Enterprising Partnerships: An Endeavor in Profitability
When it comes to the brand experience, retailers are increasingly thinking beyond the store when they should be thinking inside the box.
In this case, I mean the box of detergent, cereal or juice that is on the shelves. These products can influence the brand experience as much as a mobile app, website or store layout. Doing so is simply a matter of extending the retailer's customer-committed focus to include its manufacturer trading partners.
The first step to getting there is by sharing the data insights. This is one of the key principles of enterprise loyalty – pushing customer purchase data outside of marketing and to all other organizational departments. When done well, enterprise loyalty strategies can inform better decisions regarding price, store location and – of most importance – merchandising.
This is where the manufacturer partner comes in, as detailed in LoyaltyOne's December report, “Customer-centric Merchandising – A Pipe Dream or Imminent Reality?”
Customer-committed merchandising, as applied through enterprise loyalty, does not attempt to graft customer insights onto the traditional category management approach. Instead, it rethinks the process by allowing customer preferences to guide category management decisions, which in turn facilitates the achievement of sales targets.
There are substantial financial benefits to this approach. Manufacturers invest millions of dollars in a variety of marketing activities to persuade shoppers to buy their products in the store. Manufacturers can significantly enhance the effect of these investments by collaborating more closely with retailers, using their customer data and insights to better understand the needs of the customers who shop with specific retailers.
Tactically this takes a bit of work, but fortunately almost every box comes with some instructions. Following are four key areas where manufacturers and retailers can partner to elevate the brand experience, and product sales, through merchandising.
1. Trade promotions
Traditionally, manufacturers design their trade promotions by leveraging broad-based market data. This approach overlooks the fact that individual retailers can have customers who are not directly reflective of the broader consumer base and hence have different needs. As a result, a promotion that looks like it will work for a specific market nor retailer may actually encourage unprofitable customer behavior, such as cherry-picking exclusively for deals – not the full basket. By designing promotions that appeal disproportionately to the most frequent and highest-spending customers of a specific retailer, both retailer and manufacturer are ensuring the most bang for their promotional buck.
Discounting to the right depth is another key part of the process. Cherry-picking customers frequently require a deep discount to entice them into the store, but this is often not the case with valuable, loyal customers. By tailoring the promotional discount to a level that rewards valuable customers but does not encourage cherry-picking, retailers and manufacturers can save some trade promotion dollars and reinvest them into other, more valuable, promotions. This allows trade promotion budgets to remain constant while delivering a better overall outcome for the retailer, the manufacturer and, most importantly, for the customer.
2. Consumer promotions
Manufacturers usually send direct communications to consumers either through freestanding newspaper inserts, direct-mail coupons or through coupons printed at the register. Unfortunately, the response rates to these types of initiatives are typically in the single-digits.
If manufacturers analyze their retail partners' customer data first through an enterprise-loyalty strategy, they can become much more familiar with shopper preferences and therefore craft more targeted promotions. The result is a more relevant offer that resonates with individual customers, inspiring them to buy and delivering a higher return on their marketing dollars. This again allows the manufacturer to become increasingly efficient and productive with its consumer promotion budget.
3. Media advertising
As with consumer promotions, analyzing a retailer's customer sales data can help a manufacturer develop more effective media advertising campaigns, by revealing which customers and customer segments are disproportionately likely to purchase its different products.
Armed with these insights, a manufacturer can direct its dollars to mass media channels and craft messaging that is more likely to connect. For example, one retailer learned from its customer data that while there was an opportunity to grow sales in the coffee category, the greatest opportunities existed in just two life-stage segments – seniors and households without children.
4. Product development and innovation
Most retailers know that in the suburbs, shoppers tend to buy in bulk, while city dwellers prefer smaller packages that are easy to carry home and store. Beyond these basics, however, customer insights also reveal where the gaps exist in the retail assortment.
The data gathered and dispensed through enterprise loyalty can help the retailer determine which products would benefit from expanded distribution or shelf space, or whether it makes sense to innovate and launch an entirely new product. This is where category managers can leverage insights to deliver enhanced performance, collaborating effectively with internal private label teams and with manufacturer product development teams.
As with any strategy, enterprise loyalty used to enhance merchandising should be applied with clear performance goals and incentives in place. All managers should understand the role of their categories in achieving customer-committed merchandising plans, and all should be recognized in accordance when meeting their metrics.
Manufacturers that collaborate with retailers in these ways can open up a host of purchase opportunities, and not just by the box. Enterprise loyalty can improve a manufacturer and retailer's performance across many criteria including, most importantly, that of the customer.