Much of the focus for consumer goods manufacturers lies in understanding the end-consumer, and rightly so. However, there is a lot of value in understanding their customers – the retailers and distributors – and working together to create a win-win for all.
Changes in the retail landscape – 24/7 opening, online shopping, and the increasing influence of discount stores – are impacting how people buy. With data volumes growing exponentially, technology is taking an ever increasing role in enabling manufacturers to understand and react to this changing landscape. But this data can also help manufacturers forge more effective relationships with their customers.
An unbalanced relationship
The consumer market is dynamic, and as consumers we have a huge amount of choice about what we buy and where we buy it. To some extent, both are shaped by the retail outlets where we choose to shop; in the UK, in 2016 71% of national food market was serviced by just 4 major retailers. The result – a grip over the manufacturer, who must respond not only to this increasing imbalance of power with the retailer but also to the shift in consumer needs and buying behaviours too.
The high market share held by these select retailers guarantees volume and, against the backdrop of a competitive market, creates margin pressure for the supplier. But the retailers are a manufacturer’s channel to its consumers, so they must make the relationship work. In this scenario, the manufacturer’s data assets can be the key to optimising trade investment and creating a mutually beneficial relationship.
Data drives better outcomes
Trade investment is a manufacturer’s second highest expense, after cost of goods, but is it effective? Manufacturers need to answer many questions to find out:
- Are you investing in the right promotions, the right brands, retail channels, retailers?
- Are the trade investments you’re making yielding both value and volume growth?
- Can you benchmark your profitability against your competitors?
- Are your promotions being felt by the consumer?
- Are you delivering the right products through the right channels?
- Are you de-valuing your brands through continual promotional activity?
The answers lie in the effective analysis of available information, helping drive more informed discussions with retail partners. The combination of internal information with external data delivers powerful insight into manufacturers’ value to their customers. Armed with this information, manufacturers can make strategic decisions key to operating effectively:
- Identify which product to promote and which to de-list
- Pinpoint opportunities for increased distribution
- Inform pricing decisions
- Determine their value to a customer, and the customer’s value to them
- Understand the relationship between channels and high performing product groups
- Evaluate the effectiveness of spend on promotional activity
The state of trade promotions
With volume growth flat or declining in many categories, the tendency is to invest heavily in increased levels of promotional spend. According to Scott McKenzie, ex-SVP, Thought Leadership, Nielsen Europe, “trade promotion is delivering diminishing returns in many categories”. In McKenzie’s article Uncommon Sense: Breaking the Cycle of Trade Promotion “Spend” in Europe he suggests that manufacturers need to optimise their promotion strategies to deliver the best margin performance. Such an approach would deliver long-term market benefits and ultimately stimulate retailers to re-assess the lack of sustainable effectiveness inherent in short-term discount strategies.
McKenzie suggests that 24% of sales by value in Western Europe is driven by promotion, yielding growth of just +0.7%. Increased levels of promotional activity are propping up, rather than increasing category value.
Companies should design fewer, smaller, better promotions rather than more, bigger ones. Optimising spend—how much is spent and how—will deliver better returns. Focusing promotions on the most profitable outlets will be critical”, says McKenzie
The Promotion Optimisation Institute’s most recent survey on the state of trade promotions within the consumer goods and retail sectors found that manufacturers are beset with a variety of concerns in the promotions sphere: how they manage promotions internally, how they plan new promotions based on performance data and market insights, and how they execute activities at store level. It highlights that only 21% of consumer goods manufacturer respondents are truly satisfied with their ability to manage promotions.
Retailers hold vast amounts of data yet 84% of consumer goods manufacturer respondents to the POI 2015 survey agreed that they have challenges in gaining access to, for example, point of sale data. Could retailers share more to engender a more collaborative environment, working in unison to strengthen trade promotional activity?
The onus remains with the manufacturers to prove a compelling case to retailers – one based firmly on information and analysis. Armed with this information a manufacturer can hold data decisions with retailers to create win-win situations and make truly informed decisions. And as the landscape shifts, this collaboration will be the best way for both parties to adapt to it.
Over the coming weeks I’ll be exploring in more depth the topics of collaboration, how to achieve it and the role that data plays in making it work.
I’ll also share a range of ideas on how consumer goods manufacturers can use best practices to quickly automate and streamline their processes. I’ll be looking at how such strategies, combined with the power of advanced, statistical analytics, can deliver more powerful and accurate insights to support smarter decisions on trade investment, brand portfolio optimisation, and channel distribution.
Share your views
If you are interested in contributing to the discussion on building a joint business case between retailers and consumer goods manufacturers please get in touch.
Watch our webcast to explore this topic further:
Webcast: Trade Profitability Within The CPG Space (30 mins)