Making Choices

Placing fewer, bigger bets in selecting strategic partners.

In high-growth markets such as Brazil, Russia, India and China, scale has been a key driver of partnerships, turning even mediocre ideas into new revenue streams.

In the post-recession United States, however, slow growth requires a greater emphasis on finding partners that can consistently deliver compelling insights and actionable ideas. In this landscape, companies consistently cite actionable customer centricity as a core driver for choosing a partner.

"We used to meet with many suppliers twice a year at a top-to-top level to discuss joint planning and development," says the VP of merchandising for one major retailer. "Although we still have relationships with lots of suppliers, we now work very strategically with a handful of partners. The leaders are bringing us actionable customer insights that can help differentiate us."

The 2012 Kantar Retail PoweRanking study highlights five core factors of actionable customer centricity.

Although the concept has been around for some time, this year it seems to have more teeth, and a higher bar to live up to in practice.

Intellectual Property as Differentiator

Winners in this uncertain market focus on consumers and have a deep understanding of them — in home, in store and online — with knowledge of need states, lifestyles, market basket, loyalty and decision points. These companies combine deep usage and purchase insights and translate them into category growth. Shopper needs drive customized product development and assortments, as well as more flexible retailer programs. In other words, ideas and communication must resonate with the shopper so well that the shopper says, "This is designed for me." Collaborating on these solutions will be crucial.

At the same time that many CPGs look to extend distribution into new channels, retailers are seeking ways to differentiate themselves to their shoppers, beyond price. It will be key to find partners that see real mutual benefit in the co-creation of programs, products or services that will resonate with shoppers and offer a genuine and valuable point of difference.

Retailers and suppliers alike will select partners that can bring real insights on shoppers' barriers as well as the triggers that lead to increased sales, through more targeted merchandising and better communication. In the words of one SVP of foods and nonfoods for a major retailer, "We want to harness the resources of our trading partners and turn them into meaningful points of difference."

Companies that invest in consumer and shopper studies, granular purchase behavior data and tools, and analytic resources will position themselves to be selected as strategic trading partners. Partners that demonstrate the ability to move from merely identifying opportunities to providing clear actions that better meet shopper needs or stimulate a purchase will win out.

Consistent Leadership and Communication

Trading partners put a premium on companies that articulate a well-defined, consistent strategy; are cognizant of the trading partner's strategy; and work to align strategies in the interest of the shopper and shared business goals. While a willingness to collaborate is imperative, it needs to be underpinned by a strong point of view on where and how to drive growth.

Once grounded in joint ideas, the best customer teams are in constant, proactive communication on a multilevel and multifunctional basis, and are willing to listen to their partners. "Unless our teams understand at a deeper level what success looks like for our customers," says the SVP of sales for a CPG manufacturer, "we cannot expect to be treated like a valued partner."

Companies should become knowledgeable about trading partners' strategies, identify where partner strategies align, and communicate on an ongoing basis at multiple levels and functions, demonstrating how the partner strategies will mutually benefit the retailer, manufacturer and consumer. They should be willing to listen and share, but always have a point of view to bring to the table.

Joint Planning and Development

As the retail world and consumer data have become more complex, trading partners have become more selective about which companies they will plan with on a semi-annual and annual basis, especially at a top-to-top level. There are generally a select few with which they will devote resources and share strategies and data on a real partner basis.

Market leaders select partners with the talent, resources and willingness to translate smart new ideas into results and efforts toward long-term growth. As is the case across the retail landscape today, scale doesn't necessarily win out in these scenarios; in fact, the compression of ideas and action favors the most agile companies. The differentiator in this market will be the ability and willingness to collaborate with partners from the very beginning to the end of the process, from joint testing at innovation labs to streamlining supply chains.

Companies should choose trading partners that are capable and eager to invest in talent as well as in analytical resources. They should plan jointly from a foundation of shared insights around the mutual consumer. Further, companies should involve and connect expert to expert for plans related to pricing, merchandising, marketing and the supply chain.

Consistent Delivery of Promises

Market leaders deliver on the fundamentals. If the products aren't delivered, stores aren't set properly or programs aren't executed, few "ideas" trump the sales lost to poor execution on existing demand.

The message may not be a new one, but the depth of feeling with which it's being delivered is unparalleled. "If suppliers cut back on finished goods inventories and don't ship the product we order, we have to bring in more inventory on other products to fill the trucks, and that puts our supply and demand out of whack," says another major retailer's SVP of merchandising. "It not only gets in the way of business, it costs us business we jointly can't get back."

Companies should assure that new product launches and programs are planned well in advance (12 to 24 months), orders are accurate, and deliveries are complete and on time. Measuring program performance will demonstrate success and facilitate future sell-in.

Tackling Uncertainty in a Multichannel World

Perhaps no other force is creating as much of a seismic shift in retailers' and their supplier partners' business models as is the digital shopper.

The growth in mobile and a new generation growing up in a multichannel world is a very different movement from the "space race" of just five years ago. As Philip Clarke, CEO of U.K. grocer Tesco, said in a recent speech to the World Retail Congress, "We've called time on the old retail 'space race.' Retail will no longer be about buying large swaths of real estate, but how we react to the needs of the digital shopper."

With the convergence of physical retail formats, digital services and e-commerce channels, retailers are currently confronted with the need to correctly deliver a fully integrated shopper experience from start to finish. By 2020, this should be a reality, with shoppers experiencing retailers as a single brand consistently across all points of contact, both in the virtual and real worlds. Retailers will strive to find a means of bringing the one-to-one relationship of the Internet to the mass-oriented store setting.

At the same time, some online retailers are striving to strengthen their competitive advantage by making their shopping experiences even more personalized and convenient. Just one — but potentially hugely impactful — example is Amazon's rollout of its "click and collect" delivery system, which in a way represents the online behemoth establishing a brick-and-mortar connection to shoppers.

The retailer has set up "Amazon Lockers" in an array of convenient physical retail locations — starting with 7-Elevens and, most recently, Staples stores — where shoppers can have their online orders (the "click") shipped for easier pickup (the "collect"). The locker solution helps shoppers get around shipping or time restrictions that might otherwise derail their ability to buy online. Each step Amazon takes to make acquisition easier for shoppers will tilt the playing field ever more away from the online retailer's offline as well as online competitors.

The push to be truly multichannel weighs heavily on the minds of leaders across the industry, along with such other digitally driven challenges as leveraging Big Data and delivering custom solutions in business models that were originally built to cater to the needs of many. Trading partners that have a point of view and are willing to go down "trial and error" paths in good faith — without necessarily clear and obvious benefits, or short-term payback — are at a premium. These shifting sands provide a great opportunity for those companies seeking to add value and differentiate beyond product and price.

Identifying the challenges facing the industry isn't the problem; finding the right solutions to tackle the problems is the issue. Market leaders will leverage Big Data and provide a point of view on meeting the needs of the digital shopper. Deciding as a business where to focus, where to lead and where to contribute is important, not only in addressing the uncertainty surrounding retail and consumers, but also in keeping a voice as a strategic partner of the future.

This article is excerpted and adapted from the 2012 Kantar Retail PoweRanking study (www.kantarretail.com). Launched in 1997, the study identifies retailers and manufacturers who set the standard of performance as ranked by their trading partners.

Customized questionnaires were developed for retailer and wholesaler respondents in food, drug, mass-merchandiser, dollar, convenience and club channels, and manufacturers in food, household products, general merchandise, and health and beauty care.

Jonathan Phillips is CEO and Ginny Valkenburgh is SVP for North America consulting at Wilton, Conn.-based Kantar Retail.

Although the concept has been around for some time, this year it seems to have more teeth, and a higher bar to live up to in practice.

Retailers and suppliers alike will select partners that can bring real insights on shoppers' barriers as well as the triggers that lead to increased sales, through more targeted merchandising and better communication.