This article was originally published in RIS News magaine.
As the saying goes, "It's not what you know, it's who you know." This is especially true for today's grocery retailers as they push to implement shopper-centric merchandising initiatives. Although everyone agrees that a deeper understanding of shoppers is a prerequisite to delivering more impactful shopper-centric experiences, savvy grocers are learning that collaborations with suppliers to integrate shopper data into traditional merchandising and supply chain analytics can improve consumer responses and business results. This finding holds true for virtually all merchandising decisions from promotion planning and space allocation to pricing and new product introductions.
Consumer-centric strategies are becoming mission-critical across grocery merchandising teams. Unlike in a traditional merchandising planning and execution process, in which conversations between merchants and suppliers focus predominantly on trade dollars, promotions, items, and vendors, in a customer-centric retailer/supplier collaboration, the process combines sales data (what we sold) with merchandising information (the price, promotion, on-shelf merchandising conditions, when the sales occurred, etc.) overlaid with customer data (who bought the product). These details paint a specific fact-based picture of how shoppers are responding to actual events in the store and across the broader market.
Equipped for the first time with specific information on exactly which shopper segments responded to specific promotions, on-shelf merchandising strategies, price points, and more, merchants and their supplier partners can collaboratively develop a fact-based understanding of exactly how each of their investments and efforts are affecting sales among their shared target shoppers.
Needless to say, the key to good collaboration is the use of shopper analytics. Suppliers are increasingly driving their strategies toward consumer-driven demand through the lens of the retailer. Retailer-supplier partners eager to capitalize on segmented demand modeling are using retailer shopping segments to not only meet business objectives but also create a de facto standard in place of aggregate consumer demand.
One obvious benefit of this shopper-centric, elbow-to-elbow collaboration is that it allows retailers to start measuring vendor performance based on what really matters to them—how a vendor's items are contributing to overall category sales and margin and to the retailer's overall market share growth for those products. Likewise, grocers gain insight into how a vendor's items help them attract and retain more dollars from high-value target shopper segments.
Historically, most vendor scorecards focused on tracking performance against supply chain metrics such as scratch rates and order fill rates. Although improving performance against those metrics could be a good thing, it might just as easily create added costs for a grocer in the form of excess warehouse inventory, out-of-date products, and unnecessary shipments. A better approach would be to define a vendor scorecard that measures a supplier's contribution to the grocer's ultimate goals of increasing category sales, margin, share, and shopper satisfaction/loyalty.
Another area in which shopper-centric retailer/supplier collaboration offers a potentially positive impact is in improving the long-term effects of trade spending and promotions.
Supported by ever-more coveted trade dollars, many promotions use general advertising, price cuts, and in-store merchandising to appeal to all shoppers. Although these promotions might drive a short-term sales bump for that vendor and possibly for the overall category, they do little to build long-term market share or attract new high-value target shoppers to purchase the category. As suppliers get increasingly frustrated with grocers' perpetual demands for yet more trade dollars every year, and shoppers reach a point of "promotion overload," grocers and suppliers alike are seeking lower-cost options with higher ROI.
By analyzing past promotions based on their immediate lift, incremental vendor and category sales, and longer-term impacts (such as market share growth, new households purchasing the category, purchase frequency, and basket sizes), retailers and suppliers can collaboratively develop future promotion plans that include a smarter mix of targeted events with greater odds of delivering a better return over the long term.
Partnership-based merchandising decisions are crucial in adopting consumer-centric business models and, most important, meeting shopper demand, which ultimately translates into sales. With real-time open collaboration between supplier partners, shopper demand is clear—and trade funds and additional promotional resources, when applied correctly – can work together to achieve the overall goal of driving profit among target shoppers.
Category: Promotion Management