An interesting article on today points toward the role that digital signage may have in the never-ending battle by brands for shelf space at retail. The article includes a nifty picture of a Wal-MartTV end cap where the featured product is boosted by an eye-level digital sign promotion.

The article describes how Wal-Mart and other large retailers are cutting brand name items from the shelves and promoting store brand replacements, which are almost always higher margin items. The article cites two examples where the brand that got cut negotiated its way back onto the shelves. The first brand (Hefty Bags) agreed to actually manufacture the store brand for Wal-Mart. I wonder if Wal-Mart’s margins improved in that deal. The second brand (Arm & Hammer) got its detergent back into the stores by agreeing to boost advertising. Take a guess where those ad dollars ended up. But this is not a diatribe against Wal-Mart’s well-documented business practices. Instead, it is a look at how digital signage may influence the merchandising mix at retail, and how perhaps the need to promote may drive some networks to be brand-based in the future.

No one has contested the idea that promotion at the point of decision and the point of purchase is highly effective. Numbers are starting to trickle in to support significantly higher effectiveness of digital signage over traditional P-O-P advertising. As the battle for shelf space continues in an environment of ongoing line extensions, something has to give. Retailers have invested millions of dollars on sophisticated tools to measure profitability of specific items and ROI on shelf space. They will continue to reward top performers with preferred or increased facings on the shelf…. that is just good business. Profitability calculations have traditionally considered trade promotions, including warehouse slotting fees, market development funds, co-op advertising dollars and other line items beyond simple gross margin. However Sarbanes-Oxley compliance requirements and FASB accounting rules have complicated the use and effectiveness of traditional trade promotions, especially for the manufacturers. It may turn out that in-store advertising support on a digital signage network may provide a significant benefit to the retailer and still qualify as a marketing expense (rather than an increase in COGS) for the manufacturer. This seems logical in cases where the in-store networks are not directly owned by the retailer, and the promotional dollars are not flowing directly to the retailer, and may also be valid in cases where the retailer controls the network.

Another potential outcome of the brand battle for shelf space may be brand-owned or brand-sponsored networks. In this scenario, brands may invest in owning or underwriting (perhaps as a category exclusive sponsor) a digital signage network within a channel. While this may be challenging in grocery and mass market retail, it is not at all inconceivable in the DIY or other category killer formats, where brands routinely underwrite the costs for in-store demonstration and “retailtainment”. It has already appeared in some department stores, especially in the cosmetics department. If it means some level of assurance of shelf and floor space, along with the benefits of increased sales, you can bet the the brands will look at it seriously.

At one level, brands and brand marketing dollars are essential to the ultimate success of digital signage at retail. On another level, digital signage may offer the brands a very effective way to keep retailers happy, achieve high ROI on marketing dollars and still comply with Federal and FASB rules. Bring it on!