CPGmatters: Personalized Marketing Poised to Improve ROI for Manufacturers

Discussion
Jul 23, 2008

By Al Heller

Through a special arrangement, what follows is an excerpt of a current article
from the monthly e-zine, CPGmatters, presented here for discussion
.

CPG manufacturers are starting to work more closely with retailers on personalized loyalty programs for two reasons: one, higher returns on their customer marketing investments and two, reductions in their product markdown expenses.

This collaboration is a “significant paradigm shift,” according to Gary Hawkins, chief executive officer of Green Hills Farms store and the Hawkins Strategic consultancy, both in Syracuse, N.Y. “The development of this new world of consumer marketing will require new solutions, new tools and new business strategies.”

Mr. Hawkins regards his Green Hills store as a “valuable test laboratory in which CPG brands and retail can learn new insights into consumer behavior, and make use of the store’s ability to communicate and deliver true customer-specific promotions on a mass basis.”

In a recent presentation in San Francisco, Mr. Hawkins said CPG wastes 50 to 70 percent of the $100 billion a year it spends in trade funds, and many events ‘buy’ sales volume yet drive down profitability. Yet loyalty programs have mostly failed to improve results or even provide clear and accurate data due to numerous issues: limited data access, pay for access, no industry platform (different retailers/different systems), limited true collaboration, un-actionable data, and reliance on costly direct mail and coupons.

By contrast, the SmartShop loyalty program at Green Hills has raised spending and lowered expenses by effectively targeting top shoppers. In the fourth quarter, the top 3.7 percent of shoppers (Tier 1) produced 23.4 percent of store sales, and the next 9.5 percent of shoppers (Tier 2) accounted for 30.2 percent.

In this same period:

SmartShop participants spent 150 percent more and shopped 144 percent more frequently than non-participants;

SmartShop members spent seven percent more than a year earlier, while non-members spent just 0.1 percent more;

Storewide sales rose five percent on a 12.5 percent decline in marketing expense;

Markdown expense was slashed between 10 and 15 percent.

The CPG-retail collaboration Mr. Hawkins advocates can maximize the true lifetime value of shoppers for brands and stores.

“Within a retailer’s environment [beyond Green Hills, including large chains], a brand can know who ‘new customers’ are (first-time buyers of the brand at that retailer), who their existing customers are (segmented into groups), which customers are declining in brand-level purchasing, and who has ‘defected’ from the brand,” explained Hawkins in an interview.

He added, “In my experience, we’ve seen many CPG manufacturers want to work this way with their retail customers, but they’ve been limited by the actionability of their insights. A personalized marketing platform makes these insights actionable and very valuable for both retailers and CPG.”

Discussion Question: What do you think about the opportunities and challenges for true collaboration between CPG suppliers and retailers around loyalty programs? What do you think is holding back more collaboration around rewards programs?

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7 Comments on "CPGmatters: Personalized Marketing Poised to Improve ROI for Manufacturers"


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Lisa Bradner
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Lisa Bradner
13 years 9 months ago

Certainly this level of collaboration is needed to optimize trade spend and drive more profitable sales for retailer and manufacturer: however, the article points out several barriers that haven’t been resolved in many retailer/manufacturer environments: lack of access to data, guarded data, data manufacturers have to pay to see and one that isn’t called out, private label. As long as retailers push private label at the expense of the branded manufacturer and cherry pick SKUs, often taking the manufacturers’ most profitable ones out of the planogram, true collaboration is going to be challenging to achieve.

Kai Clarke
Guest
13 years 9 months ago
Getting vendors and retailers to openly collaborate is an ideal situation, but is a concept that is difficult, if not impossible to implement. Many retailers have their own proprietary software systems, and the data is often cross-linked to other data (especially that of payment) which would need to be separated, with approval from the payment vendor, as well. Furthermore, the greatest problem with loyalty programs is that the data is not analyzed or used…ever. Getting this in a timely manner, analyzing and then using this data (or at least agreeing on how to do this) is a monumental task for any one organization, let alone two. Finally, the largest issue which needs to be addressed is that of personal privacy. Re-examining “purchase behavior” without specific consent from the consumer is a direct invasion of personal privacy that has been challenged in the courts and continues to be a concern anytime consumer purchasing data is “reviewed.” Who has access to this data, how it is stored, how it is “mined” and shared are all at the… Read more »
David Biernbaum
Guest
13 years 9 months ago

Philosophically I don’t think there is much question that marrying retailer’s customer loyalty programs with manufacturer’s offerings is quite good for the retailer for any number of reasons.

However, from the manufacturer’s point of view there are a few other considerations:

1. What is the true cost and liability to participate in the retailer loyalty program vs. your own programs directed right to the consumer?

2. Are you expanding your marketplace beyond the consumers that shop this one retail chain?

3. Can you afford to participate in loyalty programs beyond just one or two retailers?

These are not loaded questions, above, one way or the other. However, all manufacturers and retailers should give these questions careful diligence before deciding if marketing through loyalty programs is right for both parties, and the health of the brand, as well as the retailer.

Mike Romano
Guest
Mike Romano
13 years 9 months ago

CPG companies will continue to waste dollars until they understand how to effectively create database relationships direct to consumers. The technologies exist today with mobile, voice, IVR, social networking, WOM, and other non-traditional dtc channels for them to connect in the world where their consumers live.

The challenge all CPG companies face is they live in a model of traditional thinking and exhaustive internal analytics that stifles their ability to think creatively and in a consumer-focused environment. Consumer focused is not a “new and improved” box of Tide. (Does the old Tide not work?) Consumer-focused is knowing how I live, where I live and how to connect with me today in my world–online and cell phone, and predicting my next purchase or product need based on my needs, not yours.

Mark Lilien
Guest
13 years 9 months ago

As long as mediocre brand managers focus on “awareness” and “building the brand” instead of actions that clearly stimulate profitable sales, CPG/retailer mutual cooperation will be a second class citizen, always the low priority. And why don’t grocers take the first step: stop saying “loyalty cards” and start calling them “discount cards.” Honesty goes a long way towards building a mutually respectful relationship.

Krushna Subudhi
Guest
Krushna Subudhi
13 years 9 months ago
Retailers are already collaborating with the CPG companies for merchandise management. But for marketing activities, many retailers are hesitating to take up certain initiatives – the major concern being which vendor to choose for a particular category? (Obviously the retailer can not choose all the vendors). If you are choosing vendor “A”, the relationship with vendor “B” might get affected. Moreover, because of competition, the retailers are reluctant to share the competitors’ POS data with the vendors. Hence, with limited data, it would be difficult for the vendors to derive a concrete strategy for brand promotion. Having said that, collaboration is the best way to get the maximum out of the customer, so the retailers must act tactfully to handle the vendor, such as determining which vendor to choose and under what terms and conditions. The retailer as well has to check its own strategy to fit its private labels on the shelves, and to ensure the off tack happens regularly. At the end of the day it is a major boon for the customers… Read more »
Janet Dorenkott
Guest
Janet Dorenkott
13 years 8 months ago
My company has been a missionary in this area for years. We have been preaching the value of collaboration and sharing data. This is not a new concept. There are a few forward thinking companies that have been doing this for years. Many companies that have been trying to do this but don’t quite understand the required architecture. Integrating POS/scan and syndicated data with the manufacturers internal data as well as loyalty data provides significant value. We also integrate promotional data and co-op data to determine the effectiveness of promotions. This is something companies in all industries have done for a long time. The CPG manufacturing industry has lagged behind. That is partially due to the retailers’ lack of understanding with regards to the value of sharing their data. That is changing quickly as more and more companies are understanding the value of leveraging POS with internal, syndicated, promotion, supply chain, inventory, shipment and other data. POSmart has been around since 2000 and every year more and more companies understand the value. The key is… Read more »
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