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  • 1. promotion collaboration secrets of success Chapter Title Here 1 a DemandTec eBook
  • 2. retailers and manufacturers share common insights consumer-centricity is galvanizing our industry. and use data to drive superior promotion and merchandising Retailer and branded manufacturer alike are working to better decisions based on reliable forecasts and expectation of understand and get closer to shoppers. These initiatives are mutual success. driving opportunities to collaborate throughout the demand chain, serving as the foundation for joint business value trust emerges based on common understanding, creation. transparency and shared success. the game changes... ...when trading partners truly collaborate on promotions Benefits accrue for Both parties, as fact-based The shopper insights and enabling technology for demand promotion collaboration becomes their embedded, everyday data-empowered collaboration are available today. Before you mode of interaction – a way of doing business – not just this plan another promotion, set another price, refine another as- month’s slogan. sortment, or negotiate another deal with your trading partner, review this little book and discover the sustainable advantage Leading retail and consumer product companies are already collaboration can build for your business. collaborating to win. They are learning to work together for mutual, sustainable promotion and category management success. 2 Chapter Title Here 3 Promotion Collaboration
  • 3. promotion collaboration taBle of contents what we have learned 6 five steps to start collaBorating today 14 this is not the last word 30 4 Chapter Title Here 5 Promotion Collaboration
  • 4. what we have learned manufacturers and retailers who engage more most retailers and manufacturers believe of their partners in collaborative activities report collaboration is important to their future success. better success from their promotion efforts. • 92% of retail grocers report collaboration as “very important” For retailers, “collaborative engagement” means improved • to future success and 8% consider it “important.” interactions on demand analytics and win-win planning. For • Manufacturers rated collaboration as “very important” 56% • manufacturers, “collaborative engagement” means more • of the time, and “important” 39% of the time. freedom for the field sales force and new tools to more effectively manage and measure promotions. It’s no secret. While retailers tend to be most interested in shopper dynamics and category health, manufacturers have DemandTec and Booz Allen Hamilton, in partnership with historically maintained focus on consumer events and brand Trade Promotion Management Associates, jointly sponsored profitability. Bridging this “disconnect” will help promotions research on this issue because we observe trading partners perform better. striving to gain greater collaboration and mutual benefit. The 2007 Promotion Collaboration Survey is the first known Retailers and manufacturers share related concerns about to address trade promotion optimization and collaboration. demand forecasting and differing objectives (e.g. category growth versus trade spend ROI). The resultant insights imply ways that the industry can best work together to improve retail-focused merchandising and marketing. The big ideas: • Manufacturers and retailers are becoming increasingly • interdependent. • Trade promotion optimization is a key opportunity and the • • next frontier in collaborative activities. • Increased collaboration can drive more effective business • • results. 6 What We Have Learned 7 Promotion Collaboration
  • 5. When retailers rate importance and effectiveness of When manufacturers rate the importance and vendor capabilities, three gaps stand out [below]. effectiveness of their customers’ capabilities, the largest gaps differ. However, both share concerns about demand forecasting [below]. aBility to accurately forecast consumer and understand the return on investment in a warehouse demand proposed event evaluate the effectiveness of a completed event aBility to accurately forecast consumer and warehouse demand plan a promotion event considering the overall relate promotion events to the goals of your impact on the category partners Survey question: Please rate the importance and Survey question: Please rate the importance and effectiveness of your vendor partners in the following skills effectiveness of your retail partners at the following skills that support collaboration. that support collaboration. Source: The 2007 Promotion Collaboration Survey Source: The 2007 Promotion Collaboration Survey 8 What We Have Learned 9 Promotion Collaboration
  • 6. trust remains a key factor in collaboration effectiveness, but relatively less important than other barriers. Data inconsistency, inappropriate tools, misaligned or lack of defined objectives, and lack of a process are all considered Survey question: Which of the following do you consider to to be greater barriers to collaboration than a lack of trust. It be barriers to using analytics and insights to collaborate with is also highly likely that any efforts to eliminate these other vendors in the future? barriers would also have the secondary benefit of building and ensuring trust within the relationship and the collaboration activities. data in formats that are non-standard (hierarchies, formats, data attriButes, etc.) data that is not timely lack of joint key performance indicators lack of standardization in how data is analyzed Between trading partners inadequate tools to work with data resources to utilize growing sources of data misaligned oBjectives lack of formal Business process touchpoints lack of agreement on what should Be measured systems that can’t talk with one another so the data can’t Be shared lack of trust with your partners 10 11 Source: The 2007 Promotion Collaboration Survey Promotion Collaboration
  • 7. collaboration benefits retailer and manufacturer partners in a variety of ways. 12 13 Promotion Collaboration
  • 8. five steps 3 step three: define key performance indicators 1 step one: plan 4 collaboration holistically step four: establish collaboration tools 2 step two: 5 set rules of engagement step five: continually measure and 14 adjust 15 SciencePromotion Collaboration Meets Assortment Optimization
  • 9. 1 step one: plan collaboration holistically it has to Begin with the Big picture. where Collaboration is more than a joint planning meeting and more What must take place in person versus by phone, email, or than simply sharing data. It’s a way of doing business that in a shared, web-based workspace? Does the work take defines how retailers and manufacturers go to market, day place on your premises? At your trading partner’s? in and day out. It requires data and tools but it also depends on people and processes. As with any enduring change when initiative, it behooves companies to consider how it will Establish a timetable for collaboration that considers joint impact their businesses across several dimensions: goals, availability of solutions, and sets milestones for key tasks. who Define who is involved in your organization and who why they will be interacting with in your trading partner’s The reason to collaborate may seem self-evident. However, organization. Be certain your people are empowered with the clearly stating the primary objectives can help shape the rest authority to get the job done. of the plan and also help both parties modify or expand the initiative as new opportunities emerge. Also, your trading what partner’s stated reasons to collaborate may be slightly different Define the processes and roles clearly. Know exactly what than you expect. you are trying to accomplish and what has to happen. Be ready to state it clearly. 16 Five Steps 17 Promotion Collaboration
  • 10. holistic planning requires people, processes, data and tools key considerations for retailers: • Is promotion collaboration centered around the category management team? Who else should be involved? • Who will interact with counterparts on the supplier side and what tools will they use? • Are you ready to implement programs developed with your partners? • In addition to planning for your own improvements, are you identifying ways to enable your supplier community to lower its cost to serve you? key considerations for manufacturers: • Have you empowered your field-based account teams to take action? • Are you engaged in a dialog with retail customers around collaborative promotion planning? • Are you ready to leverage transaction log data in your promotion strategies and tactical recommendations? • Have you identified ways to lower your cost to serve your most important retail customers? 18 Five Steps 19 Promotion Collaboration
  • 11. 2 step two: set rules of rules of engagement will vary and are dependent on the relationship and level of trust engagement Between the partners. collaBoration can never Be a “no holds Barred” proposition. Trust is built in part by setting limits and defining rules. For some in the industry, collaboration is simply synonymous with “sharing data,” but there are ways to collaborate that need not involve any disclosure. Also, levels of collaboration may vary, and some capabilities may be enabled without sharing sensitive data. Overall, retail leaders are opening up more of their businesses to collaboration with suppliers in order to achieve the benefits of joint planning and execution. In all cases, limits do apply. It’s important to recognize that the retailer sets the rules of engagement. key considerations for retailers: • Based on what you want to achieve, determine what information your vendor needs. • Analyze the different types of vendors you do business with and define how collaboration might differ between them. • Authorize vendors to use software, access reports, or even use specific data sources based on their roles. key considerations for manufacturers: • Build your capabilities around retailers’ rules. • Share best practices and marketing know how. • Leverage your consumer knowledge. 20 Five Steps 21 Promotion Collaboration
  • 12. 3 key considerations for retailers: • Establish KPIs for promoted item sales, but also overall category sales and profits. step three: define key • Also consider analyzing cannibalization of private label performance indicators or other brands as you evaluate deals or offers from different vendors. and goals • Using KPIs, request that all promotional offers from your suppliers meet agreed-upon thresholds. • Finally, consider customer segmentation strategies. Request promotional offers that are not only good for the category how do you measure success? but are better targeted to your key customer segments. Successful trading partners jointly establish key performance indicators (KPIs) from the outset of a collaborative relationship. There is no substitute for candor in this discussion, because both sides must recognize that what is optimal for one may be unacceptable for the other. It’s well understood that a promotion that drives one brand’s short term sales at the expense of overall category objectives is not sustainable. Previously, many of these promotions have been executed at retail because neither party had a better alternative, and perhaps experimenting with something new (versus repeating what was done last year) was too risky. In this day and age, this should not be considered “good key considerations for manufacturers: enough.” • Recognize retailers’ interests and how they evaluate competing deals. For successful collaboration, it is essential to define what you • Also, for win-win collaboration, make sure your customer will measure. This will enable both parties to raise the bar from understands your goals for volume, cost-per-incremental what you’ve done in the past. volume, and trade spend ROI. • Explain how lowering the cost-to-serve a given customer would benefit the customer. • Bring deep consumer insights and research to the table, and align with the retailer’s loyalty insights and other shopper insights to plan targeted promotions together. 22 Five Steps 23 Promotion Collaboration
  • 13. 4 step four: establish collaboration tools make success possiBle. Even more than that – make breakthrough success the everyday norm. Empower sales and category management teams with tools that support quick, accurate, informed key considerations for retailers: decision-making, reliable forecasts, and dependable, rapid • Use advanced promotion planning tools to compare vendor monitoring of results. offers against each other and with regard to the agreed- upon KPIs and thresholds in Step Three. Advanced promotion planning software applications today • Create additional “what-if” scenarios to forecast what apply the science of consumer demand modeling and different deal terms or different uses of ads and displays predictive simulation. These can be based on a modeled would generate. platform of either retailer POS/t-log data or syndicated market • For the most collaborative retailers, consider enabling your data. Retailers and manufacturers will benefit when comparing suppliers to receive metrics (e.g. volume forecasts) from forecasts and other analytics in an “apples-to-apples” manner. your modeled environment (subject of course to the rules Using the same methodology and science over different data of engagement defined in Step Two). sets is a significant opportunity. Using the same underlying data makes this even more powerful. 24 Five Steps 25 Promotion Collaboration
  • 14. common data, science, and tools ensure “apples to apples” analytics and more effective collaBoration. key considerations for manufacturers: • Choose the right “metric” system. Your plans will be more easily sold in if the analytics used to prove their value are consistent with what your customer uses. • Use the same promotion planning system as your customer with your syndicated data. This ensures that both parties are not only comfortable with the modeling and forecasting approach, but process efficiencies can be gained as well when data is not entered multiple times. • Encourage your customers to open up their analytical platforms to give you the key metrics you would need to help drive their business and meet the established KPIs and thresholds. But recognize that your customer sets the rules of engagement. 26 Five Steps 27 Promotion Collaboration
  • 15. 5 step five: continuously measure and adjust a continuous and collaBorative cycle to measure and adjust ensures oBjectives are Being met. Build a cycle of success. Empowered, informed collaborators continually measure, evaluate and adjust merchandising programs based on a Retailer Performance Target Actual Status common understanding of mutual goals and gains. On-time reports 100% 90% The outcome is a virtuous collaboration cycle that engages On-time payments 100% 85% both retailers and manufacturers in an upward spiral of Manufacturer Performance Target Actual Status performance that yields mutual benefits. On-time reports 100% 87% Just as importantly, the iterative process influences trading On-time billing 100% 92% partners to reduce sub-par or non-performing programs, Ac- freeing scarce resources that may be reallocated to more Collaboration KPIs Target Status tual powerful and productive promotions. Promoted brand volume + 8% + 5% key considerations for Both retailers and Category profitability + 4% + 5% manufacturers: Cost per incremental unit - 3% - 2% • Based on the KPIs defined in Step Three, are promotion Category cannibalization - 2% - 3% plans achieving the goals each party set? • Don’t forget to scorecard the process itself. Even if all Private label volume loss - 10% - 6% KPIs are in the green, is the process working as efficiently Best customer alignment 75% 81% as it can be? Trade spend ROI + 4% + 6% • Re-assess Steps One through Four. Should others be involved in the process? Are you measuring the right KPIs and using the best tools? 28 Five Steps 29 Promotion Collaboration
  • 16. this is not the last word... Collaboration is a big concept that is certainly not limited to trade promotion. It is fundamental to driving innovation and yields great advantages in assortment and new item planning, shelf planning and other category management activities. For many retailers and consumer product manufacturers, most collaboration to date has been taking place in some of these other areas with fewer initiatives centered on improving promotions. Given new technology and changing attitudes towards win-win promotion planning, trade promotion collaboration is now a key initiative for more and more leading innovators in our industry. This little book describes five basic steps that just begin to outline key concepts for effective collaboration on trade promotions. We’d be glad to share more detail from The 2007 Promotion Collaboration Survey, or provide more information about collaborative promotion planning technology available to retailers and manufacturers. Just ask. www.demandtec.com 30 This is Not the Last Word 31 Promotion Collaboration
  • 17. about demandtec contact us DemandTec 1 Franklin Parkway Building 910 San Mateo, CA 94403 USA inquiries DemandTec (NASDAQ: DMAN) enables retailers and consumer Phone: +1.650.645.7100 products companies to optimize merchandising and marketing Please visit www.demandtec.com decisions, individually or collaboratively, to achieve their sales volume, revenue and profitability objectives. DemandTec software services utilize DemandTec’s science-based software platform to model and understand consumer behavior. DemandTec customers include more than 195 leading retailers and consumer products manufacturers, such as Ahold USA, Best Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B Grocery Co., The Home Depot, Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee, Walmart and WH Smith. Connected via the DemandTec TradePoint Network™, DemandTec customers have collaborated online with more than 3 million trade deals. 32 Chapter Title Here 33 Promotion Collaboration

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