Mutual Benefits

1/1/2011

Why settle for efficient product assortments when you can be strategically effective as well?

The irony of modern life is that the more things advance, the busier we get. The same holds true for category management: Despite advances in data, shopper insights, training, tools and computers, tactics like assortment optimization keep getting more difficult.

As our industry has evolved from category management to shopper marketing, everything has changed — from the way we conduct research, how we go to market and how we optimize assortments, to the way retailers and manufacturers collaborate. With so much new information and change, you'd think that we'd be much further along. So what stands in the way of progress? This article explores the barriers to successful shopper marketing using assortment optimization as a prime example, and how retailers and manufacturers can work together to make their categories more efficient and effective than ever.

Ask yourselves: “Are we encouraging timely participation or inadvertently rewarding last-minute behavior?”

The Seven Virtues

Many product assortments fall short of their full potential despite collaboration between retailers and manufacturers. These seven principles illustrate a best practice approach to maximize your results.

1. Be Objective: Retailers are quick to notice when their vendors don't approach assortment optimization in an objective manner. Self-centered recommendations compromise trust and are ultimately counterproductive. All projects should begin with setting expectations, including a pledge to take an objective, category perspective — a founding principle of category management. We also recommend going over certain ground rules and assumptions in advance. For instance, should store brands be evaluated under the same criteria, protected or with different criteria? And if so, what rules apply? Building productive assortment partnerships is a process that improves with every planning cycle, earning trust with each recommendation, one SKU at a time.

2. Be Timely: The benefits of an efficient and effective assortment process are compromised by last-minute changes and new products that don't go through the same rigorous analysis. Of course, you want to be responsive and nimble. You have to balance this, however, with the benefits of outlining a strategic process and sticking to it. Ask yourselves: “Are we encouraging timely participation or inadvertently rewarding last-minute behavior?”

• Does your process employ ‘carrots and sticks’ for compliance and noncompliance? Incentives go a long way toward modeling desired behavior and disincentivizing gamesmanship intended to circumvent your process.

• Are you using assortments as a negotiating tool? That's your prerogative, but even in these cases, the negotiation should take place early enough to rigorously assess proposed changes to ensure a stronger and more strategic assortment.

• Is your process taking too long? Are there opportunities for a better process, data, tools and support to drive faster implementation? New products come at all times, and the faster you move from decision to implementation, the fewer adjustments need to be made outside the process.

3. Be Partners: As our industry has developed from a seller-buyer relationship to a category management relationship to a shopper marketing relationship, retailers and manufacturers have become more dependent on one other for their mutual success than ever. Manufacturers that are ready, willing and able to provide actionable shopper insights, strategy and tactical support should be encouraged to answer these questions: Where do our mutual goals provide common ground for partnership? What can each partner provide that leverages each partner's unique insights and capabilities? What issues do we tackle first? What third-party partners do we bring in to help provide insights, innovation and implementation? How do we define win-win success? Can we commit to work together long enough to see the fruits of our collaboration?

Finding the right partners and process that leverage both art and science will provide you with a balanced approach and outstanding results.

4. Be Resourceful: Leverage — don't be a prisoner of your tools. Ensure that your process and partners look for and encourage new ways to use your data and new shopper insights in a more strategic and actionable manner. Nobody likes to limit their strategic vision to fit the limitations of your tools, data or process. When we let this happen, we don't take full advantage of the rich and varied insights available to us.

5. Both Art and Science: Assortment optimization shouldn't be a battle between radical technocrats slavishly obedient to their models vs. autocrats who believe their golden gut is infallible and can't be guided by analysis. In our experience, assortment optimization works best when it facilitates both art and science. Your process should embrace the use of new data, new strategies, and the important role that experience and judgment play when making decisions both strategically and on the margins of assortment. It should also make full use of best-in-class advanced analytics so you can be confident in your results. Finding the right partners and process that leverage both art and science will provide you with a balanced approach and outstanding results.

6. Be Strategic: Being open to new insights, analysis and points of view isn't a matter of taking everybody's advice and finding the middle ground. That often leads to the lowest common denominator. Retailers should work with their partners to aim before they shoot. They should invest as much effort in collaborating on their financial and strategic objectives as on the insights and analysis themselves. What retailers are you competing with most? Who are your most highly prized shoppers? How can you attract them to your stores vs. those of your competitors? How can your assortment help you win?

Retail execution and planogram adherence is an important and often overlooked key success factor in the assortment process.

You'll benefit most with partners and a process that answer these questions and turn these shopper insights into action. This is where thought leadership and strategic retailer/manufacturer partnerships add value. Edgewood Consulting calls this effective product assortment, because this best practice approach not only maximizes sales and profits (efficiency), but also improves your strategic effectiveness by building retailer banner equity and shopper satisfaction in ways that provide a lasting competitive advantage.

7. Follow Through: Strategy without implementation is just another paperweight. We've seen a broad range of implementation capability among retailers. In one category, best practice retailers were more than 13 weeks faster at achieving full retail distribution on new products than slower competitors were. That's a full fiscal quarter! We also found that this varies not just from retailer to retailer, but from store to store and category to category.

Retail execution and planogram adherence is an important and often overlooked key success factor in the assortment process that should be included in your strategic process and performance metrics. Do you have the process, tools and support you need at retail? How can both partners help? Do you know how you stack up vs. your retail competitors? Where your bottlenecks are? Do you measure planogram adherence? How? How often? Do you have metrics and incentives in place to encourage progress? These are just some of the questions that that need to be addressed in your retailer-manufacturer partnership engagements.

Opportunity Knocks

These seven virtues will help you approach your assortments and all of your shopper marketing opportunities in ways that encourage both efficient and effective results — results that will pleasantly surprise you.

Israel J. Rodriguez Jr. is principal at Edgewood Consulting Group, which has offices in Parisppany, N.J., and Cypress, Calif. Contact the company at [email protected] or 973-644-9788.