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Dan Cropsey
Marketing, ACNielsen
Think back to the long-gone days of mass marketing. One-size-fit-all strategies were successfully implemented to address all segments of the market as though they were the same—offering one single marketing plan to reach the entire market. The focus was on efficiency through standardization. In today's world of limitless choices, that model no longer fits. A change is needed to focus efforts on differentiation. Competition is fierce. And everyone is using food to build store traffic. The ability to “market to the individual” rather than “market to the middle” invariably requires retailers to localize their thought process in order to truly understand the consumer.
Reaching consumers today is not so easy. Let me rephrase that, reaching the right consumers today is not so easy. In fact, while there are more choices today than ever before,
technology has actually made the world smaller. The Internet has helped to create a global marketplace where access to information, goods and services from around the world can
be achieved effortlessly and seamlessly from almost anywhere. The by-product of this environment is a world where consumers are discerning, knowledgeable and demanding.
In order to successfully reach the right consumers with the right value proposition, start thinking local.
Differentiate or disintegrate
Sustaining a unique and profitable consumer value proposition for each market, neighborhood or store is no easy task considering the diverse and evolving spectrum of consumer choice that has emerged across the retail industry. Synchronized marketing and merchandising tactics that recognize local competitive dynamics, neighborhood diversity and tastes, and behavioral traits have been out of reach for most retailers. To make matters worse, razor thin margins have deterred retailers from merchandising individual stores to maximize their full consumer demand potential.
Despite these challenges, talk with virtually any retailer today and you will likely find a highly strategic effort underway to differentiate price, promotion, and assortment in ways far more granular than what they manage today. Retailers are recognizing that this is a key requirement to closing the gap between consumer demand potential and actual sales. The increased emphasis on closing this “consumer demand gap” is being driven by the success and publicity of competitive Store of the Community programs, continued sales stagnation, and technology advances that make managing complex and varied merchandising tactics possible.
Information gaps emerge
As retailers begin executing at more granular levels, many find that their existing category management, merchandising and marketing processes are too broad to effectively differentiate themselves at the local level. This lack of relevant differentiation reduces pricing power and invariably leads to an over-reliance on cost-cutting and price-matching measures as the key strategies to growth.
So how do retailers and their supplier partners make informed assortment, pricing or promotion decisions at the neighborhood level when much of the information they rely on is only available at the metro market level? The honest answer is that most just make the best of the market level data they have or rely on the retailer's store-level sales data. Unfortunately, despite the rich insights that retailer trade area data provides, it can mask the specific local insights that retailers need to achieve the top-line growth they are seeking. Utilizing the retailer's own store-level sales data is handy, particularly with store execution issues, but it does not adequately address market and competitive risks and opportunities. Maximizing sales potential requires a deeper understanding of the environment within which each store operates.
While planning at a relevant granularity level is critical, equal attention must be paid to execution. Brilliant plans are useless if not executed as intended. Misalignment between planning and execution information leads to “execution gaps” like distribution voids, excess inventory, display compliance, and out-of-stocks as category and promotion plans are morphed downstream to fit into the realities of feature ad zones, competitive price matching, and individual store shelf sets.
Competitive store clustering offers new potential
In a perfect world, there would be robust, individually-tailored, competitive market information to match every retailer price zone, store set and ad zone. While this may seem a bit far-fetched, more than a dozen retailers are already there with ACNielsen's new store cluster tracking service.
ACNielsen's Local Market Planner® service allows retailers and their manufacturer partners to cluster and analyze store and cluster sales based on TDLinx, Spectra and internally-defined store attributes. Store attributes used to define clusters include physical location, format, department presence, store size, geo-demographics, sales performance, consumer demand potential and proximity. In addition, retailers are creating store clusters to match internal price zones, planograms, feature ad zones, store expansion plans, competitive market entries and shopper segmentation strategies.
Combined with Spectra's advanced consumer demand gapping and store interaction capabilities, retailers are also defining highly relevant competitive clusters that mirror their own store clusters leveraging ACNielsen's 40,000+ census store universe. Their local assortment, pricing and promotion strategies are now managed and evaluated with the help of equally local competitive insights and sales trends.
Opportunities and risks that might not have shown up in larger retailer trade views now become very apparent as trade areas are sub-divided by consumer, store, organizational or performance traits. While traditional trade areas are typically focused on a single banner within a relatively large geography, Local Market Planner allows retailers the flexibility to create dynamic clusters to match the situation at hand. Through this analysis, retailers and manufacturers are better able to understand and align product assortment and promotional activity to the local consumer. See charts 1, 2 and 3.
Think strategic, act local
Most retailers equipped with Local Market Planner focus their initial localized category management analysis with finer breaks of their existing geography-based trade area definitions. Category assortment and sales trend opportunities are among the first to be analyzed within these new micro trade areas. Many retailers also look for cross-category insights leveraging ACNielsen product reference and Spectra consumer characteristics (e.g., imported product impact on ethnic neighborhoods) in an effort to find unique local advantages.
In addition, price-zone-specific insights make it easier to maintain competitive price gap goals, particularly when category roles change across price zones. Additional ROI is available for those retailers that leverage advanced price optimization software like DemandTec due to the improved precision of competitive price input that feeds the elasticity models. Price-zone granularity also provides retailers with opportunities to forgo some expensive internal or third-party competitive price audits. For progressive supplier collaboration, this increased visibility to retailer's pricing tactics and assortment strategies can lead to the development of price-point-specific product extensions.
Many retailers are also using Local Market Planner to help implement shopper segmentation and loyalty card initiatives. Shopper segmentation strategies are extremely tough to
implement at the store, given that there is not a one-to-one relationship between shopper segments and individual stores. Unlike the Internet, traditional brick and mortar retailers cannot change their planogram for each shopper that enters the store. Analyzing store clusters and relevant competition around each storeÕs unique shopper segmentation profile allows retailers to find a profitable balance between sales potential and operational cost efficiency.
It is easy to get enamored with the potential of store clustering and all the innovative new capabilities it brings. While this potential is exciting, the most dramatic impact can be realized by making more informed decisions within existing retailer operational structures and processes. Simple changes like optimizing pricing decisions using price-zone specific market intelligence or fine-tuning neighborhood assortments with neighborhood-specific (vs. total trade area) purchasing behavior can be significant. In most cases, existing processes and tools can remain untouched, further accelerating retailer ROI.
Collaboration is critical
Retailer and supplier collaboration will become more demanding as retailers gain a deeper understanding of who they are, who they serve and what they want out of their supplier partners. Store- or cluster-specific differentiation requires manufacturers to be more creative and flexible with their merchandising suggestions and trade promotions. Retailers are also focusing more attention on creating a unique consumer value proposition, both with their marketing message and in-store experience. Manufacturers that do not fit that message will need to scramble to adapt their products and own marketing message to maintain their place on the retailer's shelf, display or ads.
Sharing retailer execution-based cluster definitions allows manufacturers to monitor new item launches, promotion effectiveness and distribution voids directly within the context of the retailer's store merchandising environment. Proactively recommending solutions to chronic execution problems or hidden local opportunities benefit both the retailer and manufacturer. Taking collaboration beyond the macro level to include the tactical micro level further extends this mutual value.
New opportunities emerge for manufacturers as retailers place more emphasis on differentiating their message and in-store experience around distinct shopper segments and trip missions. Manufacturers will find that in many cases these targeted activities will align very closely to their own brand segmentation strategy. This synergy can open the door to richer information-sharing, resulting in more predominant product placement and promotions. To get the most out of this deeper collaboration, manufacturers must learn to work within the retailer's definition of category, shopper segment and store clusters to make sure their ideas are relevant and can be seamlessly executed in this more complex operational environment.
As retailers become more savvy, granular and particular in their information needs, manufacturers will need to follow suit to maintain their influence. It is clear that those retailers who do this well should grow. Also likely is that those who do not will disappear. Manufacturers that help retailers connect with their local shoppers will also differentiate themselves with the retailer.
A final note
Clearly, the retail landscape and corresponding manufacturer collaboration requirements are changing rapidly. While the 1990s and early 2000s were all about cost reduction through efficiency and standardization, the future requires effectiveness through differentiation. While tremendous benefits have been realized with efficiency improvements, it is becoming increasingly evident that retailers can not save their way to prosperity. To fully meet the demands of stakeholders, profitable top-line growth is a must. While this mandate is intuitively understood throughout the industry, generating such growth has proven elusive to all but a handful of information-savvy industry leaders.
These industry leaders have one thing in common: a fanatical focus on winning consumer loyalty by providing relevant pricing, promotion, product and placement for the specific consumers they serve. Increasingly, solutions such as Local Market Planner are becoming broadly available to both retailers and manufacturers, providing them with the granularity of insight needed to effectively win against these early adopters. Like politics, all consumers are local.
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