make it work effectively in a real-time, social media, information-driven "Wal-Mart" world. A property may still be selling banners and advertisements when the retailer wants Internet and mobile platforms to give them the instant data they are used to operating with in their business; what is selling and what isn’t. Sponsorship properties better start getting accustomed to being interested in the answer to this question, or retailers may decide they’d rather engage in simple sales promotions and couponing, or UPromise and other such cause marketing initiatives because they can be quantified.

This move by Wal-Mart and other retailers to commandeer the marketing budgets of the brands they sell could have paradigm-shifting impact on everyone buying or selling a sponsorship involving a brand that relies on retail distributors and retailers themselves. At minimum, it will reduce the amount of dollars available to properties directly from retail-reliant brands, as Wal-Mart and the like will be deciding how a lot more of those dollars get spent.

Have you dealt with Wal-Mart and/or other big box retailers before? What's your take?

Mike can be reached by email at mike@sponsorpitch.com and on Twitter at @mjmunson.