Vantage Point -- Can You Market a Hole on the Shelf?
By Eric Peters, CEO, TrueDemand Software
It was recently estimated that 30 percent of shoppers from around the world wait until they are in the store to decide which brand they will buy. Nearly 20 percent of shoppers will buy from categories they had no intention of buying from before entering the store. With so much uncertainty at the shelf, it is no wonder that companies are focusing on Shopper Marketing. But can you market a hole on the shelf?
With so much focus on Shopper Marketing, we sometimes forget about the impact operations can have on the shopper. It is a supply chain that insures that your product is on the shelf, in the right place, at the right time, in the right condition for the right price at the right moment when the consumer is standing at the shelf prepared to make a decision to buy. What is needed is a Shopper Aligned Supply Chain. How do you align your local retail account teams, store merchandising operations and supply chain teams together to work as one to satisfy consumer demand at the shelf?
The first step is to identify what is going wrong in the retail store at the item location level on a daily basis. Where is there an out of stock problem? Where is there damage? Where is the forecast wrong? Where is inventory wrong? Where is the price wrong? Where is there poor plan-o-gram compliance? Where is the promotion or new product introduction failing? Where are excessive markdowns and obsolescence occurring? And most importantly, how many sales am I losing because of this? When you can understand what is misfiring and can assign root causes to the problems, you can then act to make improvement in the store. In many cases these improvements can result in a 2 percent to 4 percent increase in sales. With this understanding, it is then possible to align your operational assets to support a Shopper Aligned Supply Chain.
The first place to start is at the shelf. Most consumer goods and food manufacturers employ some sort of merchandiser in the store, be it their own merchandising team or a third-party sales and marketing agency. The traditional methods of store merchandising involves a person (rep) visiting a store to survey the shelf and looking for problems to fix. Performance is based on the frequency of visits and the number of stores covered in the retail network. Performance is paid based on the belief that sales are increasing as a result of the visits.
The first step in getting store merchandising operations aligned is to improve the quality of the tasks. Understand the impact on sales for each associated in-store task. Rather than quantity, it is important to focus on both the quality and sales impact of the tasks performed. With this understanding and realignment of focus, you will create the most efficient cost structure to get the maximum lift in sales. You will affect coverage models, number of reps, frequency of visits and tasks performed. Once you have this understanding, it will drive improvements at the shelf. For example, studies of TrueDemand customers show that directed tasks can result in 30 percent fewer tasks being performed, but with the tasks being performed resulting in a 35 percent increase in sales over traditional coverage models.
The second step is to get this information to the teams that service the retailer, your retail account teams. First and foremost, retail account teams are in place to collaboratively work with the retailer to both satisfy the shopper demand and to help the retailer drive incremental sales. Consequently, the retail account team must have visibility into historic, current and future lost sales. This serves as a common metric that defines the size of the problem and can serve as the rallying cry to mobilize both the retailer and supplier to act. If the retail team is going to make defensible recommendations to the retailer to change the forecast or change inventory levels, the team must have the data to back up their recommendations.
The retail team must also look for improvement opportunities. How can the team help with reducing store markdowns and write-offs? How can the team reduce damage? How can the team drive high levels of shelf availability while concurrently managing inventory to the tightest levels? How can the account team maximize the return on the promotion through superior execution and how can the team drive the highest possible lifts and service levels during the launch of a new product? These are some of the areas where retail account teams can make a difference. It all starts with a clear view of current and future demand and an understanding of current and future problems.
Finally, the third area is the supply chain. Ultimately, it is the supply chain that moves the product from the factory to the store. If the supply chain breaks down, the greatest shopper marketing in the world isn't going to sell a hole on the shelf. It is important that this true picture of demand at the shelf is used to align and drive the supply chain to meet shopper expectations. Demand needs to be forecast at the item location level on a daily basis, and that demand needs to drive the supply chain replenishment systems. This demand information needs to be used to create the lowest levels of inventory that can support the highest levels of performance at the shelf. VMI programs need to be queued off of this information to improve performance. This information can also be used to build order forecasts for both the manufacturing plants and distribution centers and to support smarter loading of the trucks for Direct Store Deliveries (DSD). This new information must be used to make our supply chains more responsive to shopper needs.
These are the steps required to create a shopper aligned supply chain. It is about all the pieces in your organization: store operations, retail replenishment and retail account teams and supply chain all working as one to satisfy the true demand at the shelf. If these parts work off of a common understanding of demand and a common understanding of the problems at the shelf, these parts can work to make sure you are not marketing a hole on the shelf.
Eric Peters is CEO and co-founder of TrueDemand Software, which helps consumer goods and food companies lift sales at the shelf. Peters has more than 20 years experience with the supply chain industry. Before helping start TrueDemand, Peters was Executive Vice President of Strategy and Business Development at Manhattan Associates. For more information, please contact firstname.lastname@example.org.