CPGmatters: Heinz Hypes Segmentation to Boost CM Process
By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from CPGmatters, a monthly e-zine, presented here for discussion.
H.J. Heinz is enhancing its category management process by incorporating shopper segmentation analytics. The focus remains on the category, but the goal is creating more value for the brand and the retailer.
“Segmentation, coupled with consumer insights, shopper insights, new item innovation and advanced analytics, provides a great category management base,” said Chris Webb, category business planning manager for Heinz.
Heinz began this program three years ago with the Classico brand, but is working in brands across all its categories: ketchup, condiments, sauces, soups, meals, snacks and infant foods.
Heinz uses segmentation for several reasons:
- Improved portfolio management
- Better investment of limited resources
- Ability to explore alternative marketing media
- More alignment with customers.
“Demographic segmentation may not completely define consumers,” Mr. Webb said recently at Nielsen’s Consumer 360 conference. “Behavioral-based segmentation is an improvement, but still falls short. Consumer needs-states improve segmentation with attitudes, behaviors, brand perceptions and latent preferences for products.”
The strategy that Heinz follows includes:
- Segmentation: Identify segments and develop profiles
- Targeting: Evaluate attractiveness and select target segments
- Positioning: Targeted concept development and execution, and develop the
right 4Ps mix for chosen target.
“Both the retailer and category management activities really transpire in the Positioning portion,” explained Mr. Webb. “Up
until that point, the exercise is largely internal. In the ‘P’ stage, the
rubber really hits the road in developing and executing strategy, buttoning
up our 4Ps, and also tailoring the message for the retailer, based on fit.
The retailer ‘buy-in’ and acceptance really enables category management to
take place.”
Among the leading retailers developing consumer segmentation models of their own are Kroger, Win-Dixie, Food Lion and Wal-Mart. They aim to improve the product assortment within their stores to meet the needs of consumers who are living near and shopping in their stores. Heinz is collaborating and overlapping its consumer segmentation program with retailer models at some accounts.
“We expect more development in the near term,” said Mr. Webb, “and anticipate seeing further efficiencies and growth for both parties as these joint strategies translate into merchandising execution.”
He said Heinz works equally with analytically-advanced retailers that already have shopper segmentations and those without.
“In those retailers with their own segmentations already, we connect heavily with their loyalty and category management teams,” he said. “The discussions are usually much more robust in these situations, but a great amount of learning also takes place in those retailers without. They are also very eager to learn how our segmentation insights can help their business results.”
Discussion Questions: What do you think of utilizing segmentation analytics as part of the category management process? What do you think of the opportunities? What do you think might be some challenges?
Segmentation is critical for success. The big questions are what variables should be used for segmentation and what size is appropriate for a segment. Traditional demographic characteristics are great for measurement, definition, and matching segments with media. However, as mentioned earlier in this decision, demographic variables say nothing about how or why consumers make decisions or what they value. Those variable are critical for identifying realistic segments. In terms of size, there is a trend among younger consumers to want to personalize their choices so segments of one may be important.
Determining relevant segments is important but not an easy endeavor.
Segmentation is the way to go to bring the force of Cat Man to fruition. The issue is that we still struggle to decide on what to use for segmentation. Currently, we segment on the data we have available–demographics, volume, geography, etc. What we are missing is an understanding of WHY the shopper bought and what “job” she was completing. We are doing postmortems and trying to assess why the patient passed away instead of acting to ensure the health of the patient.
Segmentation is better than the one size fits all, but it is only as good as the data and analysis applied. Kudos to Heinz and others pursuing this. However, the industry as a whole is still looking in the wrong places for answers.
Segmentation is not a magic bullet, but it helps brands keep up with the competition. In other words, it’s unlikely to foster breakout quantum-leap market share growth. Over the past 2 years, Heinz’s stock price advanced very similarly to the S+P 500. If segmentation was an unusually strong growth lever, Heinz’s standing among investors might’ve accelerated further.
Offering segmentation information is an important step forward. But the killer app will be the marriage of segmentation with location-based environmental marketing, ala Herb Sorensen.
If 85% of purchases are location-driven, then the location of the item in-store–coupled with the psycho-demographics of the shopper–is close to “perfect information.” It may seem like this is a far-off dream, but the technological rate of change is accelerating. Near perfect information is right around the corner. The question then is–what will you do with it?
Consumer segmentation at the category level is a very promising and potentially very rewarding development in category management. A category manager has four things to manage: product, channel, supply chain and customer. 99% of the initiatives in information management have been directed at the first three. Yet the last time I looked it was the customer who walked into the store and made the purchase.
The dimensionality of consumer analytics should evolve to more that demographics. Category managers should understand the promotional draw of their products, market basket analytics, and frequency of customer visits. Consumer goods companies ought to be helping their retailers to fund initiatives to capture these metrics.
The big measure that all category managers should be tracking is ‘comp customer’, especially as more and more customers become multi-channel consumers.
Segmentation is a large step forward from classic category management, and gives the customer a “say” in the proper development of products. To be sure, segmentation is messy, and consumers can often cross over segment lines into different behaviors for different occasions.
Hence the need for the old-fashioned store walk on occasion. True category managers always have to keep a balance between what shows up on their data retrievals plus what they have seen in the real world.
Segmentation is yet another invitation to compare a new arrangement of category data with real-time understanding of what your customers are doing with your products, and why.
Customer segmentation as part of category management was inevitable. The big question is, will anyone be able to execute on it? If manufacturers and retailers are working separately and towards their own aims as they each develop independent customer segmentations, then customer segmentations merely become part of the battle over who has the better data, who knows the “most” about “consumers,” who should drive what products should be on the shelf–and who is going to take on the supply chain cost of supporting localized assortments.
Segmentation has the opportunity to help build trust and cooperation into the manufacturer-retailer relationship, but only if both parties use it to keep them both focused on the real prize: the consumer. And the first step in making the most of that opportunity is to recognize that both parties can come to the table with completely different profiles about who their “best” or ideal customers are for a particular category at a particular store–and both be right.
Segmentation is indeed the hot ticket for category management–as well as all media today. The challenges reside in both retailer and brand marketer databases and the strategies, workflows, operational infrastructures and store media vehicles to activate such efforts. The internal complexities and challenges are vast, but the more innovative retailers have their eye on the ball and are making slow and steady progress towards the end goal.
We will also have to struggle through the murky, unknown waters of privacy and what shoppers will and will not accept regarding store-level personalization. My hunch is that these initial segmentation approaches regarding product at the store level will evolve into the personalized efforts Liz mentions above. However, shoppers will need to control who, when and how they are contacted at this intimate level or it won’t fly.
Segmentation works. Private label house brands have been doing this for years. A three tier private label branding was successful for many years at A&P. Ann Page was the premium, Iona was the middle and Sultana was the value brand.
Today, Food Lion has just introduced a three tier private label branding that will be further tweaked by local market tastes.
A&P and its three format approach, fresh, fine food/gourmet and discount/EDLP, is targeting formats directly to the buying demos of its customers.
This is a win-win situation for both the company and the customer. As long as the data is good and timely, these companies can tap into the tastes of their customers.
The separate roles of “Merchandising” and “Marketing” no longer exist. These often competing roles must be looked at holistically to provide the best experience for the most important customers. If it makes sense, the bakery category has to “take one for the team” when discounted buns can spur meat sales. Everyone recognizes this intuitively, but the execution becomes challenging. What are the Key Performance Indicators that you can use to motivate the individual category managers and also keep the overall objective in focus?
With the amount of data available today, every retailer has the opportunity to focus on each consumer individually. This means they can send them electronic coupons that are based on their frequent shopper ID that really make the customer happy. Segmentation makes sense as the first step because it puts into place the evaluation and identification tools so that segments are distinguishable. But it is still a “blunt instrument” compared to specifically targeted promotions based on frequent shopper ID. Beyond that, real time targeted promotions are the ultimate answer when shelf edge promotions are used to influence customer purchase decisions based on current inventory positions. This brings a whole new dimension to managing markdowns and out of stocks.
Injecting a shopper dimension into category management is essential for the process to continue to pay off. A key part of category management is uncovering opportunity gaps. We have a great case that illustrates how a retailer can be at their fair share for a category but have an opportunity gap for a shopping style segment. If category management practices don’t take a consumer-centric focus, such gaps and corresponding adjusts in retailing practices will go unexplored.
Yes CONSUMER segmentation and needstate insight certainly provides the basis for improved sophistication in category management in that category assortments, NPD and merchandising can be targeted to consumer typologies that are prevalent in given geographical areas, ensuring that categories are appropriately positioned on a store by store basis (or at least on the basis of groups of stores with common catch profiles). However, this is only the tip of the iceberg. Of arguably equal importance is the SHOPPER segmentation and needstate insight, and by this I mean the understanding of shopper missions and mindsets.
Say a geographical area has a high proportion of affluent consumers who have an above average interest in premium end products within a category. You could argue from this that any store operating in this geographic catchment should major on premium end SKUs. However, by understanding the relationship of consumption occasions and shopping missions we may find that actually when these guys are buying premium products they are tending to do so on small scale shopping trips which fulfill the need of catering to a specific evening meal during the week. Undoubtedly these guys will also participate in larger stock up trips as well, but on these shopping missions they are concerned with the purchase of more staple products.
The choice of store for these two missions for the same individual may be quite different, the former mission being predominantly completed through a small format local store whilst the larger mission taking place in a large out of town hypermarket. Assuming, therefore, based on the consumer segmentation of the catchment that the hypermarket should be stocking premium SKUs in the category could be misleading as this may result in an assortment which does not meet the needs of the shopper in the context in which they are using that store.