Just because regional supermarket chains are fast becoming national chains, or because Wal-Mart now sells more groceries than anyone, don't think that these retailers are resting on their laurels. Forget conquering Latin America and Europe; what really keeps retailers awake at night is the need to get more out of the customers they have.
With today's consumer markets in a fragmented mess of new store formats and new products, it has never been more difficult to connect with customers and understand what they want, let alone build relationships with them that deliver long-term profitability. At least as co-marketers, retailers and manufacturers share a common goal: understanding consumers better and identifying which products will make them loyal retail customers and loyal brand users. It's much more profitable, they agree, to retain existing customers than to attract new ones.
With the goal of customer retention in mind, consumer packaged goods (CPG) software suppliers are applying more front-end effort to communicate better and improve business processes with retail customers, and to understand consumer demand better. Whether it's flashy presentation tools to share with headquarters buyers, ordering terminals where the products are sold, or an integrated application for planning or promotion, CPG manufacturers are internally and externally integrating the business enterprise to tie in partners, retailers and ultimately end-users. This integration, they hope, will enhance communication throughout the newly extended enterprise, resulting in greater customer retention.
"Integration has become one of the most important mandates in the consumer goods industry in the late 1990s, and will be even more critical as the digital economy unfolds in the new millennium," notes Ernst & Young's national practice leader of retail and consumer products consulting services, Tom Reynolds, in a recent Ernst & Young report. "And that extends to both internal integration--among departments, divisions and facilities--and external integration--with customers, suppliers and consumers."
Forging Consumer Relationships
While consumer goods companies have created powerful consumer-brand relationships through advertising and other marketing activities, only recently have they created the targeted, personalized communication with consumers that marks CRM. There are numerous reasons for this, the most important being that there hasn't been a good set of tools or an effective methodology for integrating the data with all customer touch points and every related department.
The CPG industry actually has long been at work to reengineer itself to be customer- and consumer-focused. Such reengineering is part of an industry-wide initiative started over a decade ago called Efficient Consumer Response (ECR), a customer-centric view of the demand chain that calls for manufacturers, wholesalers and retailers to smooth out inefficiencies between them in logistics, procurement, promotions and new item introductions.
Unfortunately, many CRM technologies did not adequately support ECR initiatives. But now, with CRM tools becoming more sophisticated and flexible, the CPG industry stands to reap considerable benefits from them.
"The world has evolved from mass marketing to database marketing to relationship marketing," says Sandra Grace, senior vice president of CRM consulting at Targetbase, in Irving, Texas. "But from relationship marketing to CRM is not really an evolution. It's a jump up from marketing that moves into the enterprise."
Yet while CPG manufacturers may be bullish on relationship technologies, a full embrace of CRM will not happen overnight, she says. "A fairly sophisticated level of CRM affects almost every department in the company, and it takes a lot of time."
CRM for CPG means pulling together information from seemingly countless sources: consumer comments, demographic data, consumer profiles from loyalty data, POS data, syndicated data, warehouse withdrawals and online input. It means using the information in countless ways: new product development, developing effective promotion, manufacturing planning as well as other operational and strategic functions.
Sound like a tall order? It is, say industry experts. Bill Cole, account manager at Targetbase, questions the industry's ability to accomplish this task and effectively leverage CRM with its current structures and performance measures. "Across CPG companies as a whole, I am not necessarily seeing brands swallowing the whole pill of CRM," he says.
According to Cole, CRM's future in the CPG industry is further clouded by the fact that it's hard to quantify the ROI on building knowledge of the consumer. Unlike service industries, CPG cannot economically configure essentially mass-market products to markets of one. "It's not like it's a service industry; CRM for CPG is more challenging since products cannot economically be configured to each consumer's taste, or even consumer segments," he says.
B2B Integration: Agreeing to Agree
While there are obstacles to the successful utilization of CRM in the CPG industry, there are certain tools and key communications standards that should help overcome them. For a long time, Electronic Data Interchange (EDI), which refers to a set of standardized transactions usually transmitted via private, value-added networks (VANs), has been the primary mode of data exchange and transactional activity between product makers, wholesalers and retailers.
EDI is a mature system used mostly by the CPG industry and retail customers to exchange purchase orders, invoices and advance ship notices for deliveries. Still, according to the Ernst & Young survey, only 52 percent of packaged goods manufacturers use EDI, and those for just over half of their transactions. Over two thirds of manufacturers handle less than 30 percent of transactions by EDI.
Part of the problem has been the proprietary nature of EDI networks. Prohibitive cost also plays a role. The VANs that offer secure electronic data interchange literally get manufacturers and retailers coming and going. Both receiver and sender pay fees, and a large supermarket chain using the system might easily run up a six-figure monthly tab. Smaller trading partners, on the other hand, have trouble anteing up at all.
If the industry is to make significant progress with B2B relationships--CRM in particular--it will be on the Internet, not through VANs. Using the Web, it's now possible to carry out a great number and variety of business transactions at roughly 20 percent of the private network cost. "While EDI can drive efficiencies in the supply chain and, as such, should be exploited, the true enabler to collaboration is the Web," says Chris Gopal, Ernst & Young's leader of supply chain consulting services. "Particularly with the introduction of Web-based demand: supply planning, collaboration, tracking and locator systems and replenishment applications."
The applications to which Gopal refers will enable the CPG industry to leverage customer information as never before. Using Web-based CRM tools, companies will enhance their business processes in such areas as category management, direct store delivery sales management, online marketing and promotions management.
Playing a major supporting role in the emergence of Web-based, CRM-centric business processes is UCCnet, a universal foundation for industry standards-based electronic commerce. UCCnet synchronizes product information and provides standards for B2B commerce. These standards are well beyond those used in current transactions. That means it will be possible to communicate in real time with XML to coordinate promotions, check stock status, do item transition/assortment changes for creating demand forecasts and a variety of other transactions never before standardized. Many application vendors are also embracing XML and UCCnet standards for exchanging data with other systems or exchanges.
That doesn't mean all has been lost from EDI. There are adapters that link traditional EDI formats to XML from new breed companies like IPNet Solutions, in Newport Beach, Calif., and webMethods, in Fairfax, Va.
While CPG companies expect the Internet to change their channel relationships, few of them are eager to go consumer direct. For CPG, the pain experienced by start-up online grocery delivery services like Peapod and Webvan/HomeGrocer has given the industry pause. Despite the variety of business plans and catchy jingles, consumers have not come running to these companies, and without some critical mass, it's impossible to build delivery routes that are dense enough to be profitable.
While nearly a quarter of respondents to the Ernst & Young survey said they are selling or will sell directly to consumers within the coming year, most of these respondents are producers of apparel, sporting goods, accessories and other specialty products--not groceries. Most food and beverage packaged goods companies said they had no plans to do so.
So for the time being, consumer-focused strategies for the Internet are more for sharing product information and advertising and for building brand and corporate image. The Internet is a dream come true for marketers. Its ability to deliver targeted brand messages, interactive experiences and lifestyle appeals will surely come to dominate the brand-consumer relationship.
Watch CPG manufacturers' trend-setting ways get even slicker online as consumer understanding converges and brand marketers synthesize the many bits of information available to them about consumers. They'll certainly use it to capitalize on brands like never before.
The category management mantra has echoed around the halls of CPG manufacturers and retailers for about a decade.
Category management is a process that seeks to codify the understanding of how consumers shop. Category by category, manufacturers and retailers join forces to define roles for categories such as cereal or paper tissue and then measure the performance of products within those categories in terms of how they contribute to a consumer-oriented product mix. They also look at unit and dollar sales movement, shelf-space allocation, promotion effectiveness, inventory issues, pricing, demographics and true profitability in order to create the optimal assortment to be carried by a particular retailer.
Category management is an area where CPG companies are using interactive CRM tools to collaborate with retail chain customers to analyze and understand how consumers shop categories. They hope to build profitable product assortments around that understanding.
Retail partners crave the data a manufacturer can share with them since a manufacturer collects data on its sales from all of the stores within a given region and from demographically similar places across the nation. Along with syndicated data sources, manufacturers also have hoards of consumer information collected through years of marketing efforts.
Suppliers need to turn that data into consumer understanding to win over retailers and sell products. "When you can bring the consumer understanding, that's really adding value--understanding who the consumer is and how the consumer shops," says Zel Bianco, president and CEO of New York City-based Interactive Edge, which offers software that identifies opportunities by market and account. It also uses consumer information and merchandising support information to communicate the likely profitability of items to retail buyers.
Tools for communicating that understanding of customer shopping habits, however, are also important. Category management presentation technologies not only bring the information one step closer by making it visual and easier to understand, they also help create a more integrated picture of the product. "Whenever a sales force is presenting a new product or promotion to a customer, winning more shelf space for a product category and for selected products within the category is of prime importance," Bianco says.
"From a retailer point of view, it's kind of nice to understand what's happening in the category over all, but I think what's more interesting to them is what's happening in my particular market and what's happening in my chain vis-à-vis competitors in the market," Bianco explains. "Our clients have the ability to drill down, do cross-category analysis and tailor that story specifically to understand and show how important a category is to the retailer."
DSD Sales Management
Many products, especially those that are high volume and have high turn rates (Pepsi, bottled water and potato chips) are delivered directly from the manufacturer's factory or distribution center to supermarkets, drug stores and convenience stores by vendor representatives via direct store delivery (DSD).
At the store, DSD personnel primarily unload products and take recurring orders. But as a result of ongoing efforts to provide more value to retail customers, these front-line people are increasingly assigned a growing list of responsibilities. These tasks often include inventory, order taking, category management, shelf space management, trade promotions, merchandising and product placement.
This new job description means DSD personnel need tools that will help them work more efficiently, order more accurately and possibly pick up incremental sales. These tools must also give them the ability to communicate store conditions promptly. That way, if there are chronic problems at a store--like end-cap displays or other point-of-sale materials that never made it out of their boxes and onto the sales floor--a store rep can electronically report the problem to headquarters.
Reporting technologies can make or break a new product introduction by giving the vendor time to exact better performance from its channel partner. "I really have sympathy for the manufacturers," says Ellen Libenson, vice president of marketing at Thinque Systems in Universal City, Calif., a maker of CRM and merchandising software solutions for the CPG industry. "They pay an enormous amount of money to get in on the shelves. If something goes wrong--for instance, if the retail stores don't stock it on the shelves or the merchandising firm falls down on the job and the product doesn't sell--then the manufacturer has to pay to ship that product back from the retailer."
It's surprising to Libenson that CRM tools for DSD and field sales aren't more in demand. Hardware prices have had a negative effect, she says, but with a wide assortment of models available, price alone isn't prohibitive. "I wonder why it's been so hard for people to give this their attention and apply more of their budgets to it," she says, "especially when you deal with consumers and spend billions of dollars on marketing and advertising of products--just to run into a brick wall in field execution because something goes wrong."
Wouldn't product marketers want to have someone in the field explaining why a promotion went right or wrong? When companies look at equipping their DSD reps with technology as less of a matter of expense and more of a matter of leveraging a strategic business opportunity to provide more valuable service to customers, then more will take the plunge.
The 1999 Ernst & Young Consumer Goods magazine's poll announced a new entry to the top three biggest concerns of CPG companies. The first two, "pressure to reduce overall supply chain costs" and "pressure to compress total time to market/cycle time," made the list for several years. But 1999 was the first time "pressure to collaborate more effectively with trading partners" placed as a top concern.
Given such concern over collaboration, and considering they're all the rage in B2B, could the CPG industry do without a B2B exchange? Or better yet, an e-marketplace that supports a broad offering of products, services and content as well as the infrastructure for enabling business transactions? Of course not.
E-marketplaces promise a wealth of benefits to the CPG industry. By offering electronic catalogs and technologies to match supply and demand throughout the supply chain in real time they can deliver savings on procurement and increases in return on inventory. By providing access to business transactions, they allow buyers and sellers to transact business more efficiently and productively.
While there are already a number of exchanges and sites dedicated to specialties like e-procurement or e-sourcing, Chicago-based Transora is emerging as the leading e-marketplace for CPG. It's comprised of 54 major CPG companies including the heavyweights in global marketing: Kraft Foods, Proctor & Gamble, Nestle USA, H.J. Heinz, Unilever and Coca-Cola.
Initially, the marketplace will allow multiple buyers and sellers in the industry to conduct catalog purchasing, bidding and pricing for raw materials, packaging supplies and other goods. In addition to those procurement services, there are also supply chain services like transportation and logistics and inventory management designed to increase efficiency and effectiveness within and across member organizations. Transora will also offer retail services such as order management, promotion management and category management as well as industry-relevant content and Webcasts.
"Particularly in a CRM context, what we are really focused on is working around trading partner relationships, not purely from the standpoint of supply chain pieces, but what things drive value for both trading partners or multiple trading partners, end-to-end," says Gary Byram, chief marketing officer of Transora. "That takes you all the way from streamlining the view from the supplier through the manufacturer to the retailer, to the level of collaboration and of the cycle time improvements that you can get between them. And ultimately, it's being able to drive demand and do a better job with the one that we all care about, which is the consumer out there buying the product."
Brand product marketers rely heavily on trade promotions to push volume through retail stores. But the plethora of offers, discounts, calendars and other factors regularly create a pile of work for retail buyers. The clamor for consumers has brand marketers running promotions all over the store--and the inefficiencies in processing them are rife.
Promotion management tools are a necessity for CPG manufacturers and retail customers alike. But the quirks and exceptions of promotions, deductions and other quintessential CPG requirements are so complicated that rather than build promotion management tools themselves, companies like PeopleSoft and JD Edwards have opted to partner with specialists. "They both went down the road and then realized that it's just another ERP system because it requires input from so many departments to get this data moving around. It's just massive," explains Greg Weismantel, president and CEO of st. Charles, Ill.-based Vista Technology Group, a CPG system vendor.
VistaCPG is Vista's fully integrated front end for consumer goods. It links back to the ERP systems typically offered by most ERP vendors. "We have to send deals and accepted promotions into the SAP or PeopleSoft order fulfillment systems so that they can invoice properly. And they have to send us the data when the payments come in from a retailer because we do all of the front end," Weismantel says.
Such integration is what allows the CPG industry to utilize CRM tools and techniques. "For the system to really support the CRM efforts of sales and marketing people in CPG," Weismantel says, "you need to be integrated with the entire operation."
But why stop there?
"We've only been able to move data between the manufacturer and its local sales organization, or a broker," Weismantel says. "We haven't been able to take that data to the next step and bring it from a manufacturer into the retailer."
Vista and other companies participating with UCCnet and some of the B2B exchanges like WWRE and Transora are helping to form industry standards that would enable greater integration of business processes between manufacturers and retailers. Now some cutting-edge trials are making it a reality to handle promotions, pricing, deductions and other mission-critical processes between brand marketers and customers entirely online. This stands to eliminate the manual, paper-driven processes of the past.