CHICAGO -- Netquity, a new joint venture between Information Resources, Inc., here and Forrester Research, Cambridge, Mass., was recently formed to help consumer packaged goods manufacturers predict how their brands would fare in an on-line shopping arena.
The Internet is expected to spur different ways of using marketing dollars, now mostly directed to the store level, and a change in the way CPG manufacturers define their customers, who historically were thought of as the retailers, but eventually will be defined as the end user.
In addition, traditional grocers might add a drive-up window for goods ordered on-line, and will have to determine if slotting fees could be charged for an order in which brand products are listed on the Web page shopping list.
"We believe the on-demand delivery will be the dominant player," said Rob Rubin, a director and senior analyst with Forrester, during a telephone conference May 23 for about 108 to 115 representatives of CPG manufacturers.
New products may be introduced by means of bulletins on the shopping list Web page, with trial samples delivered with the weekly order, he said.
CPG manufacturers need an Internet strategy as they explore things like how placement strategies are to change, whether pricing will be undercut on-line, and if the Internet can be used for promotions.
Rubin said if a large percentage of a manufacturer's customers -- meaning end users -- are on-line, then the Internet is right for that company.
Regarding delivery, if the product is heavy and low margin, it must wait for on-demand delivery. However, if it's light, the Internet is a good vehicle now.
"If your product is a replenishment one, like cereal, on a regular shopping list and not impulse-driven, then the Internet is a larger play for you," said Rubin.
Complexity is the final hallmark to look at. "If you have a product that benefits from delivering lots of information, then the Internet is important to you. You don't have to rely on traditional store sales to help to explain the product," Rubin added. He used two examples of how Netquity scores brands: Twin Labs vitamins, which got a 5, and Haagen Dazs ice cream, with a 2. Customers for both have a high Internet usage index. But vitamins can be shipped more easily.
Another example was Colgate toothpaste (a 3 score) and Pampers diapers (a 4). About 40% to 48% of their customers are on-line. They both have predictable replenishment, but diapers can be shipped more profitably. You can actually make money shipping diapers, but not with toothpaste.
Citing another example, Old Milwaukee beer will stay on grocers shelves, Rubin predicted, because its consumers are lower income, older, and not really on-line. Microbrews will do much better because they appeal to a younger market. "If I were the brand manager for Old Milwaukee, I'd be investing in stores," Rubin said.
Product placement provides an interesting debate, since the different on-line grocers list different brands first. "This is going to be a real battle for brand managers," said Rubin. "If I am setting up my shopping list and I buy Bumble Bee tuna, the next time I buy tuna, I will just click on it, and what happens to StarKist?"
Rubin said a site like WebHouse is good for brands that are category laggards, since the consumer chooses the category, not the brand.
As Netquity was launched last month, several other developments occurred in Center Store e-tailing. A new quarterly study by the NPD Group, Port Washington, N.Y., indicated that more people will buy groceries on-line, as well as prescription medication. NPD estimates that on-line grocery sales reached about $260 million during the three months ended April 30. About 9% of all consumers who bought anything over the Web bought groceries on-line during that period.
And in California, Santa Clara-based ShopEaze.com announced partnerships with Haggen, Bellingham, Wash., and with Bristol Farms, an upscale food retailer based in El Segundo, Calif. ShopEaze is a leading e-commerce service provider for traditional grocery retailers. Haggen plans to initiate the on-line shopping service late this summer in one of its stores and roll out the rest in Washington and Oregon by the end of this year.
Haggen's solution will let customers buy on-line and pick up pre-bagged orders through a drive-up service or the guest services center. Bristol Farms plans to deploy the enhanced shopping service and home delivery in early summer at one of its Southern California stores and bring all of its markets on-line prior to the holiday season.
"Compared to other on-line categories, the grocery category is less well developed, but has shown steady growth since January, when NPD started tracking for this study," the NPD research firm stated in a press release. And the future looks strong: "On-line grocery purchasers also registered the highest expected future purchasing intention when compared with other categories," NPD also said. Among past-three-month on-line grocery purchasers, 40% bought only once, 40% two to three times, and 20% four or more times, the company said.
And, 16-year-olds today do not remember a time when there was no Amazon.com, Rubin continued during the teleconference. Young people have by now "internalized" the Web; they expect to shop on-line, and will become a new set of customers for on-line grocers. "Existing channels will begin to erode," said Rubin. "It won't be noticeable at first, but stores will begin to lose foot traffic."
Dan Sherr, executive vice president at IRI, and who, with Rubin, is a co-director of Netquity, joined in giving the preview of its services. "Netquity focuses on expanding and enhancing your brand equity using the Internet as an important part of the mix," said Sherr.
Forrester claims to be the leader in Internet research, and IRI the leader in understanding consumer behavior with brands. "Together we are able to provide guidance to change brand strategies to take advantage of the Internet," said Rubin.
Brand managers are paid on volume, according to how many cases are shipped, Rubin said. "The Internet doesn't show up much on their radar screen. Even by our forecasts, it's only 3% of the total U.S. marketplace."
Netquity's first report, called "A New Channel for Old Brands," is currently being released to clients, who can download it from either IRI's Web site, located at www.infores.com, or Forrester's, located at www.forrester.com.
"This report is really about the future," Rubin said. Households buying product on-line, which they refer to as on-line replenishment, spend $3.6 million now, and this figure is expected to grow to more than $20 million in 2004, he said.
The report used two sets of data, category purchasing behavior of 10,000 households and Forrester's Technographic Survey.
On-demand delivery will take place first in the cities where Internet use is heavier, such as in San Francisco and Boston, but, by 2002, also in Salt Lake City, Denver and Los Angeles, the Netquity pair said.
"We believe by the end of 2007, all metro markets will have communities within them with access to on-demand delivery," Rubin said.
"Tech-savvy households are buying on-line now, spending on average $303; 81% of this community use PCs at work, 70% own cell phones.
"They have the best jobs, are college educated, white-collar workers, earning over $75,000 a year. This group is elite, tech-savvy, but we believe they represent the vanguard of a trend that will move into the mainstream," Rubin added.
