CPGmatters: P&G Collaborates with Kroger to Focus on Mutual Customers

Discussion
Dec 09, 2008

By John Karolefski

At the recent In-Store
Expo hosted by the In-Store Marketing Institute in Las Vegas, executives
at Procter & Gamble and Kroger spoke together about their fruitful
collaboration that puts the customer first over issues such as margins
and volume.

“If we’re going
to grow, we also had to agree to share our data and our insights,” said
David Ciancio, vice president of loyalty marketing at Kroger. “I can’t
describe the terror and the fear of the paradigm shift that took place
when we thought about the implications of sharing what we thought was our
most precious asset – the very shopping lives of our customers – with
manufacturers and suppliers. But what an interesting place that was.”

During the presentation,
a contrived conversation between the two executives gave the audience an
entertaining look at the fundamental issues that have confounded trading
partners during traditional negotiations.

Kroger: I’m really looking forward to this
category review today. And I know we’ll talk about the ad placement
and the 20 thousand bucks to be on the front page, and the end cap stuff.
But before we do that, listen. We’ve taken a look at the category and I
have a list of items that we need to discontinue in your category.

P&G: This is helpful, but there are
just a couple of things I’d like to ask you to consider. I know that
distribution is the sole discretion of the retailer, but we’re really kind
of deep in that. We’ve looked at a lot of complexity and we’re trying to
work on efficient product assortment. And this does include a fair
representation of my items. I’m a little bit concerned about that. So I’ve
actually done some pre-work for today’s meeting. I’d like you to
consider another list. It goes a little bit deeper than what we’re going
to work on. Don’t be concerned that there are no actual P&G items on
that list because we know that they really do meet shopper needs.

Kroger: Well, back to my list. I used the
best data that I had from category management, and this is driven by margin. This
is what I really need you to collaborate on.

P&G: Margin is over-rated. What
we really need is market data. The truck is in the back and I’m bringing
out the binders. We’ve got all the market data in the world to justify
that these are really the right recommendations for you.

“Happily, that really
wasn’t how our [real] conversation about SKU rationalization went,” said
Victor Bellino, associate director of customer business development at
P&G. “We did collaborate and got together on a handful of categories.
We looked at a 26-week database, so we really were thorough. We did look
at volume and we did look at margin. But we also looked deeper. We looked
at the shopper action. We looked at loyalty and penetration and reach.
So we looked at the full picture of what was really right for the store.”

Added Mr. Ciancio: “The
significant and transformational action that we took was to put the shopper
at the center of our thinking and action. When we did that together,
we found the right items to discontinue. We reduced SKUs by about 10 percent.”

Discussion Questions:
What needs to be done to move conversations and negotiations from issues
such as volume and margin to ones around shopper behavior and customer
retention? Should the conversation be moved in that direction?

Please practice The RetailWire Golden Rule when submitting your comments.

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14 Comments on "CPGmatters: P&G Collaborates with Kroger to Focus on Mutual Customers"


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Dr. Stephen Needel
Guest
13 years 5 months ago

Actually, the conversation needs to be around all four topics; volume, margin, behavior, and retention. Understanding shopper behavior does not automatically produce a category management solution–it’s not always because X, then do Y. At the same time, there are a lot of solutions we tested that had face validity but didn’t improve volume or margins (indeed, it may be easy to hurt margins). In the search for a better solution, all four need to be taken into account.

Max Goldberg
Guest
13 years 5 months ago

For years there have been discussions between retailers and manufacturers that danced around this topic. All of the conversations don’t mean a thing if they are not centered around the consumer. It’s about time. Is this the next trend at retail? I don’t know. But it should be.

Richard Alleger
Guest
Richard Alleger
13 years 5 months ago

This is great news. The collaboration of manufacturers and retailers to help the consumer and in turn, help themselves will create the virtuous circle. Many medium and small manufacturers that rely heavily on the classes of trade with significant customer behavior and transaction data need to figure out how to reduce the costs of this engagement.

Gene Hoffman
Guest
Gene Hoffman
13 years 5 months ago

The two big Cincinnati Kids are smart dudes and what they are doing makes a lot of sense. This will cut a lot of waste and guesswork from the system and let’s trust that the consumer will benefit as more companies join in the collaborative process. But the jury is still out on just how much the consumer will really benefit.

Phil Rubin
Guest
Phil Rubin
13 years 5 months ago

For conversations between suppliers and the merchant and the customer at the center, there needs to be customer-level data and the means to connect with those customers in a relevant manner. The relevance needs to be customer-centered first but then it also needs to incorporate how to manage those customers so as to increase sales and margin for the merchant and the supplier.

While Kroger is doing an increasingly better job at using its customer data (and leveraging the millions of dollars it spends on customer “insights”) there is a long way to go before grocers and their suppliers are reaching the middle ground of mass media and in-store efforts.

This is a great step in the right direction.

Anne Bieler
Guest
Anne Bieler
13 years 5 months ago

What a great step forward–considering the consumer first. Understanding Kroger’s value proposition for their shoppers will put P&G brands in a better place–they know what their target consumers want. Starting with shopper expectations from both perspectives has to bring a sharper focus to the product offering. Getting the right mix of P&G products for Kroger shoppers is just good sense for both parties, a collaborative vision to go forward.

Researchers have been talking about improving the shopping experience as critical for survival for several years. At some retailers, finding the products a shopper wants in the “sea of SKUs” is as frustrating as not having the right products on the shelf. Making the store a better place to shop requires this kind of collaborative thinking. Good for Kroger and P&G for this solid beginning.

James Tenser
Guest
13 years 5 months ago
In order to share insights, one has to actually have insights. And as the mock dialog in above illustrates, retailer-supplier relations have traditionally avoided pursuit of real insights in favor of data-driven arguments about assortments and allowances. Now we’re hearing a lot said about the need for a shopper-centric or consumer-centric approach to merchandising. I can see the next mock dialogue in my mind’s eye: Retailer: “We’ve studied shopping behavior for the category and, based on those insights, we propose to eliminate these 10% of your items, but please pay us first…” Manufacturer: “We’re experts on consumer behavior for the category and, based on those insights, we propose to eliminate these 10% of your other suppliers’ items…” The above is intended to be a mock dialogue, not a mocking one. We should applaud the positive efforts of Kroger and P&G based on their frank presentation. Sharing insights and data should help change the negotiation from a game of pure “liar’s poker” into one where most facts are known in common. But let’s not kid ourselves–the… Read more »
Doron Levy
Guest
Doron Levy
13 years 5 months ago

I would say all 4 topics are equally important but I really like the customer focus. Our current economic situation has taken a huge toll on customer confidence. When retailers and vendors team up with the customer, everyone will see potential benefits. The customer needs an advocate, and who better to show them love than the merchants and the vendor?

Anne Howe
Guest
13 years 5 months ago

I attended this presentation and it was right on the mark, as well as very funny. Humor took the edge off the elephant in the middle of the table; a reality that still exists for many manufacturers that don’t have the scale and deep pockets of P&G.

In our shopper marketing practice, we are agents of change and sit in the middle of many of these type of discussions. I encourage all players in this industry to take the subjective thinking off the table and really continue to spend time and effort listening to the shoppers. A holistic focus will go a long way to diffuse the natural tension that exists, and a consistent process of interpreting shopper insights will lead to more effective ideas to collaborate against. It’s both a scary and exciting time in our business, but moving forward with our eye on the real prize (the shopper) is essential.

Marc Dietz
Guest
Marc Dietz
13 years 5 months ago

This is a great example of the kind of collaboration that really is the generation of retailer-manufacturer relationships. Some will be slower, more reticent, concerned about data sharing, etc, but the leaders are recognizing that win-win planning based on a better understanding of the shopper in the aisle is a critical success factor for both trading partners.

Technology enables many of the capabilities today (advanced analytics, optimization software, etc) but technology must be applied…and this mock dialogue, in an indirect way, highlights places where better analtyics, common KPIs, different metrics, etc, can be applied to change and improve the “old ways of working together.”

Brian Hart
Guest
Brian Hart
13 years 5 months ago

Sam Walton has many achievements to be proud of and his recognition of the value of retailer and supplier collaboration played a significant role in Walmart’s success. The new paradigm adds the complexities (and virtues) of customer data but the objective remains the same.

As valuable as collaboration is, it is just one step towards success. The main focus for a retailer is to build its internal business intelligence capabilities (people, processes, and technology) to be a fact based, analytically driven company. The collaboration then serves as a reinforcement mechanism to assist in the change management process.

Kai Clarke
Guest
13 years 5 months ago

Collaboration is badly needed in the retail industry. However, sharing customer information is not only unlikely to happen, but is also probably illegal, unless specifically agreed to by the customers involved in advance. Just because a customer shops at a retailer, doesn’t give the retailer the right to use this information to invade a customer’s personal privacy to share this with another party, whether it be a manufacturer or anyone else. This personal privacy, and what goes on in a retail store, is one of the privacy and security concerns which is stopping full implementation of RFID. Sharing of consumer information, taken from a retailer, without pre-approval by the consumer, is certainly suspect at the very least.

Camille P. Schuster, Ph.D.
Guest
13 years 5 months ago

The conversation needs to be about the Consumer as Boss, so let’s learn as much as possible about the consumers, share it, and figure out how to give them what they want first. In many cases, lip service is given to this sentiment and it is not the central focus of the conversation, information is not shared, and joint plans are not created. If trust is so low that information is not shared and joint strategies are not pursued, it doesn’t make any difference what the topic of the conversation is about.

Mark Lilien
Guest
13 years 5 months ago

The consumer isn’t the boss. The shareholders are the boss. And they want profits. Many shoppers simply want more loss leaders. Should grocers and brand managers satisfy those folks? And if a grocer and a brand’s category manager says they’re customer-driven, does that automatically make it true?

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