BuildingB ildi sustainable value chains:          t i bl     l    h iThe importance of being … relevant!Professor Andrew F...
Outline   The challenge               g   Value chain design   Value chain management   The Power of consumer insight...
WHAT WILL YOUREMEMBER?
Remember this...                                      Assumptions are the mother of all f*** ups!   Looking at the marke...
Remember this...                            The blind are leading the blind... into the                             commo...
Remember this… Look more closely, listen harder, speak more clearly
THE CHALLENGE
Today   Sustainability   • Quality           y        • Size, Colour, Taste, Texture, shelf-life…        • Who knows?   • ...
And tomorrow…?   Sustainability
Sustainability                            Social                            FOOD                 Economic          Environ...
Sustainability                             Education                             Ed   ti                                  ...
Adapt or Die It is not the strongest of     We only have two sources of the species that survive,      competitive advanta...
Key Shopper Trends          Sustainability               The Paradox of Choice:  Increasing choice wanted but it fosters  ...
Money is not the only currency... BUT     Empty nesters –     self-indulgence                                             ...
What is your value proposition?   •The more relevant the product or   service the greater the demand
Value Chain Design
Segmentation and differentiation                                Variation in demand within                                ...
Design from the outside in    • Different customers pursue different strategies and                           p           ...
Value Chain Management
VCM – Principles     Allocation and utilisation of resources that is hard for    others to contest and even harder to rep...
Paradigm Shift    Area          ‘Conventional’ Approach              Value Chain Approach                       (Introspec...
Supply Chain Paradigm
Value Chain Paradigm
Value Chain Management – Zespri Style                                                            Grower/Supplier          ...
Key Enablers • Strategic Alignment • Value Chain Visibility • Collaborative Relationships • Consumer Insight
Strategic alignmentDrives resource allocation
Strategic alignment Tesco                           Sainsbury’s    Appeal to all customers    Breadth before depth    S...
How aligned are you?•   In-depth    In depth knowledge of your customers    •   Know your product but not your market•    ...
Value Chain Visibility                                                                                                    ...
Collaborative Relationships                                       Co                                       Commitment     ...
The Power ofConsumer I i hC        Insight
Consumer Insight Consumer insight is an essential ingredient for  success, no matter how good the product is         ,    ...
What do we need to understand?
Shopper insight Vs Consumer InsightInsight = Who + What (shopper behaviour ) + Why (consumer behaviour)          Purchase ...
dunnhumby Data     Weekly supermarket purchasing behaviour           y   p         p        g         17 million shopper...
Who buys avocados?180160140120100 80 60 40                                                                   Older Adults ...
Who buys avocados?450                                                       Convenience    Finer Foods   Kids Choice   Mai...
Who buys avocados?                                           Young and Affluent Singles                                  W...
What do they buy?                                                              % Change (Yr on Yr)                        ...
0                                                                                50,000                                   ...
What else do they buy?    Product Name                                    Number of Baskets Significance    Chef N Vibe Av...
What magazines do avocado shoppers read?      Product Name               Customer Count Product Penetration      Hello    ...
How can consumer insight help you?   • Input to overall business planning   • Input to the development of new propositions...
Buyers have one common goal: profitable growth           ales    Value sa                      Current category performanc...
Simple approach to margin growth                                   DrivingMaxM no. units sold x O ti        it    ld Optim...
Different ways drive value sales                      Create new                                         Encourage        ...
Ideal scenario for retailers and suppliers                         Want              Eat                                  ...
Conclusions
Conclusions                                      Assumptions are the mother of all f*** ups!   Looking at the market in ...
Conclusions                            The blind are leading the blind... into the                             commodity ...
Conclusions  Look more closely, listen harder, speak more clearly
THANK YOU!Prof. Andrew FEARNECentre for Value Chain ResearchKent Business SchoolUniversity of KentCanterburyCT2 7PE 01227...
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Professor Andrew Fearne

  1. 1. BuildingB ildi sustainable value chains: t i bl l h iThe importance of being … relevant!Professor Andrew Fearnea.fearne@kent.ac.ukCentre for Value Chain ResearchKent Business School, University of Kent
  2. 2. Outline The challenge g Value chain design Value chain management The Power of consumer insight Conclusions
  3. 3. WHAT WILL YOUREMEMBER?
  4. 4. Remember this...  Assumptions are the mother of all f*** ups! Looking at the market in aggregate leaves us blind to the realities of ‘people’ and ‘products’
  5. 5. Remember this...  The blind are leading the blind... into the commodity trap!  Organisations must change the way they think, think the way they take decisions and the way they behave Consumer insight is the essential missing ingredient
  6. 6. Remember this… Look more closely, listen harder, speak more clearly
  7. 7. THE CHALLENGE
  8. 8. Today Sustainability • Quality y • Size, Colour, Taste, Texture, shelf-life… • Who knows? • Service • Fullfillment! • How high should I jump? •V l Value • Cost • To whom? • For what purpose? • How much did I lose?
  9. 9. And tomorrow…? Sustainability
  10. 10. Sustainability Social FOOD Economic Environmental
  11. 11. Sustainability Education Ed ti Corporate Values Ethical Labour Health Social Communities C iti Succession Planning Labour Climate Transport Change Soil FOOD Corporate Ecological Ethics Footprint Supermarkets Economic Environmental Energy Sources WasteProfits Land Use Consumers Market M k t Biosecurity Access Water
  12. 12. Adapt or Die It is not the strongest of We only have two sources of the species that survive, competitive advantage: nor the most intelligent intelligent, • The ability to learn more about our but the one most shoppers faster than the competition responsive to change • The ability to turn that learning into action faster than the competition The image cannot be display ed. Your computer may not hav e enough memory to open the image, or the image may hav e been corrupted. Restart y our computer, and then open the file again. If the red x still appears, y ou may hav e to delete the image and then insert it again. Charles Darwin Jack Welch
  13. 13. Key Shopper Trends Sustainability The Paradox of Choice:  Increasing choice wanted but it fosters  confusion and indecision .. Macro desire for simplicity and orientation  p y more important now for shopping than we think  Time Stealers : Breakdown in routines and structures has led to  Time Stealers : Breakdown in routines and structures has led to ineffective use of time and increasing demand for ‘more time’.  Shopping is under threat as an enjoyable activity Complex Convenience : Convenience increasingly means different  things to different people, increasing desire for personal, bespoke  solutions, fuelled by innovative brands & new shopping channels fuelled by innovative brands & new shopping channels The Rise of the Smart Shopper : Knowledge is becoming the new  currency and being  savvy when shopping has become a desirable currency and being ‘savvy’ when shopping has become a desirable  trait, price is no longer the easy signal of quality  Source: Dynamic Reasoning
  14. 14. Money is not the only currency... BUT Empty nesters – self-indulgence Young mothers – food safety Young adults & pensioners – diet & h lth health
  15. 15. What is your value proposition? •The more relevant the product or service the greater the demand
  16. 16. Value Chain Design
  17. 17. Segmentation and differentiation Variation in demand within and between customers Design from th ‘ t id i ’ D i f the ‘outside in’ Source: Accenture (2009)
  18. 18. Design from the outside in • Different customers pursue different strategies and p g have different needs at different times • Defend/grow market share • Build loyalty • Extend product range • Reduce risk • Th i consumers are i Their increasingly h t i l heterogeneous and d unpredictable • The value chain must be responsive and ‘fit for fit purpose’ • This will not happen without design, commitment, pp g resource allocation, management and control • Design needs to embrace strategy, structure and process Value Chain Design (3-10)
  19. 19. Value Chain Management
  20. 20. VCM – Principles  Allocation and utilisation of resources that is hard for others to contest and even harder to replicate  Add more value (effectiveness) ( )  At lower cost (efficiency)  Faster (responsiveness)  Sustainably  Economic  Environmental  Social
  21. 21. Paradigm Shift Area ‘Conventional’ Approach Value Chain Approach (Introspective) (I t ti ) (Outward looking) (O t d l ki )Focus Narrow focus on material  Wider strategic focus linked to  procurement and logistics future growthMake‐buy Reactive, cost minimisation Pro‐active, linked to core  competenceDesign Suppliers ‘build to print’ Key suppliers have major design  responsibilityQuality Inspect quality in Certify supplier processesBusiness Business Adversarial, short‐term contracts Adversarial short term contracts Co‐operative, long‐term  Co operative long termRelationships partnerships
  22. 22. Supply Chain Paradigm
  23. 23. Value Chain Paradigm
  24. 24. Value Chain Management – Zespri Style Grower/Supplier Customer g Partnerships nin Relationships os itio P er om C u st Core Distribution Consumer Value Design Products Competencies Channels Segments ngthening Core e Co petencies Consumer Positioning n io e at Cr om e lu Stren Va Costs C t Revenue R Success/Failure Innovation Securing Shareholder & Grower ReturnsAdapted from Osterwalder & Pigneur 2005 Pigneur,
  25. 25. Key Enablers • Strategic Alignment • Value Chain Visibility • Collaborative Relationships • Consumer Insight
  26. 26. Strategic alignmentDrives resource allocation
  27. 27. Strategic alignment Tesco Sainsbury’s  Appeal to all customers  Breadth before depth  Stock unique lines q  Competitive in the market  Simple and logical  First f customers for  Relevant for customers
  28. 28. How aligned are you?• In-depth In depth knowledge of your customers • Know your product but not your market• Product ranges for all store formats • Duplicate the range• Innovation exclusive to customer • Stifle NPD with process• Speed to market with new products • Devote shared resource to the category• Dedicated resource (account manager) • Keep information to yourself• Openness and honesty • See change as more work• Willingness to change • View investment as risk• Investment to grow the business • Are unable to segment your market• Promotions th t grow the category P ti that th t • Promote for short-term category share• Resources to deliver projects/plans • Require customer to deliver your plan• Market expertise • Manufacture product with no real skill p Value Chain Thinking (2-23)
  29. 29. Value Chain Visibility CREDIT CARD 1234 5678 9012 VALID FROM GOOD THRU XX/XX/XX XX/XX/XX XX/XX/XX PAUL FISCHER PAUL FISCHER Supplier Manufacturer Distribution Retailer Consumer Dem andDem and Dem and Dem and Dem and Time Time Time Time Time Reduce uncertainty in projected demand R d t i t i j t dd d
  30. 30. Collaborative Relationships Co Commitment t e tTrust Inter-dependence
  31. 31. The Power ofConsumer I i hC Insight
  32. 32. Consumer Insight Consumer insight is an essential ingredient for success, no matter how good the product is , g p  Differences in purchasing behaviour between segments may be significant and should not be assumed  Heterogeneous segments require differential treatment  The more limited the (marketing) resources the more important it is to target them
  33. 33. What do we need to understand?
  34. 34. Shopper insight Vs Consumer InsightInsight = Who + What (shopper behaviour ) + Why (consumer behaviour) Purchase Shopper Consumer In Home Driven by Shopper Marketing: Path to Purchase & Point of Purchase activity Without a link or trigger to drive consumption products can sit in cupboards/ fridges/ on shelves shelves..
  35. 35. dunnhumby Data  Weekly supermarket purchasing behaviour y p p g  17 million shoppers (40% of UK households)  Over 30,000 food products  Segmented by: Geo-demographics (Cameo) Region (TV) Retail Channel Lifestage Detailed Lifestyle Simple Lifestyle Retail Format
  36. 36. Who buys avocados?180160140120100 80 60 40 Older Adults Older Families Young Adults g Young Families g Pensioners 20 0 Medium Avocado Each Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe Ps Avocado Each (C) Pack Avocado 2Pk Avocado Each Avocado Pack Source: dunnhumby (2010)
  37. 37. Who buys avocados?450 Convenience Finer Foods Kids Choice Mainstream Price Sensitive Traditional400350300250200150100 50 0 Medium Avocado Each Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe Ps Avocado Each (C) Pack Avocado 2Pk Avocado Each Avocado Pack Source: dunnhumby (2010)
  38. 38. Who buys avocados? Young and Affluent Singles Wealthy Retired Neighbourhoods450 Affluent Home Owners Smaller Private Family Homes Comfortable Mixed Neighbourhoods Less Affluent Families400 Less Affluent Singles and Students Poorer White and Blue Collar Workers350 Poorer Family and Single Parent Households Poorer Council Tenants - Many Single Parents300250200150100 50 0 Medium Avocado Each Ps Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe Avocado Each (C) Pack Avocado 2Pk Avocado Each Avocado Pack Source: dunnhumby (2010)
  39. 39. What do they buy? % Change (Yr on Yr) % Change (Yr on Yr) Description Share of sales Sales Distribution Average Price Penetration Repeat rateMarket Value Avocado Each 1.2 ‐86 ‐33 ‐16 0.8% 17.2%Baby Avocados PackBaby Avocados Pack 14.4 ‐9 9 16 ‐8 8 3.4% 38.9%Finest Large Avocado 2Pk 2.2 ‐91 ‐15 ‐1 0.6% 18.3%Large Fairtrade Avocado Each 3.7 ‐8 11 3 1.0% 22.9%Medium Avocado Each 16.5 ‐58 ‐4 20 4.6% 36.0%Medium Ripe & Ready Avocado Each (C) 5.2 23 18 4 1.6% 35.8%Perfectly Ripe Avocado Pack 37.7 ‐ ‐ ‐ 5.1% 42.3%Perfectly Ripe Large  Avocado Each 15.6 ‐ ‐ ‐ 3.2% 40.8%All Products 100 2 7 0.3 12.8% 55.0% Source: dunnhumby (2010) Annual sales = £13mlln Prices range from £0.5 to £1.84 Only 12% of shoppers purchased avocados and almost half never came back!
  40. 40. 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 13-Oct-08 27-Oct-08 10-Nov-08 24-Nov-08 08-Dec-08 22-Dec-08 05-Jan-09 19-Jan-09 02-Feb-09 16-Feb-09 02-Mar-09 Tesco Medium Avocado Each 16-Mar-09 30-Mar-09 13-Apr-09Source: dunnhumby (2010) 27-Apr-09 11-May-09 What do they buy? 25-May-09 08-Jun-09 22-Jun-09 06-Jul-09 20-Jul-09 03-Aug-09 17-Aug-09 Tesco Perfectly Ripe Avocado Pack 31-Aug-09 14-Sep-09 28-Sep-09 12-Oct-09 26-Oct-09 09-Nov-09 23-Nov-09 07-Dec-09 21-Dec-09 04-Jan-10 18-Jan-10 Tesco Baby Avocados Pack 01-Feb-10 15-Feb-10 01-Mar-10 15-Mar-10 29-Mar-10 12-Apr-10 26-Apr-10 10-May-10 24-May-10 07-Jun-10 21-Jun-10 05-Jul-10 Tesco Finest Large Avocado 2Pk 19-Jul-10 02-Aug-10 16-Aug-10 30-Aug-10 13-Sep-10 27-Sep-10
  41. 41. What else do they buy? Product Name Number of Baskets Significance Chef N Vibe Avocado Slicer 1,430 29.1% Chevington Mild Cheddar Cheese Ch i t Mild Ch dd Ch 1,720 1 720 17.7% 17 7% Charedi Whole Milk 1 Litre 910 17.6% Chevington Grated Mild Chedcheese 400G 1,630 17.3% Osem Israeli Toasted Couscous 250G 1,180 17.3% Yutaka Sushi Rice 500G 9,230 16.9% Yutaka Sushi Nori 11G 12,770 16.8% Yarden Houmous & Tahina500G 2,690 16.7% Charedi Semi Skimmed Milk 1 Litre Charedi Semi Skimmed Milk 1 Litre 1,080 16.6% Gefen Classic Marinarapasta Sauce 737G 840 16.4% Telma Chicken Stock Cubes 45G 3,470 16.3% Chevington Light Cheese 950 16.0% Yarden Houmous Extra 250G Y d H E t 250G 4,340 4 340 15.9% 15 9% Yarden Mini Turkey Kabanos 250G 2,060 15.9% Tivall Veg Slce Roast Chicken Style 100G 1,410 15.7% World Harbours Teriyaki Sauce & Marinade 510G 720 15.7% Yarden Red Cabbage Mayonnaise 250G 2,760 15.6% Chevington Grated Light Cheese 400G 1,510 15.4% Chevington Cottage Cheese Low Fat 227G 630 15.4% Prince Tehina Concentrate 500G Prince Tehina Concentrate 500G 810 15.1% Source: dunnhumby (2010)
  42. 42. What magazines do avocado shoppers read? Product Name Customer Count Product Penetration Hello , 16,870 0.3% Closer 16,650 0.3% Grazia 14,770 0.2% Take A Break 11,760 0.2% Heat 14,440 14 440 0.2% 0 2% Ok! 14,220 0.2% Now 13,230 0.2% Womans Weekly 9,420 0.2% Woman W 11,350 11 350 0.2% 0 2% Look 12,250 0.2% Womans Own 10,280 0.2% Best 8,330 0.2% Woman And Home 10,420 0.1% New Magazine 8,540 0.1% Bella 7,610 0.1% Good Housekeeping 9,350 0.1% Reveal 7,990 0.1% Bbc Good Food 7,900 0.1% Ok Bumper 7,900 0.1% C at aga e Chat Magazine 5, 30 5,130 0 % 0.1% Source: dunnhumby (2010)
  43. 43. How can consumer insight help you? • Input to overall business planning • Input to the development of new propositions • Input to the development of a marketing plan • Catalyst for changing relationships with the buyer y g g p y
  44. 44. Buyers have one common goal: profitable growth ales Value sa Current category performance Time
  45. 45. Simple approach to margin growth DrivingMaxM no. units sold x O ti it ld Optimum RRP value l sales Lowest realistic cost to sell Low cost through supply chain
  46. 46. Different ways drive value sales Create new  Encourage  Encourage  Encourage new  consumption  shoppers to  shoppers to shoppers to  shoppers to people to shop  occasions, new  buy more/trip,  spend more/  the category reasons for  larger packs trip, trade up people to buy Frequency of  Vol Weight of  £ Weight of  HH Penetration Purchase Purchase Purchase Who knows what these are?
  47. 47. Ideal scenario for retailers and suppliers Want Eat  Buy again Enjoy Eat And the faster the better!
  48. 48. Conclusions
  49. 49. Conclusions  Assumptions are the mother of all f*** ups! Looking at the market in aggregate leaves us blind to the realities of ‘people’ and ‘products’
  50. 50. Conclusions  The blind are leading the blind... into the commodity trap!  Organisations must change the way they think, think the way they take decisions and the way they behave Consumer insight is the essential missing ingredient
  51. 51. Conclusions Look more closely, listen harder, speak more clearly
  52. 52. THANK YOU!Prof. Andrew FEARNECentre for Value Chain ResearchKent Business SchoolUniversity of KentCanterburyCT2 7PE 01227 82 48 40 a.fearne@kent.ac.uk

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