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What are the obstacles to streamlining the go-to-market process? Are the benefits shared equally by retailers and manufacturers? What kinds of new technologies should be brought to bear? Featuring: Tim Hawkes of TradeZone, Dr. Gene German of Cornell University, Mike Blyth of 1.2.1 eMarketing and Sally Lyons Wyatt of Marketing Specialists Corp.
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How must brand marketers organize their sales and marketing departments to work more effectively with retailers?
HAWKES: The largest packaged goods companies have already divided themselves into account teams with specific, well-rounded competencies that capitalize on the concept of retail as media. So the whole concept of collaborative marketing is no longer a concept. It's living, it's working. Both sides need to be more open-minded. Brands need to regard retail as media and retailers as potential partners in reaching consumers. Retailers must realize that the $5,000 square inch of roto space is simply not marketing, and that brands will not buy that anymore.
LYONS WYATT: There's no cookie-cutter solution. But there are best practices. You have to look at your brand portfolio, where your business lies, and where your opportunities lie. Then you need to put your resources where they're going to be most effective. Are you going to have a full service organization? Or, do you want to cut some internal costs and rely on agencies to do some of the work? Many companies have decided outsourcing is good for them because they can put people where they’ll maintain the impact without losing efficiency and effectiveness.
Every manufacturer should have a person in front of the retailer. Even if that person is just a liaison and doesn't put the programs or the sales materials together, he or she is there representing those brands to that retailer. Retailers need to know the manufacturer. That is by far one of the most important things. But, with that being said, a manufacturer can still be lean.
BLYTH: The fundamental issue for CPG companies is to determine how an individual retailer operates from a marketing perspective and then organize around that specific retailer. Do they have a centralized or decentralized marketing philosophy? Do they drive a national or local agenda? Sometimes it gets more complex. Ahold is capitalizing on numerous synergy initiatives from a centralized perspective. But, their operating companies have very different marketing programs and act very “locally.” Each CPG company must be able to organize its business team accordingly.
CPG companies need to get serious about gaining an in-depth understanding of each retailer if they want to win in the long run. CPG companies need to understand the retailers’ branding philosophy, marketing philosophy, merchandising principles, operational needs, and overall strengths and shortcomings. Then they must see how they can help fill in any gaps
Many retailers have handled the cost/supply chain management side of the business. They are increasingly focusing on building the top-line with more innovative programming. Overall, retailers don’t have the time or the margins to be able to do that. So they are looking for CPG partnerships that bring great, practical, new business-building ideas.
 GERMAN: For manufacturers, the battle has always been that the marketing people develop something, it doesn’t work, and then the sales people say, "I told you so; if you’d only listened to us we could have told you how to set it up." So coordination between sales and marketing -- using the tools available to track and interpret data and information -- is more critical than ever. These two traditionally separate functions -- sales and marketing -- must work together more efficiently.
Retailers have tried the same thing. They used to have buyers and merchandisers. Now we have category managers with overall responsibility for both procurement and for selling. That's evolved over quite a few years.
Several of our account people now have voicemail boxes on our phone system, and probably 2-3 times a day I forward a query to them for evaluation. In the past, say five years ago, I quite often handled many of those initial queries myself. I just don't have the time anymore, so a lot is passed on to the AE.
What kinds of new technologies should be brought to bear? Who should take the lead?
GERMAN: The two parties should share the responsibility evenly. The retailers often do not take the initiative, but they should. Often their management teams are spread so thinly that they look to the manufacturer for the leadership and guidance. Sometimes, just to get the job done, the manufacturer perhaps needs to take the lead, or at least get the ball rolling. I’m not sure that's correct but it's generally been the practice. I think it's an opportunity for some manufacturers to differentiate themselves by offering their retail customers insights into technologies that can help retailers be more efficient.
LYONS WYATT: There are many data mining tools now that can merge information into one database, then mine that database quickly and efficiently to get some answers. Top-tier manufacturers can now merge their shipment or warehouse information with their scanning information, store information, geo-demographic information, and everything else out there. As a top-tier manufacturer, you need to try this technology once and figure out if it’s something you need.
 Many manufacturers can’t afford to buy everything that’s out there. So they have to approach the retailers through the common bond of the consumer. They need to ask themselves, “What do I have to help this retailer?” And the retailer needs to ask, “What do I have to help this manufacturer?” “How can we get there together?” That will make each party stronger.
HAWKES: I would segment the new technologies into two categories: B2C, and B2B. B2C technology is most focused, right now, on CRM -- Customer Relationship Management. That's basically the ability to take purchase history and, from that, build a knowledge base that enables the marketer to better meet the needs of shoppers in a given store.
That information, by law in most states, must be controlled by the retailer. There are third-party providers of tools that enable the retailer to slice and dice the post-purchase information for targeted marketing programs. Unfortunately, these third-party providers of tools require retailers to turn over the very information the retailers need to keep private. There are risks of breaking privacy laws, for example. There are even bigger risks of a retailer's data getting into the hands of a competitor.
Retailers need to own the CRM process. They need partners who are willing to help network them together, but not give over control or ownership of the retail data.
On the B2B side, organizing the flow of a marketing message through the complicated web of marketing department, promotion agency, sales force, buyer, district manager, store manager, aisle manager, third-party in store -- that’s really got to be the domain of the manufacturer. Transora and Worldwide Retail Exchange are good examples of how third parties have been able to bring some of these large competitors to common ground to start thinking about systemizing and standardizing the industry. UCC-Net is another one.
Are the benefits of streamlining the marketing supply chain shared equally by manufacturers and retailers?
 HAWKES: I think the benefits are shared evenly. Whatever the number is -- it's probably more than $80 billion -- but let's use $80 billion. In delivering messages through the retail trade, there are lot of places to lose and waste money. When you think about outsourcing, and you think about the duplication in process, it's not too hard to start to break down what the real costs should be of delivering messages.
I’d argue that when you eliminate all the inefficiencies and layers of mark-ups and duplicative overhead, there is probably a minimum of 20% savings that currently is just going to "getting it there." Twenty-percent -- $16 billion -- represents twice what retailers are generating in profit. If retailers doubled their net profit and split this $16 billion with brands, Wall Street would be happy about the industry.
It’s like car-pooling. Most people don't like car-pooling because it means giving up some level of control. But the good news about technology today is -- just as there is My Yahoo! -- it can be your system, virtually. You don’t need to wait for the car-pool van to show up. Use it when you need it, and use it the way you want it. Customize your message. Customize the consumer touch points.
GERMAN: There probably are cases where one side benefits more than the other. But both should benefit. Think of the Wal-Mart replenishing system, where large consumer product goods companies work with Wal-Mart on reordering product for either distribution centers or store-by-store. Wal-Mart loves it because it takes a cost out of their system. The manufacturers love it because they can almost guarantee they’ll never be out of stock. They can do a much better job in production planning. It's win-win.
LYONS WYATT: By streamlining, a manufacturer should be able to spend its money more efficiently and effectively. The retailer will benefit because a lot of that money will come down to a local level, as opposed to just being spent on national airtime. So they both benefit.
BLYTH: With material or product supply-chain initiatives, the benefits are shared in the form of lower inventories, better production planning, and fewer out of stocks. The marketing-supply chain is a bit different. The benefits are not necessarily shared equally. CPG companions that reduce marketing costs by outsourcing are going to re-allocate the savings to other activities — not all directed at the retailer. But, the retailer benefits in the end because their CPG partners reduce their cost of doing business.
What are the potential obstacles to standardizing the go-to-market process? Are there also potential downsides?
LYONS WYATT: The biggest obstacle is spending in the wrong place for a long period of time. The biggest fear in a manufacturer's mind today is when to say, “No.” There are so many people asking for their money! What are the right things to accept or reject? What is the right mix? The biggest obstacle is really to understand the right spending mix. The answers don’t appear overnight.
HAWKES: The risk is what standardization does to the personality and competitive advantage that good sales organizations have traditionally had over their competition. Do they really want to adopt standardized pathways? Do they really want to level that part of the playing field? Chances are they do not. But there is light at the end of the tunnel. Take Emmperative and Procter & Gamble, who are saying, "We are going to learn together, and then share it with the industry." What happened there? Something clearly changed with this open-door, Glasnost-like collaboration that hasn’t been seen before.
By agreeing to standardization, you are not necessarily giving away secrets. But you are giving away competitive advantage, which is a cultural investment. It's hard to make that decision. It's very easy to close the gates of the city and to say, "We don't want any of 'those' people in here." But then you come to realize that "those people" have stuff that they don't have. They have no choice but to follow suit.
BLYTH: There are several obstacles. Unproven systems. Poor training on the new systems. Not knowing why you're doing something to begin with. A one-size-fits-all approach.
Standardized tools are great. But it boils down to the real thinking that must go into customizing the process and tools up front.
GERMAN: There's been great reluctance among retailers to share sales information. A standardized system is not going to work if retailers don’t share the information. There's also a danger in relying so heavily on technology that the system sort of goes on automatic pilot.
The major and, in fact, most successful supermarket/general-merchandise company in Japan is Ito Yokado. Mr. Ito had a system in place fifteen years ago where every store could do automatic reordering through the scan data they picked up at the checkout. However, he would not permit the managers to do that. He said, "You can collect that information and you can print out a tentative order. But I want every manager to examine on a product-by- product basis and then actually place the order."
Mr. Ito said, "I don’t want this to become so automated that we don't have the personal touch. I want to take into account promotions on a store-by-store basis. I want to take seasonality into account, local events that might affect sales, and so forth." It proved a very wise choice. It kept people involved with important decisions. Here again, in streamlining the system, there are great opportunities if people continue to make good decisions based on the information they have
What are the problems associated with outsourcing, specifically with regard to broker organizations, merchandising companies, and promotion/advertising agencies?
HAWKES: Outsourcing certainly offers many financial efficiencies, because you can just turn it on, or off, like a rental car. But, like any rental car, it's not quite like driving your own car. You have to get used to it. You give it back in the end, so you don't really care about it. You treat it poorly. You take the loss-damage waiver, and you think you can run it over the curb. The same thing holds true with outsourced labor. You’re not doing anything to build a relationship with them. Most companies don’t because that's outside the realm of why companies are hiring these outside firms. So quality is at risk.
GERMAN: Manufacturers who use brokers continually have coordination problems. If you compound that with an outsourcing group -- but you still have the brokers in the picture and the company and others -- the big question is, "Who ultimately has the responsibility and how do the various agencies feel about that? Are you stepping on toes? Do the brokers feel like you're taking something away from them if an outsourcing group steps in to perform this activity?"
The coordination issues might lead to certain activities being overlooked. If different middlemen have different assignments or roles, it must be clear who's doing what and that everything gets done. Outsourcing adds to the issues. It adds to the problem of making sure that everything is taken care of.
BLYTH: The more you outsource, the less your organization knows how it does things. You can outsource to the point that you forget how to handle the process.
LYONS WYATT: Communication is by far one of the most important pieces of outsourcing. If you have a weak link somewhere, somebody's not going to get the right message and something's going to go awry.
Another problem is the mentality of the past. If the manufacturer hires a company to just do the merchandising, then they think, "Let's just have them do the merchandising. They don’t need to know anything else." The outsourced people are at the shelves doing what they're told to do, but they don't know why. That's where the breakdown occurs.
Are there any other factors that compound the challenges faced by CPG companies and retailers because of outsourced marketing services?
GERMAN: One of the things I hear from companies that go through consolidation relates to who is in charge, who is responsible for making decisions in certain areas. For example, take some of the Kroger acquisitions, where they now have this whole West Coast group under their umbrella. I was at a meeting recently with a vice president of Health & Beauty Care, General Merchandise, from one of their companies on the West Coast.
I asked, "Who's making decisions? Is it Cincinnati, or are you still calling the shots?" And he said: "Well, it's kind of a mixed bag right now. Sometimes we still call the shots, and sometimes they call the shots. I am making a lot more trips to Cincinnati in the last few months than I did in the first few months." So particularly in transition, there could be some issues for both the manufacturer and the retailer in terms of who sets up the promotion, who designs it. Is it corporate wide? Is it company by company? It's confusing for everyone who's involved.
HAWKES: The switch from macro- to micro-marketing -- to customer-specific marketing -- has complicated the process. A more complicated process means more detailed and varied information is moving back and forth between the manufacturer, the retailer, the consumer, the store, and so on.
In an outsourced world, none of these small outsourced companies -- who are itinerant by nature -- possess the infrastructure to provide data on a consistent basis. Even if each did, as you go across the patchwork quilt of outsourced companies that’s necessary to achieve critical mass nationally, you would have potentially two-to-three hundred different reporting formats.
So, not only is the information more plentiful and more detailed, now you will get it in 200 different versions. The number and combinations of data types and the different reporting formats for each data type are insurmountable without standardization or electronic tools.
BLYTH: Even with today's smart information tools, you need to apply tried-and-true business principles. Sometimes new tools are thrown into the mix without clear thinking about the business objectives and how to use these tools in a clear business process. The results can be calamitous. You need a management process that defines the objectives, the plan of attack, and how you're going to get things done and control the process. So new tools don’t eliminate — rather they reinforce — good management practices and principles.
LYONS WYATT: Technology has complicated matters because it has led to so many opportunities for manufacturers to touch a consumer in so many different ways. Retailers have complicated things by blurring trade dollars and consumer dollars. There are many consumer programs that may end up having a retailer’s logo on them. One of the largest retailers in the U.S. just put out some information about their loyalty card. One of the premises of the memo that came by my desk said, “These will definitely not be trade dollars; these must be consumer dollars.” Yet it was a loyalty card program for a retailer!
How should CPG companies and retailers quantify the benefits of streamlining the go-to-market process?
GERMAN: Retailers and CPG companies working together developing promotions and marketing plans need to evaluate 1) total sales, and 2) inventory turns. Are we actually improving sales? Are we improving our turnover? Are we getting more turns? Are we more efficient based on that? Looking at sales -- a product on promotion versus not on promotion -- is important. Labor costs are important for both manufacturers and for the retailers. Cost of inventory -- probably gets back to inventory turns. If inventory turns go up, you would expect cost of inventory to be reduced.
Another important measure, in terms of improving marketing effectiveness, is the cost of out-of-stocks. Every so often, some group within the industry comes out with a study that says, "Here’s our big problem in sales: We never look at being out of stock.” We just assume the customer, if some product isn't there, will buy another product. We don't really examine what would happen if we could either minimize or eliminate out-of-stocks.
LYONS WYATT: You should be able to see improvements simply by looking at your profits. However, it's not something you're going to see immediately. Another quantifiable measurement is the extent to which you're maintaining and growing consumer loyalty to your brands. Each retailer has set its sights on a target audience. You can quantify through intercept programs, through loyalty programs and other ways, did we attract the shoppers and convert them into buyers in our stores? Obviously those are the two most important things to retailers.
HAWKES: You begin by delivering a message in a more controlled manner to a consumer. Then, knowing that the consumer got the message, you track the consumer’s behavior through a frequent-shopper program data-mining tool. Then you report that information back to the brand. You now know that shopper "A" buys at this price, shopper "B" buys at that price, and shopper "C" doesn't buy at all.
With this knowledge, you can spend your money more intelligently. It's a collaborative loop. This is a message created by a brand, delivered through a system called the retail store. It's tracked by a system owned by the retailer and delivered back to the brand. It uses the information to make marketing decisions to spend more effectively with that retailer. Let's say the trade funding is fixed, now you can spend a dollar like it's a dollar-fifty because you know how to spend it better. That serves the retailer. That serves the brand.
So the tool, the ROI process, is iterative. As you use the system, you learn more and more about what works and what doesn’t and what everything costs. The very thing that delivers the efficiency is the very mechanism by which you can measure the system. The history with the system builds the metric moving forward. It's continuous-loop knowledge.
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