Following on our article (“Numbers and Stories”, 23 November 2009), our friends at Retailwire.com thought it would be interesting to run a poll to ask the Retailwire community what they thought about retailers using research. The original discussion is here on Retailwire, but we’ve reproduced the comments and the poll results as they stand today (16 December 2009).

As evident from the graph below, the short answer is “no, companies don’t use research well”; only 15% of the respondents felt that companies are “good” in using research, at their best. Should we blame the companies or the researchers? The comments seem to suggest that the blame needs to be shared equally.

Comments below:

 

This sounds a lot like a chapter we wrote for ESOMAR’s Best Practices book. We have devalued research in favor of insights, which can rely much more on a good narrative and much less on good data. A management team that expects insights from research all the time is asking for trouble down the road. A research team that doesn’t focus on quality first and insights second is doomed to failure when management makes the wrong moves. Research needs to give management the best information possible in a way that management can understand it. Management needs to understand that research is providing the best information it can within budget constraints. The two need to work together. [Stephen Needel, Managing Partner, Advanced Simulations]

One of the concerns I have at present is how SKU rationalization research is viewed, so quickly judged, and acted upon. Many retailers are looking only through a narrow interpretation based on shear numbers and not taking into consideration other more visionary factors about specialty brands, niche items, and growth brands. If this keeps up, consumers will have very few choices and most of the stores will all look the same with exact assortments. Only price will differentiate one from the other. The results will be rather ironic. [David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates]

I agree that there is a lot of bad “research” out there in the world. Any analytical study has to be right, applicable, and actionable. If a study doesn’t meet these criteria, it is worse than useless–it can actually pollute the minds of decision makers by letting them think they know something they don’t. Before spending any valuable share of mind on numbers, executives should ensure:

1) Is it right? If I only had a buck for every time I’ve seen a big name consulting firm presentation with numerical “findings” using a flawed methodology or with no statistical significance…. I’d be retired in Paris right now.

2) Is it applicable? So, some other retailer says their TV spend has a 150% return (or some consultant claims that). So what? Your business is different. Consumers react differently to every retail concept. You do need to know for you.

3) Is it actionable? Oh, we all know about the study designed to validate the CEOs hunch. Want to guess what the consultant’s findings will say? If you are going to do research, you’d better be prepared to act on the findings–either way.

This is why in-market testing is such a powerful technique in retail. While it does take commitment to do it right, it is one of few techniques that almost always meets these criteria. [Jonathan Marek, Senior Vice President, APT]

It is absolutely true that marketers do not often take the time to understand the basis of the research that they are presented with. Understanding how the research is developed and the analysis approach used to develop recommendations is an important, if misunderstood, part of the job description for a data-driven marketer.

I do find, however, that marketers more often do not carry out sufficient research to draw conclusions, even when that research is relatively easy and low-cost to execute. If you have access to email addresses, you can execute basic research surveys to customers and gain valuable insights in less than a week, at a very low cost. Those opportunities to “fill in the gaps” are often overlooked. Sometimes those insights can make the difference between success and an indifferent failure of a key initiative.

Marketers must understand the opportunities that research affords them, even when timelines are tight. Obtaining the Voice of the Customer, particularly the Best Customer, is a practice that should be followed religiously. Only then will marketers be able to gain insight and make truly data-driven decisions.  [Mark Price, Managing Partner, M Squared Group, Inc.]

We have to keep in mind that corporations are run by human beings that often make decisions on emotion rather than logic. I have many clients who have been very successful making decisions by shooting from the hip, yet they always prefer to see my research, just to be sure. Most of my clients are very bright people and my research generally confirms their own instinctive thoughts. There have been times when I have been brought in to do an autopsy on a project to find out why a store failed. Typical reasons are:

Researchers did not want to offend management so they candy-coated the results.

Key decision makers are suffering from some kind of physical or emotional impairment which affects their ability.

Corrupt middle managers that change the research results.

Researchers leaving out a key piece of data (i.e. not telling management that the Mexican format store they have planned is in a Puerto Rican neighborhood).

Overall, I don’t think retailers have a narrow view of research. Researchers can do a better job in communication by simplifying the results, being blunt, and putting their integrity ahead of their paycheck. [David Livingston, Principal, DJL Research]

I think there are two elements at play here:

First and perhaps foremost, retail is an emotional business. We can have reams of data and still use the words “It feels like….” and make significant decisions based on those gut feel moments. Certainly this has long been true in the world of merchandising. Something “feels like” it’s going to be a home run or a dog, and it “feels like” we’d better take a markdown or run a promotion to goose traffic. And actions are taken accordingly.

Now, can I tell a retailer in all honesty to ignore those gut feels? I really can’t. I can encourage them to use data to support actions taken based on those feelings and obviously that’s what I do…every day. But I can’t ask them to ignore their gut completely.

This brings me to the second issue: we don’t always present data in an easily distilled and understandable format. Our retail survey respondents repeatedly ask to have their Business Intelligence delivered in simpler ways. While “red light, yellow light, green light” might be a little too simple for some decisions, the data just has to be usable and quickly actionable.

Finally…if a retailer (or any company really) is going to make such a dramatic shift, it has to be driven from the top. And the C-level exec driving the initiative also has to LISTEN to what he/she is being told in response. Otherwise you get a company similar to Home Depot under Nardelli.  [Paula Rosenblum, Managing Partner, RSR Research]

Decisions are always made without perfect information to support them. But sometimes, decisions are made that ignore the available information or decline the implications.

Research is clearly most valuable when it can be turned into actionable recommendations. We are all too aware that research can be used as a fishing expedition without a clear objective. However, there is also a danger in using research designed just to prove a point rather than develop real, new learning.

On balance, I believe that research, properly done, interpreted, and acted upon, can vastly improve the decision making process. [Ray Jones, Managing Director, Dechert-Hampe & Co.]

I’m reminded of the Samuel Taylor Coleridge quote “Water, water, everywhere, nor any drop to drink.” Research/knowledge is the raison d’ tre for The Luxury Marketing Council www.floridaluxurycouncil.com; it’s what I do. The highest level executives or those who will someday sit in the corner office recognize the value of research. They’re able to sift through the myriad of information to find what’s relevant and actionable.

There are a couple trends re: research. Some executives don’t want facts to get in the way of their vision. Historically, these individuals’ careers stall. Also, there are many companies that have pared down their employees to the point that executives don’t have time for the facts–they’re too busy keeping the ball moving. The third group often doesn’t understand how to read the research, how it affects them and/or how they can use it for their benefit.

Relevant research is an imperative for retailers. Having a 360 on your targeted customer and understanding their collective experiences is the key to personal and business success. [Chris Ramey, President, Affluent Insights]

Devangshu Dutta mentions many of my personal concerns regarding research. But before I go any further I have to add, my name is Joan and I am a researcher. I’ve spent many years working in the industry to help alleviate some of the barriers Mr. Dutta listed. There is still much to be done of course.

In this world of easy access to numbers/statistics, upper management demands and gets “stuff” by which they make decisions. Trying to explain the difference between good research and everything else often falls on deaf ears. Management expects those who supply the data, whether they are staff or outside consultants, to bring the quality, validity and relevance required. And in turn they do not question the underlying premise of what they are buying, or what they are buying into.

And when forecasts don’t work out as expected, new products fail and marketing strategies are ineffective, it’s all about how research failed to deliver. Researchers preach to the choir when they have meetings about quality standards.

CASRO (Council of American Survey Research Organizations) has a Code of Standards and Ethics. Companies who belong to CASRO must adhere to them. And this is one way in which clients can insure research results are reliable.

CASRO is initiating an ISO certification program. I believe more client companies and executives will relate to and understand ISO (because their own companies go through similar ISO certification processes), perhaps choosing vendors and staff accordingly. In my opinion, this could be a turning point for the acceptance and recognition of true quality marketing research. I hope so.

As for the story telling aspect of research…well that’s another “story” entirely. I’ve mentored many researchers and advised them to always answer three basic questions, What? So what? And Now what? These questions get to the heart of why research is conducted in the first place. Good reporting and presentation requires training. If you believe that anyone can be a researcher and choose vendors or staff based on that assumption, you get what you get and it may fall below the standards Mr. Dutta advocates. [Joan Treistman, President, The Treistman Group LLC]

During my 11 years with Kenosia I used a phrase with clients “One truth.” By combining disparate data sources, a retailer or a brand manager can get to the “one truth” and then make a business decision regarding direction. Far too often, decisions are made using one source of data which can lead to less than effective results.

Example, if a retailer only views their loyalty data to make business decisions about advertising, are they understanding all the trends happening in their market? Probably not. Combining their loyalty data with demographic data makes it better and adding additional information from a syndicated data provider makes it even better yet.

The great news is, there are a dozen technology solutions to help both retailers and brand managers combine data and the data to combine is available and affordable. It boils down to first understanding the questions and then going out and combining all the best data sets to create the answers. [John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC]

The use and misuse of research, data and “insights” varies widely across retailers and brands. Typically, the larger the company, the more primary research they have and the more reliant on primary research they are.

Unfortunately, great research and insights are, as many here are illustrating above, not nearly as commonplace as they should be. There are many reasons for this:

– Flawed and biased methodologies (e.g., let’s “Focus Group” this”);

– Vendors who specialize in one research/data collection area over another;

– The research goals and objectives themselves: pure answers to hard marketing questions rarely come directly from research but rather from what is done with it, i.e., what is the data needed to create information to support or disallow a hypothesis?

Budgets, which have mostly seen cuts for the past two years; though the cost of collecting data has come way down in many cases.

All these challenges with research underscore the importance of knowing who your customers are, having an ongoing dialogue and relationship with them, and gleaning insights from them. There is nothing better than customer (transactional) data to gain an objective perspective and insights for your business.

Unfortunately, many companies are data rich and insight poor. Even worse, many companies, retailers included, don’t know their customers or how they behave. This is continuing to change for the better, however, and those who are focused in this area are the ones who will make better decisions and be more successful in the long run. [Phil Rubin, CEO, rDialogue]

One simple question expresses the confusion around statistics: “Why do we have Democratic and Republican Pollsters?” I think it was Harry Truman who when confronted by economists telling him “Well on one hand the statistics are saying this, but on the other they could mean this” said “Someone get me a one armed economist.”

The thing with retail is that we don’t need answers to thousands of different questions. We ask the same questions a thousand times: how does this product sell, what is its net profit, how important is it to my customers, does it fit my brand objective, how does it relate to other products, are there viable substitutes, etc? Instead of poring over tons of numbers, the POS data should be used to construct answers to questions.

So the fundamental reason retailers (and anyone, really) make bad decisions from raw data is because they don’t know what questions they’re trying to answer. Start there.  [Bill Bittner, President, BWH Consulting]

The fact that information is available and is being used effectively are two separate things! Usually a company uses too much information, regardless of correct or incorrect, or it does not use information. Very few companies strike and maintain a balance between insight, gut feeling/intuition and relevant, timely information in decision making. [Pradip Mehta, Principal, Mehta Consulting, LLC]

I’ve found that the overall views of research within companies goes in cycles. Of course, leadership changes come into play with the research points of view as well. Some executives understand how to use it better. Some have used it so much they can go by gut.

In any case, a research cycle may start when a huge mistake is made by using strictly gut instinct (Tropicana?), then more and more insights will come from research and less from gut until, one day, it is determined that there is too much science and not enough art, and the cycle starts all over again.

I do believe though, that research is one of the faults with our nation’s fashion business today. Too much science, not enough art. The talent and guts it takes to take a big chance on new, fun fashion seems to have been relegated to trend reports, focus groups, ethnography and best seller lists. The rare exception to that rule is Forever21…instincts still survive there. Perhaps they can teach the industry a lesson. [Lee Peterson, EVP Creative Services, WD Partners]

Where would Disney be without fairy tales? SMWeiss’

The problem, dear Brutus, is in ourselves. Retailers and brands have created vast action machines with thought paradigms behind. Anyone doing research is likely to be looking to fit information into the existing machine. And for each individual, when they formulate a research query, they bring their own current thinking into it–obviously! This means that the results they get back reflect, in far too great a way, their own predispositions. This, coupled with the fact that lots of research is “ask” type research–interviews–guarantees a sluggish and distorted view of reality, what I call the Picasso business view; shared distortions, unperceived as such by both researchers and respondents.

The partial antidote to this is “observational” type research, and the hierarchy of truth. And observation here must be of the real world, not some laboratory simulation, which typically just further cements the existing distorted paradigm. The hierarchy of truth means distinguishing between what is most rock solid and least likely to be distorted, and that which may be as changeable as the weather. (That’s right, Maude. It used to be just common sense that the weather changes. ; )

One example near and dear to my heart is OBSERVING how many items people buy in a store. The most common number, whether in a convenience store or a supercenter is ONE. But the “world” absolutely refuses to believe this, because it does not match their own conceptions/perceptions. An observation like this is at the pinnacle of retail truth, and must be allowed to shatter any part of the paradigm that does not conform to it. THAT’S “revolutionary,” but it is also the route to racing past the competition that is spending their time dancing on peanut butter.

No one should reproach themselves for participating in a social Picasso view of their business. (Although I may insult you from time to time. ; ) All of us are afflicted with the phenomenon noticed many years ago, about historians and their “research” of the past. Looking into the past, for a historian, is much like looking at a reflecting pool at the bottom of a very deep well. The image the historian tends to come away with is a reflection of himself. Business people are no different. [Herb Sorensen, ScientificAdvisor, TNS Global Retail & Shopper Practice]

There are plenty of great tools to make sense of all of the information. The challenge is balancing it with the human side. Take, for example, the stores. Are all corporate employees required to walk the stores and report what they see? View the stores in the evening when store management has left for the day. These age-old problems are still far too common, yet they are the source of some of the most valuable information available anywhere. Sales will be increased, labor decreased and earnings improved if this information is acted upon. [Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM]

The dark clouds of recession and rain seem to be lifting just a little bit. Governments have been energetically throwing seeds of stimulus and economists are eagerly spotting “green shoots”. The festive season is around the corner, with anticipation of higher sales.

So perhaps it is time to cheer. Or perhaps not.

In the recessionary environment during the last year or so, ‘cutting back’ rather than ‘building’ has been the philosophy for most businesses.

The implications of these cut-backs are not always visible in the place you have originally made the cuts. But, unfortunately, they inevitably impact the area which should be the last to be touched: customer experience!

The problem arises not so much from the cut-back. Obviously if the business prospects are looking negative or less positive, the management needs to adjust its expectations and also its expense and investment framework.

No, the problem lies in the fact that most such initiatives are internally focussed. Whether it is supply chain (“lean inventory”), operating strength (“fewer people”), merchandise rationalisation (“narrower range and fewer brands”), the implications and benefits that are identified are mostly internal to the business. The driving philosophy is that “a penny saved is a penny earned”.

During the navel-gazing we forget the fundamental principle that the purpose of a business is to deliver a set of goods or services to meet the customer’s needs and expectations; if those needs are not served, the business interest is not served either.

Here are a few examples from the recent past:

• A modern retail chain has no stock of bread and basic cooking oil on the second afternoon of a 3-day long weekend. When asked, one of the sales associates says that they got no deliveries due to the holiday the previous day. When you walk across to the traditional kirana store, it is fully stocked-up with fresh merchandise, and apparently has had no delivery problems at all from the same brands either the previous day or that morning itself. Someone at the “organized” retailer seems to have forgotten that “lean” shouldn’t mean reduced footfall-conversion.
• A telephone service provider receives a complaint for a faulty line. The provider promises to rectify the complaint within 6 hours. After 6 days the line is still down. The call centre executives on multiple follow-up calls sound helpless – one even says: “Maybe the complaint did not get across to the service engineer.” One of them – maybe it is only to push the responsibility off to another part of the organization – hints at the unavailability of enough field staff.
• An elderly couple in a well-established large retail store is very clear that they only want to buy 100% cotton products. The enthusiastic sales associate pushes the store’s own heavily advertised brand of T-shirts, assuring the customer that it is cotton. After the first wear and wash the customer sends one of the T-shirts for ironing, only to have it returned with a large burn – the fabric, apparently of synthetic fibre rather than cotton, has not been able to withstand the ironing. Somewhere, someone has cut corners – it could have been the buying executive who wanted to meet a price point target, or it could have been the HR manager who thought that product training was a superfluous expense, or both.

These are all companies that have spent millions on store-fronts, real estate, IT systems, brand logos and hip advertising. After all, those are the visible vehicles for the brand and the brand promise.

Unfortunately, because of the internal disconnect between the strategic intent and the operational reality, these millions are now dripping down the drain, one customer relationship at a time.

Which brings me to one significant area of concern – the people who interface with the customer.

In western economies, due to the high cost of manpower, consumer-facing businesses are run on the basis of highly system-driven processes, lean staffing and a self-help orientation, whether the customer is interfacing with a call-centre or with a physical retail store. There are also significant cultural and infrastructure differences that make these models work in those economies.

In modernising countries such as those in Asia, it is quite understandable that the new consumer-facing companies are trying to emulate western “best-practice” models. However, often they falter on two accounts.

Firstly in these relatively hierarchical societies, customers don’t want to feel “help-less”. They may not exactly enjoy an intrusive sales associate, but they enjoy even less the feeling that there is no one around who can help when they want it. A number of retailers have failed this “quantity” test in the last few months.

Secondly, it is not just a “warm body” that is needed to ask a polite question and smile brightly, but someone who is empowered and feels accountable to solve the customer’s specific issue. That is a “quality” issue. Part of it is related to the huge gap between the personal context of most consumer-facing staff and their customers’. The other, significant, issue is the culture of accountability – that the salesperson or the service executive makes the effort to understand and solve the customer’s problem, rather than only focussing on following the law laid down in the operating manual. These needs can only be addressed through training – lots of it, and repeated liberally – and creating a culture that, top to bottom, is focussed on the customer.

Analysts have said that recessions are a great time for the good companies to separate themselves from the rest. That is true to an extent.

However, I believe that in recessions many companies, bad or good, suffer due to circumstances beyond their control – it is in the recovery after the recession that is a much tougher filter.

When the customer’s mood is beginning to move up, so are his or her expectations. Companies that have not cut muscle along with the fat, companies that have not only focussed on themselves in the downturn but have remembered the customer at all times, are the ones which will manage to retain their customer relationships. And will grow faster.

The organic movement has touched a variety of products, including clothing, cosmetics and home products. Possibly the most emotive area is organic food, because food products are directly taken into the body while other products have a limited and external contact. 

In a sense, before the appearance of industrial agriculture and the application of synthetic nutrients and pesticides, all farming was organic. In fact, the traditional Sanjeevan system of India dates back several millennia. 

Even the existing organic farming movement has been around since its founding in Europe in the early-1900s. This was initially treated as fad and its proponents were seen as eccentric (at best) or insane. However, as damage to the environment and to human health became a bigger concern, organic farming emerged as the healthier option. 

Organic farming is based on the following fundamental premises: 

• a farm that uses natural rather than synthetic inputs throughout, from seeding (or insemination in the case of animals) to post-harvest
• methods that are sustainable rather than exploitative or injurious to the farm and its surroundings, with an emphasis on conservation of soil and water resources

The aim is to drive a more healthy approach all around – for the environment, for people, as well as for the animals and plants. 

The organic trade (all products) is currently estimated at over US$ 40 billion globally, with an annual growth of approximately US$ 5 billion. Organic production is driven today more by demand than by supply – in many cases supply constraints of certified organic produce is more of a concern than the market demand. 

Every year, increasing numbers of consumers consciously buy organic products regularly or occasionally on the basis that it is good for them and good for the planet. Certainly, true organic farms do not use synthetic materials, avoiding damage to the environment and can help to retain the biodiversity. Whether measured by unit area or unit of yield, organic farms are more sustainable over time as they use less energy and produce less waste. 

It is not as if, after decades of individual enthusiasts pushing their ideas from the fringes, consumers have suddenly become more environmentally conscious. This mainstream awareness has possibly been pushed up in recent years by the involvement of large companies which have spotted the tremendous growth of a profitable niche. “Organic” is the new speciality or niche product line that can be priced at a premium due to the greater desirability amongst the target consumer group, with potentially higher profits than inorganic products or uncertified products. Today, at least in the two largest markets (the USA and Europe), large companies have the lion’s share. For instance, statistics from Germany show that in 2007 conventional retail chains sold over 53% of organic produce, while specialist organic food retailers and producers lost share during the year. Similarly in the US, after the development of the USDA National Organic Standard in 1997, significant merger and acquisition activity has been visible.

However, as the interest in organic products has grown, so have the noise levels in the market. With that the potential for confusion in customers’ minds has also grown.

In day-to-day conversations, we tend to treat organic as superior to inorganic. But the reality is a little bit more complex.

For instance, we expect organic products to contain more nutrition and be better for our bodies. While this may be true of organic animal products compared to their inorganic counterparts, it has not been demonstrated for plant products, other than anecdotal experience of taste and appearance.

There are studies that suggest that inorganic farming can produce more crop per acre and more meat per animal, and is, therefore, the better option for a planet bursting with overpopulation. (Some proponents extend that argument to genetically modified foods as well, but let’s stay away from that for the moment.) 

However, there are also other studies that counter this argument by suggesting that the organic farms can end up being more efficient and productive in direct costs, yield and long-term sustainability. 

Then, the big question is: if organic foods are no better nutritionally than inorganic and could be as productive for the farmer, are organic brands just skimming the gullible customer while the going is good?

We might expect certification and regulation to clear the air, but in many instances these leave out as many things as they include. Labelling is yet another concern. Countries where labelling is more stringently monitored allow logos such as “100% organic”, “organic” (more than 95% organic ingredients) and “made with organic ingredients” (over 70% organic ingredients). In other countries logos and where labelling may be less strictly monitored, the use of the term organic is far looser and even more confusing. What’s more, the usage of terms such as “Bio” or “Eco” can also mislead consumers into believing that there is something distinctly superior about the product they are about to buy when, in reality, it is often only a marketing gimmick.

Further, just because something is certified as organic does not mean it is a higher grade of product. Organic produce may end up having a shorter shelf-life, or may also be otherwise inferior to inorganic produce in the store. In fact, as the KRAV (Sweden) website states: “The KRAV logo is a clear signal that the product is organically produced but does not say anything about the quality. That must be guaranteed by the producer, i.e. yourself”. This is similar to saying that the fact that someone has a management certification from a certain institute means that he or she passed the tests of that institute in a particular year, but that does not automatically make him or her a good businessperson.

Countries and regions that have a poor record of environmental consciousness, poor transparency norms, are also not seen as the best source for organic produce even if it is apparently from a certified producer. In some cases, certification may be carried out second-hand and unverified, leading to instances such as the one in 2008 where the US retailer Whole Foods pulled out pesticides-laden “organic-certified” ginger that was shipped from China. The mixing of inorganic ingredients of uncertain origin, especially in blended products such as juices or snacks, can also make a mockery of the organic labelling.

Another visible concern today is the carbon footprint, and some people raise the question whether buying local (whether inorganic or organic) may be less environmentally damaging than importing produce from distant countries. In such instances, the evidence of lax certification, such as the Chinese case mentioned earlier, takes support away from the cause of organic imports.

Arguments have also been raised about whether the larger “organic” factory farms merely follow the letter of the law rather than the principles behind the organic movement? Small organic farmers allege that large organic-certified factory farms – especially those selling animal products – do not really follow the core principles of “natural” growth, and confine their animals in unnatural surroundings. 

With all these arguments and counter-arguments flying about, some organic (or nearly organic) producers elect not to be certified, letting their customers vote with their wallets. Some of these smaller farmers may be driven by economic necessity since certification could be costly and cumbersome, while others may just find it more feasible to stick with a local sales strategy where the customers are able to physically see the organic nature of the farm. 

It’s clear that all of these questions will take years to sort out – through debate, research, legislation, as well as social and commercial pressure. Meanwhile, most conscientious retailers and concerned consumers will need to do their own studies to educate themselves, and will need to examine each product for genuineness of the organic promise.

And, if you are not quite that savvy, the final message would be: “caveat emptor” (“let the buyer beware”).

George Anderson asks: what medium, what message will it take to break through the clutter and influence consumers to buy whatever it is that is being pitched? Rocky Gunderson, co-founder and vice president of marketing and network development for SeeSaw Networks, believes that digital signage networks are the solution.

The dynamism of digital video display has the potential to make ads more impactful but, from my experience, most of the advertisers and the agencies have little clue about how to really make it work.

So many companies are using digital displays as animated billboards, with the same messages in a different format. John Wanamaker’s lament still applies and, possibly, it is more than 50% of the advertising that is getting wasted now. Either the Digital OOH industry will wake up some day and spruce up their act, or digital signage will become like fluorescent safety jackets – everywhere and unnoticed.

[George Anderson’s RetailWire query: Media Follows Consumers Outside the Home.] 

Delhaize and Unilever may not yet have felt the need to visit a relationship counseler, and of course, the jury’s still out on who (if anyone) will actually win in their battle.

For now, Unilever has lost shelf-space for around 300 of its brands at Delhaize stores.

Delhaize may potentially lose some of the sales that those brands got for it, in case consumers want a specific brand rather than a private label or a substitute brand.

The consumers lose not just in terms of their choice being reduced, but perhaps also in becoming confused about the specific value / benefits of competing products when the certainty of their customary brands is removed. Remember, brand loyalty is built on the predictability of a repeated experience over a period of time. If  you remove that factor from the purchase, each purchase becomes an experiment again, until a similar predictability is found.

(For those who missed the previous post, you can read it here.)

Referencing this battle, reactions to a discussion in at least one online poll on www.retailwire.com seem to favour retailers, or equally blame both retailers and suppliers. Only about a quarter of the respondents felt that retailers were not being fair. Considering that the respondent universe comprised of professionals from retail companies, suppliers as well as service providers, this seems to be a surprising result. Or perhaps not? Perhaps brands are no longer delivering a significant value to be able to command a premium over private label?

Some of the reactions from that discussion are reproduced below with permission from Retailwire.

 

• It’s hard for me to feel for both retailers and vendors when they obviously do what’s best for themselves, regardless of the long-term impact. In this case though, I would tell Unilever to go aggressive and pull all their lines from Delhaize. Then up the marketing of these lines with a cooperative marketing program involving the other retailers. Let Delhaize try to survive with shelves full of private label products and see how long they last. (Marc Gordon, President, Fourword Marketing)

• First, you seem to be talking more about Europe than the U.S. and that’s a different animal. However, given the universality of the question, I’d say first that the best and worst of people and companies come out during hard times. The best redouble their efforts to build meaningful long-term relationships with their trading partners. Unfortunately, it seems that most are simply trying to squeeze an extra penny or two out of the other. To your specific question–No! CPG companies are only starting to rationalize their portfolios. There are still way too many products out there simply for the sake of putting their name out there–not because the product moves. Some manufacturers are starting to cut back on their lines, but I suspect much more is needed. As to developing private label, what do you expect? Retailers have been copycating for years. But I think consumers have gotten wise to the fact that just because it looks like a brand doesn’t mean it has the same quality. And to any retailer who can’t do any more than copy, shame on them! (Len Lewis, President, Lewis Communications, Inc.)

• Fast moving consumer goods companies still need to rationalize brand portfolios in many cases, as so many retailers are finding higher profits in reduced SKU counts, without losing shopper loyalty. Depending on how this shakes out with specific retailer strategies over time, this may or may not make room for more local brands and niche players in some instances. Private label is a whole different animal today than it was even four or five years ago. The top tiers are not just inferior substitutes for national brands; they are national brand equivalents (or better) and widely recognized as such by consumers who are switching, and are not likely to come back. As for retailers copycatting, that’s always been a factor. Sometimes retailer behavior is outrageous, but there are laws protecting trade dress, etc., and branded manufacturers frequently litigate, and win. (Warren Thayer, Editor, Refrigerated & Frozen Foods Retailer, BNP Media)

• There is significant brand proliferation in FMCG. Think about cereal, ketchup, salad dressing or the myriad of other categories that have duplication on top of duplication. I led an industry-wide study that proved retailers could remove 12 – 18 percent of the actual SKUs from a given category (almost across the board) and not lose sales–in fact retailers will grow their sales (by unit volume and revenue). Consumers want true variety and differentiation – not the same thing in the same size. How many red ketchups in the 24oz bottle do you really need on the shelf? In many cases, there should be a couple of national brands and the store brands.
  The study also showed that the very large marketing dollars thrown at retailers to help promote products are in many cases not enough to cover all of the downstream costs and activities retailers engage in to accommodate duplication of brands. The inventory carrying costs alone are staggering. The FMCG companies will not want to hear this, but without fail, we found that there is too much duplication and with careful consumers, retailers should make sure they are offering the very best solutions for their customers while maximizing profits and opportunities. (Kevin Sterneckert, Research Director, Retail, AMR Research)

• How many shoppers (in the US, anyway) would drive out of their way to get Unilever soap? Probably not too many. Price, proximity and shopping habits are stronger than most CPG loyalty. Higher ticket items, like durables, and higher involvement categories like skin care, have more resilience. Retailers are understandably using the recession as a catalyst to drive sales of private label. Are they playing fair? Well, no.  Manufacturers are over a barrel, giving as much information as they can in order to stay in good standing with retailers. Further, some retailers have even used promotions that pull on national brand strength to promote private label. Publix Supermarkets ran a Buy-One-Get-One, where shoppers could buy a national brand (Thomas’s English Muffins) and get the Publix private label brand free. This drove trial – and presumably–conversion to their brand. No, they aren’t playing fair. The question for national brands is how to stay relevant and on shelf. (Liz Crawford, President, Crawford Consulting)

• Technology and collaboration should be helping to solve this problem, and it is a problem that existed before the current downturn and will continue when the recovery comes (hopefully very soon!!). If the retailer can show empirically that the new product lines do nothing to add to the profit mix, or worse do something to harm it, at the store, the supplier should yield and remove or not introduce the items. If the manufacturer can show empirically that the new product lines work to bolster the profit mix at the store level, the retailer should yield and add the items. This may be over-simplifying the situation, and there will always be exceptions, but without collaboration both retailers and suppliers are going to lose and the shopper will suffer as well. (Ron Margulis, Managing Director, RAM Communications)

• “SKU Rationalization” is a dangerous game…as the volume of sales per item does not necessarily reflect the impact to the brand as a whole. The push-pull of private label vs. branded product has been going on a long time and it’s not stopping any time soon. While it’s possible to create an apparel store built solely on private label merchandise, I don’t believe it’s possible in FMCG. All those advertising dollars have, in fact, made a difference. It’s also true that not all private label merchandise is create equal. I might be okay with generic canned food, but there are other products that have a distinct difference in quality. Q-Tips, Band-aids, some cheeses come immediately to mind. There’s a reason why book sellers carry slow movers. There’s a reason why apparel retailers buy a full compliment of colors, even if the percent contribution isn’t the same across all of them. Similarly, there’s a reason why FMCG retailers need to carry brands. It adds to their own brand credibility. (Paula Rosenblum, Managing Partner, RSR Research)

• I’ll take on whether retailers are “playing fair” by copy-catting national brands/morphing them into private labels: 8-10 years ago, I would have cried foul; these days, it’s par for the course. Yet another reason why vendors have to keep their innovation pipelines full or risk being one private label switch away from extinction. Think of your retailer knocking you off as the sincerest form of flattery (if you can bear it)! (Carol Spieckerman, President, newmarketbuilders)

• As indicated in the poll questions, there is sufficient blame on both sides. Retailers are dealing with manufacturers who force impractical line extensions through financial influence (incentives) detracting from a balanced category. Private Label is skimming the cream of category sales and threatening to take a disproportionate amount of shelf space. Private Label also can trade down category average pricing through poorly thought-out pricing schemes that do not reflect the market place. The extreme in either direction reduces the optimization of the consumer-centric effort we are all chasing. Manufacturers are the Mecca of product innovation. Private Label merely mimics. When we deviate from true innovation and the goal is to reduce the shelf space of competitors, everyone loses. The leap to Private Label is a result of cash-pinched consumers looking for a bargain. Private Label has a place in retailer strategy, but it should not be the entire strategy. Nor should the overwhelming ownership of space by a single brand. The premium or angel customers will continue to buy brands that exhibit the features and benefits of quality and consistency. Which customers do we want to develop as our base? Angel customers or bargain hunters? By lowering standards, quality and differentiation, we move into a downward spiral into Heck. Manufacturers must put forth innovation and quality as the model. Retailers need to maintain the balance in the categories that maintains a profitable mix of customers. It is about strategy and thinking beyond next week. Ask John Galt. (‘GMROI’)

• There were several reports on just-food.com last week out of the Consumer Analyst Group of New York (CAGNY) conference in Florida about what some of the bigger brands plan to do about rationalizing their portfolios. Some were particularly interesting and relevant to this discussion. As for the sub-debate about differences between the US and the ROW (rest of the world)–also very interesting and relevant especially when looked at in the context of globalization vs consumer preferences for locally produced food (a subject on which there is still much to be said as it cannot possibly be, in my view, an either or proposition). ( Bernice Hurst, Managing Director, Fine Food Network)

• For FMCG, a CPG firm must ensure they have a brand strategy to address the intended audience. Most will say they have that, but the truth is that they try to “cover the Earth” with a wide assortment to capture any and all consumers they can. In these economic times, there will tend to be even less “rationalization,” so to speak, since CPG firms will try to grab any demographic who is spending money.  Of course, regions vary in their propensity to embrace things like private label, however there are great examples across the globe of deep penetration of P/L, some of which have already been mentioned, and also Trade Joe’s in the US. P/L success has more to do with intentions of the retailer, rather than the line of products, specifically. (Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM)

• Where’s the data? Which consumers are buying which products? Which ones are not selling so well? Where’s the demand? Both sides can play the win-lose drama as long as they like and both will lose. (Camille Schuster, President, Global Collaborations, Inc.)

• Brands are the initiators of product and package innovation.
  • Until Private Label companies or a collaboration with retailers can fund research and development and spend back big dollars back against the brand, the brands will always have customers looking for their new products.
  • Retailers cannot give up the slotting fees that brands pay for shelf space. That is why many stores get more branded skus then they probably need.
  • I am not sold that manufactures can’t execute with creative accounting, “Brand partnership stores.” Retailers work on slim margins but as more retailers self manufacture there is AN opportunity to sell to yourself.
    (‘YOURBOYS’ )