Here’s a sure-fire way to achieve perfect collaboration between retailers and suppliers. Give each the exact same business models and goals. No problem, right?
Wrong. That scenario will never work, because partners are far too different in structure and operations. That’s why alignment is the best option, despite the inevitable hurdles.
A case in point involves segmentation and clustering. Manufacturers are often daunted by the complex clustering models retailers use to meet the needs of increasingly varied consumer bases. Many suppliers don’t know how to begin to fit into those strategies.
“They find clustering frustrating,” said John Rand, senior vice president, Kantar Retail. “Their businesses are based on economies of scale and plant manufacturing efficiency.”
So how does a supplier create differentiated programs for individual retailers — particularly regional and smaller ones — and still build the kind of scale needed? That’s an important topic at a time when increasingly larger amounts of data are available to analyze retailer and shopper needs. Rand provided some insights on this in advance of Kantar’s Mid-Year Forum in Chicago and New York City this month.
He dubbed his solution “dynamic clustering,” and it’s worth a close look.
“Suppliers need to start clustering needs that are similar from retailers in noncontiguous geographies,” he explained. “A supplier can make something for Wegmans, and probably also sell it to Harris Teeter, Gelson’s, AJ's Fine Foods and Central Market, and half a dozen other retailers, none of whom touch each other. They can aggregate all of that and say, ‘Here’s a customizable, premium food program for a product,’ and it allows them to create economies of scale.”
This approach would satisfy retailers, because they want “repeatable promotions that are unique in their markets and can drive trips,” he said. This concept could work for a wide range of clustering initiatives, from Hispanic merchandising to pricing strategies. The activity is considered “dynamic” because the clustering is constantly being adjusted based on topic. No retailer will fit into one cluster for everything all the time.
Here’s an example Rand provided of how it might play out around pricing strategies.
“Today retailer strategies on pricing are more often disconnected from supplier strategies than they are aligned,” he said. “Retailers are more variable and responsive to the marketplace than suppliers.”
His solution is that suppliers need to understand the range of retailer pricing approaches and look for commonalities. If you have 10 retailers that want EDLP in a certain supplier’s category, than that supplier needs to create an EDLP program. The same holds true for hybrid and high-low strategies.
“You need to be able to sing more than one song,” he urged suppliers.
Let’s not kid ourselves, this type of approach can’t be built overnight. There’s too much complexity and many moving parts.
But it’s worth trying because it will reduce frustrations. Rand said that Kantar’s annual PoweRanking Survey shows retailers feel many suppliers are trying to make them fit into prearranged programs rather than customizing.
“Let’s start with the idea that you [suppliers] don’t have a channel strategy, you have a customer strategy,” he advised.
He underscored the need for customer strategies by using a humorous insight. Of the top 20 food retailers in this country, there are at least five whose names begin with W: WinCo, Wakefern, Wal-Mart, Wegmans and Whole Foods.
“Line them up to find what their business models have in common,” he said. “The answer is, almost nothing. Maybe lettuce. They make money differently. They’re owned differently. They’re all successful, but in very different ways. How do you have a channel strategy that covers this much ground? You can’t.”
Rand’s call for customer strategies that leverage dynamic clustering makes sense. After listening to him, here’s my question: Why wouldn’t partners want to explore this approach if the goal is really joint business planning?
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