Keys to Successful Manufacturer and Retailer Collaboration
By Colin Hare
Retailers are facing intense pressure to perform where opportunities are slim and challenges are pervasive.
Low organic growth rates, coupled with limited product differentiation and low shopper switching costs,
are driving intense share battles between retail providers.
More channel shifting to “value” oriented retailers (for example, Mass, Dollar, and Club), along with emergence of online grocery and specialty channels, is squeezing the profit margins of traditional players. Moreover, in terms of shopper dynamics, the opportunity afforded by the diversification across income, age, ethnicity, etc. is dwarfed by the fragmentation of consumer needs and values, making it difficult to target unique groups of shoppers in compelling and cost feasible ways.
Meanwhile, today’s shoppers are smarter as they have become more informed and involved than ever before. Plus, they know exactly what they want out of their shopping experiences. Today shoppers are looking for key benefits across a handful of types and dimensions:
Pragmatic Shoppers: Post recession mindset still prevalent, meaning that shoppers are continuing to curb frivolous spending and focus more on critical items.
Shopper Personalization: Customized solutions that meet evolving need states, and speak to shoppers as individuals.
Controlling the Conversation: Shoppers want to control the dialogue with retailers, telling them what they want when they want it, depending on their mindset, mood, and occasion.
To meet this evolving demand, retailers are responding and delivering in compelling and impactful ways, being driven by personalization and aided by analytics and technology. Here are some examples:
Store Types: Traditionally “large” retailers are becoming less rigid in store size requirements to get into more concentrated/occasion-specific locales (for example, Wal-Mart Express).
Specialized Assortment: In response to shopper demands for organic and sustainable solutions, food retailers such as Sprout’s, Earth Fare, and Whole Foods are quickly expanding. Retailers are using analytics to more effectively identify optimum product assortments within and across aisles that better appeal to shopper demographics and preferences, subsequently hoping to drive higher levels of engagement, conversion, and basket sizes.
Analytics and Technology: Retailers are leveraging analytics and technology to communicate with shoppers effectively. They are doing so in several ways:
- Mobile Platform: According to a survey by Appcelerator and IDC, over 90% of mobile developers anticipate that most retail companies will have enabled mobile commerce in 2014. However, currently only about 3% of people make purchases on their mobile phones, so expectations should be tempered.
- “Bricks and Clicks”: Integration: It’s not about “ecommerce vs. offline” anymore. Retailers who successfully integrate the look and feel of their physical in-store experience with their virtual presence will have the upper hand in branding.
- Social Media: Retailers are becoming smarter about how to use social media to drive awareness and delight among shoppers (for example, Target giving away gift cards to consumers who tweeted about them during Thanksgiving holiday). Sites like Pinterest have doubled in usage over the past two years.
However, for retailers to continue the strong momentum of capturing emerging opportunities, they require more progress to be made in three key areas:
1. Require increased levels of customization each for its own shopper base and competitive environment (to compete with Wal-Mart and other growing channels). 2. Customized drivers such as product assortment, private brand offerings, next-generation promotions, and unique shopping experiences in order to stand out from the crowd (that is, the need to stand for something unique and different that is valuable to the end shopper). 3. They need stronger, more action-oriented analytics to quickly and scientifically identify opportunities that they can alone capture… or capture first.
With this in mind, there are numerous ways manufacturers can help their retail partners better engage shoppers and achieve higher levels of performance. Here are two:
1. Collectively develop a strategy for mutual growth and prosperity, guided by analytical insights, and enabled by technology: Focus should be on shopper activation and how can a manufacturer make that happen through unique solutions, products, and best practices. The focus is on addressing ‘key questions’ across relevant dimension. Manufacturer partners should bring cutting edge analytic approaches to help retailers solve these complex, yet highly structured questions. Retailers are looking for more precision in their strategies, which can best be achieved through analytic thinking and solutions (for example, assortment, price, promotion, shopper conversion, personalization preferences/drivers, etc.). Understanding the dynamics of “destination vs. impulse,” role of private brands versus branded products and how these link to retailer competitive strategy is imperative. Develop and offer comprehensive solutions around shopper needs and experiences, rather than on a set of products (for example, breakfast solutions vs. traditional cereals). 2. Develop annual plans together rather than in isolation of one another”: Manufacturers know consumers and retailers know shoppers. It is best to align on the difference and the implications. Setting mutually beneficial objectives helps both parties as opposed to the retailer wanting to grow its shopper base, while the manufacturer wants to increase its share of Category X. Be true category leaders and come in with the mindset of pushing category/aisle expansion with their strategies. Retailers aren’t interested in solutions that merely shift share back and forth between manufacturers. Focus on exclusive innovation development. Offer retailers something that is not offered to others. Have the foresight of a long-term partner; that is, someone who thinks longer term about the shopper and category trends, and effectively manages anticipated growth.
In conclusion, retailers are being challenged in new and complicated ways. They are looking to manufacturers more than ever to help them navigate these complex competitive waters. Manufacturers should internalize these developments as opportunities to not only grow their respective businesses, but to establish and elevate long-term levels of trust and partnership with their retailer counterparts.
Colin Hare is Senior Vice President, Growth Solutions at 4i Consulting, a growth and foresight analytics firm. With more than 15 years of consulting and analytics experience, including Monitor, Nielsen, Miller Brewing Company, and IBM, Colin advises executives in the areas of growth strategy, innovation and marketing/sales across numerous industry verticals.