Ridge Top Lane, Arlington, TX Ph: (817) Fax: (817) E Mail: How to become a successful supplier in the U.S. market A presentation to the U.S./China Chamber of Commerce of Dallas November 12, 2004

2 Today’s Presentation: Background on Eaton & Company Market Trends in the U.S. Key Criteria for Success Recommended Actions for an Aspiring Supplier

3 Who is Eaton & Company? Established in Focus on developing global market opportunities for U.S. and global manufacturers. Clients include: Sara Lee Johnson & Johnson Procter & Gamble Kimberly-Clark Gillette American Airlines General Electric Boeing

4 Who is Eaton & Company? (continued) Major Successes: Assessed market opportunities and forged a powerful partnership with Wal-Mart for an electric appliance manufacturer. Created a distribution network for a U.S. paper manufacturer in Eastern Europe and Russia. Developed a highly successful marketing strategy for a U.S. baby formula manufacturer in China.

5 Market Trends in the U.S.

6 The retail trade has changed more in the past 10 years than in the previous 30. Decline in sales per square foot/channel erosion Consolidation – 4 major chains do 40% of business Growth of alternate channels: Clubs, chain drug, convenience & petroleum, dollar stores Decline of wholesale class of trade Growth of Wal-Mart as dominant price leader

7 Consumers have also changed… No longer single mass market High degree of fragmentation through ethnicity, health- orientation and various groups Lifestyles have changed consumer shopping behavior Consumers are more sophisticated Dual-income families, emphasis on trade, variety and time- saving More channels fulfill consumer needs Consumers have more channels where they can purchase food and they explore these channels aggressively

8 Wal-Mart is also under pressure from all sides… Wal- Mart Competing grocers Discount Stores Alternative Channels Out of home Changing consumers Wal-Mart Challenges

9 Support of manufacturers is crucial for Wal-Mart: Wal-Mart Key ChallengesManufacturer Support Balkanization of previously homogeneous consumer base into ethnic, health and other groups differing by taste Analysis of different consumer groups and strategic approach to their needs Product innovation and customization More emphasis on margins, new sources of revenue, new departments Grocers emphasize private label as point of distinction Exclusive distribution Discount stores compete on priceFocus on target consumers Broad assortment of products from all over the world Alternative channels such as drug stores expand their product offering to the pharmacy customers Creative tie-in offerings Support competitive pricing based on large volume

10 Given this environment, retailers have developed highly demanding criteria for a successful supplier. FactorsElementsImplications for Suppliers 1. Innovation-new products or packaging -excitement creators -a good new product will be supported jointly with retailers 2. Creative Promotions-support in execution -tie-in with other products, particularly private labels -uniqueness, exclusivity -prefabricated displays -sampling -cross-marketing and cross-promotion 3. Favorable trade terms-highly promoted volume -predictability -various trade incentives and discounts -since all trade terms are similar, creative incentive may help a smaller supplier 4. Other services-Store support such as aisle maintenance -Data analysis/marketing support -Offer to make private labels -retailers really appreciate when a supplier makes their “to do” list shorter -makes a supplier twice as important in terms of volume and overall co- marketing

11 Technology becomes a strong weapon in tracking down different tastes of multiple consumer groups. Manufacturers can play a uniquely important role to help retailer achieve this goal. Technology Response to Retailer Needs Retailer NeedsAvailable Technology Potential  Increase margins  Increase traffic  Fight competition with distinctiveness and products/services that consumers use  Loyalty cards can:  Split consumers into premium, regular and value  Differentiate offerings  Analyze target audience by demographics and geography  Help build loyalty to the outlet by offering accumulative remarks Manufacturer’s Support  Analysis of the data  Help in developing specific target group strategies and tactics  Plan development and Category Management Benefits to a manufacturer:  Partnership with key customers lead to advantageous trade terms

12 How can a new supplier become successful?

13 This effectively breaks the whole marketing exercise into three key stages: I.Learn about your product, your customer, and your market. II.Develop a strategy. III. Execute and evaluate this strategy on its financial results.

14 Learn about your product, your customer, and your market. Customer Competitors Product Your Company Overall Market Conditions

15 Once this assessment is done you have to look at yourself and decide what’s your strategy: Acquisitions -Growth New Product/Service Partnership New Market Expansion Loyalty Programs -Increased Customer Base New Customer Incentives Different Channels Cost-Cutting Programs -Increased Profits Emphasis on High-Margin Products Supply Chain Evaluation Pricing -Defense Against Competition Promotion New Products

16 Key things to remember… IIn a new market, look for alliance or partnership: DDistributor RRetailer MManufacturer AAlways try to develop a unique selling proposition: PProduct TTerms PPrice OOn-going monitoring of your activities is key for successful performance