the promotion optimization journey: collaboration …...case study: bahlsen group achieves tpo...

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Dale Hagemeyer Managing VP Industries Research Manufacturing March 15, 2011

The Promotion Optimization Journey: Collaboration Required

© 2009 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. <docname>_<date>_<author>

Underlying Premises

•  Becoming “predictive” is critical to becoming relevant with retailers.

•  Collaboration is more than a slogan.

•  Loyalty programs are largely a sham.

•  There is a fantastic opportunity called “1 to 1” or “Me” marketing for those who can get it right.

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Underlying Premises





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“Bring Me Some Actionable Insights”

1980s

1996s

2002

2008

2011?

Proxy: Order to Cash

Proxy: Online Analytical Processing

Proxy: Regression and System Dynamics

Proxy: Insight-Guiding Action

Proxy: 3 x 5-Inch Cards

"If everything seems under control, you're just not going

fast enough." — Mario Andretti

Chaos

Transactional

Analytical

Predictive

Influence Outcome

Real Retailer Relevancy Threshold


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Scenario and Obstacle: More Effective Promotions

Background •  Trade Spend from 12% in 1995 to over 20% •  Cannondale Study and others point to promotion issues •  Most promotions lack analytical foundation Scenario •  Step one: data integration to facilitate post promo

evaluation •  Step two: advanced analytical tools to be more predictive •  Step three: “optimization” shifts focus to outcomes as

opposed to amount spent. •  Outcome: Retailers inclined to partner as opposed to ask

for more money


Advanced Analytics: Different Question, Different Tools

Advanced Analytics • Predictive Modeling

• Optimization

• Scenarios

Analytics • Dashboards

• Multidimensional Analyses

• Ad Hoc Query and Reporting

Tools: ! Regression

! System Dynamics

! Linear Programming

Then look to the future.

First understand the past.

Tools: ! Online

Analytical Processing

! CRM Suite

! Data Mining


Background on Predictive Modeling

Example of movie 21

"  Doesn’t mean you win every time

"  Models must be tweaked over time

"  Different models for different customer facing situations

"  It’s all about improving outcomes

"  It’s not as fun and sexy as the movie but it’s worth a lot more cash than $81.2M USD!


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Case Study: Bahlsen Group Achieves TPO Background •  German sweet biscuit company. 33% market share. 2007 revenue of 479 M Euros •  Experiencing volume planning/forecasting issues •  Inability to predict best promotions Approach •  Test optimization capabilities with two key retailers •  Initially control within category management department, then expand to field users •  Embed optimization in TPM solutions Outcomes •  High user acceptance •  Saved €1.1 million annually on out-of-stocks •  Cost avoidance on seasonal packaging •  Save 200 workdays in the customer promotion planning process •  Improved customer relationships.

-  Edeka making its POS data available -  Priority customer with Rewe

•  Significant competitive advantage from “insights” •  An astonished CEO, due to tangible financial benefits.


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Key Assumption •  Promotions will remain static but increase in cost •  Optimization required to “change the game”

•  Then and only then can both parties truly engage the consumer!


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Alternative Scenario

•  Wal-Mart is asking (read “ pressuring”) manufacturers to hand over half of their trade budget for in-store video blather program

•  “We got nothing for it. It is a sham.” - Soft Drink Company Executive

•  Trade spend goes to 30% by 2025

•  How relevant are you really to Wal-Mart?

Trade Spend


Underlying Premises





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Perspective on Collaboration

•  Most collaboration is more aspiration than execution

•  Most supplier/retailer relationships are more about “getting the upper hand” than about being mutually beneficial

•  Collaboration will at best be strained and episodic unless supported by culture, personnel and enabling technology


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Collaborative Promotion Capability Matrix R

Culture People Technology

1 Looks at Promotion and associated costs, as a “cost of doing business” or as a “pricing/placement lever”.

Are focused on buyer/seller relationship, and strictly transactional. Maintaining Status-Quo (distribution, budget, and assortment) is paramount.

Focused on Control and Accountability of Funds, or dollars that may fall to the bottom line. Using Spreadsheets to track/manage Funds/payments.

2 Is beginning to look at performance on a post event brand specific basis (spend/ incremental volume). Traditional roles still exist –Merchandising, Marketing, Sales, Advertising, Finance, Operations

Internal Sales and Marketing are discussing brand plans, communicating internally and starting to refine budgets based on aggregated sales. Beginning to use syndicated data with some post event analysis.

Internal systems largely focused on managing/ reducing deductions balance, and dollars spent per promotion. Investing in systems to gain accountability, managing spend to budget.

3 Understand change management and internal team approach is necessary to achieve performance goals.

Investing in cross-functional training (business and financial acumen). Beginning to understand cause and effect of poor communications. A team orientation is taking hold, yet metrics have not been fully agreed upon.

Systems (with the proper data input) are providing post event information on an event, a SKU, a brand. Inventory management is across disparate systems.

4 Have changed their approach from hindsight to foresight. Beginning to sense and shape demand, & are aware of the effect of promotions on their supply chain.

Can plan/execute promotions with moderate success. Are focused on a broader team approach (integrating supply chain initiatives) are measuring and analyzing performance through a metrics based approach.

Internal systems are integrated; communications are facilitated between sales, marketing, operations and finance. Improved reporting, yet largely transactional.

5 Beginning to understand that promotion collaboration can help improve sales, reduce costs, reduce OOS, improve margin, and identified base price and promoted price - volume and profits.

Team members are trained, understand their specialized and cross-functional roles and responsibilities. Team goals are aligned and connected from the field to the executive offices.

Able to integrate and interpret multiple data points, order, ship, POS, loyalty, and some category effects.

6 Has committed their organization to consistently contribute to the mutual profitability of the relationship and shared success in serving their shopper/consumer

Have met on strategy, are flexible, and are beginning to share data, insights and achieving some wins across identified mutual KPI’s. Have created trading partner teams, (e.g. Planning, Cat Man, Sales, Shopper, Research)

Have largely worked out systems, communications, data quality, and process for sharing data, and information. Data is approaching real-time, and down to the store level.

7 Best case scenario thinking, sharing culture attributes, and KPI’s. Partners understand price/promotion and it’s affect on the basket (volume/profitability) by store. Partners are willing to invest in blended learning and continuous improvement.

People can plan and implement to support a shared promotional strategy. Research – planning, Deal, retail execution, and analysis, and understand cause and effect promotions on sales and profitability. Training and incentives are aligned – customers and insights are driving success in each role.

Scientific approach to customer/shopper definition and acquisition. Integrating price, promotion, and supply chain. Partners understand market mix modeling. Able to share “what if” scenarios, incorporate new media, and can execute on a shared strategy - targeted and timely promotions.


Definition of Collaboration in Trade Promotion

Jointly planning and executing promotional activities that are mutually beneficial because:

•  Information sharing beforehand has allowed both parties to better understand how success can best be achieved

•  Ability to monitor and react during the promotion is high

•  It is seen as a cycle for continuous improvement

•  Both parties have the culture, people and technology to make it happen


Role of Culture, People & Technology

Culture

Technology

People

Culture

•  Foundation of behaviors

•  Includes metrics and shared goals

•  “Standing for something and knowing what we stand for across the entire organization”

People

•  Foundation of execution

•  Includes training and support

•  “The right people in the right quantities working together”

Technology

•  Not foundational because of reliance on culture in order to have a purpose and people in order to get executed.

•  Reinforces culture and people dimensions by facilitating metrics and communication, improving training, and institutionalizing behaviors

•  “Automating and institutionalizing cultures, processes and behaviors”

Manufacturer / Retailer

Collaborative Environment


Prioritization and Definition of Capabilities

1.   Culture #”take unfair advantage wherever possible--------”be fair and focus on relationship” $

a.  Relationships cut across the entire enterprise (merchandising, supply chain, finance, etc) b.  Strategy is focused on long-term, shared objectives c.  Not predisposed to throw weight around d.  Appropriate incentives to support desired behaviors e.  KPIs are shared and focused on mutual wins f.  Willingness to share best practices and to continuously improve g.  Collaborative culture extends to multiple partners, not just select few

2. People #”bare bones and traditional--------”analytical, team-centric and progressive” $

a.  Sufficient personnel to be more than just transactional b.  Team orientation c.  Appropriate levels of training in the relevant aspects of the business d.  Able to adapt to marcoeconomic or other variables e.  Able to trust and to be trusted f.  Rewards are perceived as real and appropriate g.  Have an understanding of their partners’ business models

3.   Technology #”same old same old---------------------------’invest, automate and experiment’ $

a.  Ability to share data b.  Have invested in collaborative platforms c.  Optimization and predictive capabilities to focus on outcomes d.  Traditional ECR capabilities to handle day-to-day burden e.  Analytical capabilities on par with partners f.  Able to continuously reduce latency g.  Data is available at and enterprise level and at all levels of aggregation (geography, line of business, etc.)


Promotional Collaboration Capability Matrix

Culture

Personnel . Capability Matrix

Technology

Business As Usual

Manual but collaborative

Pockets of illicit collaboration

Best of Intentions

Frantic collaboration

Optimization & collaboration

Tech Heavy

The frustrated but enlightened


Collaborative Promotion Capability Assessment

R

Culture People Technology

1 Looks at Promotion and associated costs, as a “cost of doing business” or as a “pricing/placement lever”.

Are focused on buyer/seller relationship, and strictly transactional. Maintaining Status-Quo (distribution, budget, and assortment) is paramount.

Focused on Control and Accountability of Funds, or dollars that may fall to the bottom line. Using Spreadsheets to track/manage Funds/payments.

2 Is beginning to look at performance on a post event brand specific basis (spend/ incremental volume). Traditional roles still exist –Merchandising, Marketing, Sales, Advertising, Finance, Operations

Internal Sales and Marketing are discussing brand plans, communicating internally and starting to refine budgets based on aggregated sales. Beginning to use syndicated data with some post event analysis.

Internal systems largely focused on managing/ reducing deductions balance, and dollars spent per promotion. Investing in systems to gain accountability, managing spend to budget.

3 Understand change management and internal team approach is necessary to achieve performance goals.

Investing in cross-functional training (business and financial acumen). Beginning to understand cause and effect of poor communications. A team orientation is taking hold, yet metrics have not been fully agreed upon.

Systems (with the proper data input) are providing post event information on an event, a SKU, a brand. Inventory management is across disparate systems.

4 Have changed their approach from hindsight to foresight. Beginning to sense and shape demand, & are aware of the effect of promotions on their supply chain.

Can plan/execute promotions with moderate success. Are focused on a broader team approach (integrating supply chain initiatives) are measuring and analyzing performance through a metrics based approach.

Internal systems are integrated; communications are facilitated between sales, marketing, operations and finance. Improved reporting, yet largely transactional.

5 Beginning to understand that promotion collaboration can help improve sales, reduce costs, reduce OOS, improve margin, and identified base price and promoted price - volume and profits.

Team members are trained, understand their specialized and cross-functional roles and responsibilities. Team goals are aligned and connected from the field to the executive offices.

Able to integrate and interpret multiple data points, order, ship, POS, loyalty, and some category effects.

6 Has committed their organization to consistently contribute to the mutual profitability of the relationship and shared success in serving their shopper/consumer

Have met on strategy, are flexible, and are beginning to share data, insights and achieving some wins across identified mutual KPI’s. Have created trading partner teams, (e.g. Planning, Cat Man, Sales, Shopper, Research)

Have largely worked out systems, communications, data quality, and process for sharing data, and information. Data is approaching real-time, and down to the store level.

7 Best case scenario thinking, sharing culture attributes, and KPI’s. Partners understand price/promotion and it’s affect on the basket (volume/profitability) by store. Partners are willing to invest in blended learning and continuous improvement.

People can plan and implement to support a shared promotional strategy. Research – planning, Deal, retail execution, and analysis, and understand cause and effect promotions on sales and profitability. Training and incentives are aligned – customers and insights are driving success in each role.

Scientific approach to customer/shopper definition and acquisition. Integrating price, promotion, and supply chain. Partners understand market mix modeling. Able to share “what if” scenarios, incorporate new media, and can execute on a shared strategy - targeted and timely promotions.


Methodology •  Users of the assessment can rate their own

organizations, their partners, or both

•  Self assessment tool is a simple spreadsheet, which goes more deeply into the culture, people and technology aspects in order to compare the fit between a manufacturer and retailer

•  The tool then generates a spider diagram in order to see the gaps that should be addressed in order for the two parties to be better positioned to collaborate

•  The spider diagram has additional granularity dimensions


Comparative Capabilities Chart

0 .01.02 .03 .04 .05.0Structure

Strategy

Metrics

OrganizationCharacteristicSupport

Architecture

Capability

Functionality

Retailer

Supplier

C

CC

P PP

TT

T


Underlying Premises





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Loyalty Programs Are Indeed a Sham!

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Why do manufacturers even participate?

Minor data required

No data required

Bogus passport number

•  All “give” and no “get”

•  No transactional memory

•  No linkage

•  Cashiers give ‘em away

•  Tourists anybody?


Tesco – Is this the basis for intimacy?

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Underlying Premises





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Scenario: Full Transparency, Right Now: Consumers Have Access to Everything


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Scenario: 1 to 1 Marketing at the Store Level •  “Smart store” detects a member shopper on site

and can interact •  Real time •  Think of it as “carded shopper” or Spectra on

steroids Scenarios •  Offer based on lifetime value (female age 21) •  Offer to Pepsi loyalist? Constant switcher? Coke

loyalist? •  How to execute to create a win for both

manufacturer and retailer?


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Scenario: Interactive Products Scenario •  Chip in the shelf or display reveals information

on: -  Allergens -  Animal testing -  Compatibility -  Country of origin -  Recipe -  Green product or not? -  Receive recommendations -  Quick link to product rating -  Preference-based information

the promotion optimization journey: collaboration …...case study: bahlsen group achieves tpo...

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