Retail Customer Experience: Retailers, Manufacturers Need to Work on Collaboration
Through a special arrangement, presented here for discussion is a summary of a current article from Retail Customer Experience, a daily news portal devoted to helping retailers differentiate the shopping experience.
Collaboration between retailers and manufacturers shouldn’t be exclusive to a new product launch, promotion or supply chain initiative.
A disconnect between the two parties develops when the retailer or manufacturer believes they can only maximize their own position at the expense of the other. This misconception limits thinking about what the improved outcome could be and how, by working together, both can win and achieve something that neither could accomplish alone.
Collaboration between the retailer and manufacturer starts with creating a new common language to describe the business. Discussions between the retailer and manufacturer should start with: How many customers are shopping in stores or buying a category? How often are they shopping? When do they shop? How many units do they buy each time they shop? How does this differ for customers who are more price-sensitive as compared to those that are less price sensitive? How are these metrics changing over time?
Collaboration between the retail and manufacturer means:
- We measure promotions by the number of customers they engage rather than only the number of cases sold or incremental sales created.
- We make assortment decisions to ensure that we offer products that appeal to the most loyal customers that shop with us rather than focusing on carrying the products that comprise the most sales.
- We understand how products within a category are cross-shopped so we understand which products are complementary vs. which are substitutes for one another.
- We measure category and department success by understanding if we’re growing the number of customers who buy our categories over time and how much customers are spending with us.
Sales or profits are not bad words. Long term sales and profits are the positive outcomes you achieve when the starting goal is to win with the customer.
This next level of collaboration is a more advanced step on the customer-centric journey and it involves defining customer and category strategies that are manufacturer agnostic. Individual manufacturers then define the actions they must make to support this broader customer category plan. The objective must be about increasing how customers engage in the category vs. how individual brands or products perform.
Challenging times are just that — challenging. This disruption in the status quo means we must also change. There are tremendous benefits when we embrace change and look for a new approach that is more effective. Customers will guide the way, we just have to be good students, do our homework and act.
Collaboration and customer-centered decision making may be the “right” things to do. A more pragmatic view is that collaboration around the customer is the only sustainable way for a financial win-win for the retailer and manufacturer in the long run.
Discussion Questions
Discussion Question: How do conversations between retailers and vendors have to change to drive true collaboration?
Retailers have become far too profit-dependent on vendor funding. Many retailers are making more money on the “buy” than what they earn on the “sell.” The result is that only the largest mega-brands can afford to do business with some retailers which mean that consumers are not having an opportunity to buy the most innovative, newest, and high margin small brands and specialty items from retailers.
Being as retailers and manufacturers can both be tone deaf at times, they must learn how to read the win-win music together. That will be challenging, as it has always been, since hearing usually gets worse, not better as time moves along…and the two players come from different learning–and personal reward–centers.
As Sandra Linn states, “Collaboration around the customer is the only sustainable way for a financial win-win for the retailer and manufacturer in the long run.” That’s true, but in the parlance of the commercial musical mind, it seems to be me I’ve heard that song before.
Although in recent years I have seen truly exemplary collaboration between some retailers and their suppliers, much more can be done. There has long been a shared interest between the two to deliver a better shopping experience and improved market performance. I believe, however, too much focus has been placed on “shopper insights” rather than “buyer motivations.” If collaboration began with what type of a solution the true buyer is seeking, collaboration may improve and new, innovative category management strategies would emerge.
I would add two additional factors driving change in this critical relationship.
1) A massive increase in the volume and type of data, and associated analytics, available–consider how much more we know about customers and their behaviors in the mobile and social world.
2) The tools of human communication and collaboration are dramatically improving, removing many time and distance barriers. Advances in enterprise social media, rich media video conferencing, presence, and mobility allow companies to put the decision makers together more quickly, efficiently, and effectively than ever before. This not only improves up front alignment but also allows faster issue resolution and communication/implementation of solutions.
The long-term trend toward consolidation means that there are fewer retailers, each with more negotiating power in the marketplace. At the same time, these retailers’ need to develop exclusive products and brands puts many vendors into a vulnerable position. So the entire concept of “win/win” becomes much more challenging for manufacturers.
A good place to start is the use of collaborative planning, forecasting and replenishment (CPFR) to help manage the supply chain. This sort of open communication about ways to save costs and drive better in-stock execution is a fact-based way to encourage objective collaboration. From this point, it should be less challenging for vendors to build other areas of trust and cooperation with their biggest accounts.
Let’s start with being honest, because it is in short supply these days. As an independent, I will not subsidize the vendors by paying a much higher cost of goods, in order to make the big box stores look good, and until that changes, there will always be an underlying mistrust amongst many independent stores. There was a day when the vendors would help us out with displays and we, in turn, would put a hot deal on it to generate traffic. All of that has changed, and the relationships are basically gone, as most vendors no longer have their reps in our stores. It is up to me to research the new items and deals out there, but I now work on mostly perishable deals to stay competitive.
Our existence depends on cooperation, and unless something changes, we have to fight the battles on our own, which is why I like RetailWire–and the NGA blogs–to extract useful information on making my business grow. I realize I’m venting, but it is the truth.
There is no doubt that the secret sauce of success is ‘alignment’. In business, government, education, etc., our “every man for himself” team motto is killing us, costing a fortune and causing pathetic service. Mere “collaboration” will be an improvement but won’t ultimate give us a successful future.
There are several levels steps on the way to true alignment starting with: 1) Independence and separation; 2) co-operation, where I help you do what you want to do; 3) collaboration, where we work together on what we both want to do; and 4) synthesis, where we come together to create something greater and beyond either of us.
Think of every point or dimension of the retail supply chain as a point of energy. Right now all that energy results in self-inflicted wounds. Points of energy actually work against each other. The only job of leadership is to align the organization’s ‘energies’ toward its highest possibilities.
As long as manufacturers want to sell massive amounts of goods and retailers are the one element in the way of the manufacturer and the consumer, the retailers will use their power to maximize their position. And why shouldn’t they?
And now, with the deluge of data available, the retailer has the opportunity to gain even more power. The manufacture doesn’t stand a chance. Whatever leverage the manufacturer has today will be less tomorrow.
Unless, of course, the manufacture figures out how to go direct to the consumer and eliminate the retailer all together.
As I was saying…
I just noticed the survey for the day about “Which side needs to adjust more to drive true collaboration?” Even the question perpetuates the nonalignment of energy. When we think “sides” and are keeping account of which is “adjusting more” we are doomed.
How about something like: “Let’s all come together to create an innovative way to make life easier for ourselves, serve the customer more effectively and economically and have all of us make a lot more money than we’ve ever imagined.”
Retailers and manufacturers have to start with a common vision, work toward mutually beneficial strategies/promising solutions, and then put the right people in the path to execute the plan.
If the conversation starts with “negotiation” or “how I protect my interests,” save time for all parties, and work on a different vision. That is not to say that “negotiation” and “protection of interests” ever go away. But each party has to make the genuine effort to view the needs of both sides of the coin.
Two key points to emphasize here:
1. trusted data and insights are key to having a fact-based conversation
2. focusing on customer needs and interests allow for a mutually beneficial collaboration
Although more common now than 5 years ago, these ingredients are still rarely in place in the retail-CPG landscape. Where they exist they seem to be pretty instrumental in driving competitive advantage.
Unfortunately, everyone talks about the need for collaboration and relationships but little action is taken. I recently concluded a major research project, funded by IFDA, focusing on collaboration between foodservice distributors and manufacturers and discovered, not surprisingly, the following:
Perceived lack of trust by all channel members: This lack of trust emanates from a lack of understanding. The lack of understanding emanates from a lack of real engagement and transparency.
As a result, with the support of IFDA and IFMA, we have developed a 9-month pilot collaboration model with 7 leading foodservice organizations (Sysco, US Foods, etc.) and 7 leading foodservice manufacturers (ConAgra, Heinz, etc.). In this model, we will focus on three areas using mutually agreed upon metrics. The model components are as follows:
• Sales & Profitability Growth• Supply Chain Efficiency• Customer Centric Strategic Business Management
The goals are simple: improve supply chain collaboration, resulting in improved supply chain performance. Simple to state, not easy to do, but we have begun.
With tens of thousands of items in the store, organized into 100 or more categories and maybe a dozen suppliers per category, Mr. Supplier, no retailer has the management bandwidth to care much about your category, and there is no one to work on any “collaboration.” Plus, some of those other suppliers are bigger than you, or at least quite large, and their job is to sell their own stuff, suppressing your sales at the same time — just as you are trying to do to them.
Now, given these realities on the ground (and considerable market churn), what was it you wanted to discuss about “true” collaboration? You can’t win if you don’t play by how the game is actually played, rather than as it is discussed in consultant-land.
Customer centricity is driving a renewed interest in collaboration, as suggested in this article. To support this, the industry should adopt a scalable and sustainable approach to shopper analytics, enabling retailers and their manufacturing partners to access the same insights and data. With a common understanding of their shoppers, retailers and manufacturers can focus their attention on developing the most effective strategy to drive long term loyalty and customer satisfaction with their most valuable and important shoppers.
My first reaction to this discussion was “are we really going to go over this ground again?” So I decided to hold off posting to see where the conversation would go. Compliments to all the commentators so far for some really great suggestions and insights.
Now for the “Ben part”.
It won’t work. None of it CAN work, not in the form of “collaboration”. There can be a lot of “cooperation” and that’s great. And it can be mutually beneficial and productive and we can all feel good about it.
But there can never be collaboration in our industry. The reason is simple physics. We have multiple players on each side of the equation who compete directly with each other.
Brands compete with other brands within a category, and their definition of “winning” means maximizing their sales and share across all possible outlets.
Retailers compete with other retailers within a market, and their definition of “winning” means maximizing their sales and share across all possible items for sale.
There can be no true collaboration in that environment. The only possibility for collaboration would be if two giants linked arms and said “you and me against the world, buddy!” The closest example I can name was P&G declaring that they would do 30% of their business with Walmart — until they declared they would do 20% of their sales with Dollar Stores.
Cooperation? Maybe — and we should on certain things from time to time. Collaboration? Not until somebody figures out how to implement my strategy for world peace — which is to eliminate human greed.
First, put down the cup of Flavor-Aid, then get Senior Managers to really “want” the change. I have been to scores of retailer meetings where they profess to embark on a new strategy of collaboration with vendors, then it is business as usual: drive units at the expense of common sense management of category margins. You can’t have a plan if you can’t think past next week. Most of us want to believe and to participate, but short term goals and quarterly reports seem to trump any long term commitment to plan.
Amen. I’d love to be a part of a team that’s really doing this. It’s not rocket science; it’s just a commitment to serve the shopper and stay profitable. Two very basic business goals that should, in fact, bring retailer and manufacturer together with synergistic intent every time they meet.
Why doesn’t this age old issue of tension between retailer and manufacturer ever get fixed? There have been a series of good initiatives to further success and collaboration, including co-developed process models!
Sandra and Haluk present yet another way to bring the parties together for profitable growth.
So what are we waiting for? It’s time to act.
A lot of wisdom in this discussion thread, but also a great many assumptions in the article that kicks it off.
Cooperation requires movement from entrenched positions on either side of the trading table. Collaboration requires the kind of transparency that diminishes ambiguity.
IF common benefits can be identified and articulated by both sides — and IF they can be made actionable through accepted performance metrics and implementation practices — and IF we enable unambiguous visibility into actual performance outcomes — THEN we have a shot at promoting a more collaborative culture.
Collaboration is like a great marriage; it only works when there is trust, respect, and love.
Manufacturers and retailers have to TRUST each other on all levels.
Manufacturers and retailers must RESPECT their customers, and not think that they know more than the customer. They don’t!
Manufacturers and retailers must LOVE the art and science in persuading a consumer to choose a product, at the right time, in the right place, for the right reason.
If these goals are kept top of mind, manufacturers and retailers will share a positive, collaborative relationship.
Before collaborating to push the boundaries of product-centric thinking, retailers and manufacturers must first achieve a meeting of the minds around common goals and the clearest routes for reaching them.
As retailers and manufacturers work together to meet new marketplace realities, they’ve begun redefining their own partnerships. Together, they’re finding new ways of aligning brand strategy with retail strategy to realize exponential gains – all thanks to a simple but monumental change in deciding which question comes first.
For retailers, the question was: “What do the weekly sales reports show?” And for manufacturers: “What does the research suggest?”
Now they can ask together, “What will get the attention of the shoppers who matter most – to both of us?”
No question there are those retailers looking to make more on the back end (the buy) rather than at the checkout (more than not). There are a small few who do get it. Regardless, the question remains as it has since sku rat picked up speed many years ago, how do suppliers change their thinking? A retailer with the mentality to save their way to prosperity and make their profits on the back end rather than selling stuff is a retailer set to fail.