AN INDUSTRY PROFILE

JAMES TENSER

ATLANTA -- Brand marketers mostly favor in-store marketing. They are implementing more customer-specific marketing and service programs. They give strategic alliances with retailers a low passing grade. They are advancing their commitment to category management.

These are just some of the key findings of the first NeoTrends Annual Manufacturers' Survey, sponsored by the Grocery Manufacturers of America and conducted by Neo Inc., a Shelton, Conn.-based consulting firm.

The results were presented here at last month's GMA/NeoTrends Conference by Gail Nelson, a Neo managing director who designed the study and analyzed the results. The survey and the resultant conference represent the first time GMA and Neo have collaborated on this level.

"GMA wanted to take a temperature of where its membership stands on key industry issues," said Nelson.

GMA fielded the survey, contacting 433 individuals among its 135 packaged goods company members. The 100 usable responses represented close to 60 organizations, or nearly half of the GMA member companies.

The survey was designed with three main objectives: to identify manufacturer perceptions about industry trends; to assess the level of manufacturer involvement in major industry initiatives, and to identify barriers to successful manufacturer implementation.

Its findings reflect brand marketers' perceptions of industry trends, as well as their business behavior.

In-Store Marketing

By a 2-to-1 margin, brand marketers said they believed in-store marketing can build brand franchises over the long term. While hardly unanimous, the result suggests that in-store techniques are gaining higher esteem.

"We think this is a major difference compared with a few years ago when it was considered to be very much a second-class citizen in terms of building brand equity over the long haul," said Nelson.

In verbatim comments, one survey respondent linked in-store marketing to a growing value consciousness among consumers: "In-store merchandising, visibility and promotion have a significantly greater impact today than the more traditional media."

Another respondent added, "This effort complements our traditional media effort, building brand awareness toward specific target audiences."

The dissenting view was typified by another manufacturer: "There is not sufficient time during an actual shopping visit for a consumer to really learn about new products or product improvements. In-store may well reinforce or highlight more awareness, but will not actually build the franchise."

With the emphasis rising on in-store, retail store coverage is also expected to become "more important" by 41% of respondents, while just 24% said it would become "less important."

How Brokers Fit In

Retail store coverage and sales are implemented for brand marketers by brokers, direct sales organizations or a combination of the two. Survey respondents were divided roughly in thirds along those lines, with "brokered organizations" defined in this survey as having 75% of their volume going through brokers.

Even among "direct sales organizations," defined as companies with 90% or more of their sales handled by their direct sales force, 57% said they use brokers for some product lines or geographic areas.

However, 56% of direct sales organizations said their dependence on brokers decreased during the last two years, compared with 44% who said their use of brokers had increased. That contrasts with the total base of respondents, of which 65% said their use of brokers had increased.

"With the increasing publicity about partnerships and strategic alliances," said Nelson, "the more powerful factions in the trade have been demanding more direct contact. Manufacturers like brokers, and they need their arms and legs for in-store contact."

Among survey respondents, 91% said they currently use brokers for retail coverage, 85% said they use brokers for shelf management and 78% said they use them for headquarters coverage. In addition, two of three said they use brokers for order placement/invoicing, while just one in four uses them as a resource for other technological support. (Multiple responses were allowed.)

Brand marketers' outlook on their future use of brokers looks somewhat different, however. Respondents say that five years from now they anticipate broker involvement to increase as a resource for technological support, but to decrease in the other four areas mentioned.

Notably, 11% fewer manufacturers expect to use brokers for headquarters coverage, and 24% fewer expect to use them for order placement or invoicing. Those results hold consistent even among primarily brokered organizations.

Nelson called the decline in headquarters coverage "a significant number which suggests that brokers need to be very aware about how to provide key functions."

Information Technology

Most brand marketers (57%) said they are satisfied with the return they are getting from their investments in technology, with a notable exception in the sales area, where 62% of respondents said they were not satisfied with their ability to make use of information systems.

The very largest companies ($10 billion plus), as well as health and beauty care and household products companies, indicated greater satisfaction from their use of sales technology, however. Two of three large-company respondents indicated satisfaction with sales' ability to use information systems, for example.

"Where they have invested in technology for the most part they have achieved what they expected to get," Nelson said. "But there is a long way to go, especially in the sales effort itself."

Most frequently cited in the verbatim comments was the need for "more analytics," she said. "There is so much data, but it is not that easy for people to use; it is not as accessible as it needs to be."

Partnering/Strategic Alliances

Two-thirds of all respondents (68%) said they are currently involved in some form of strategic alliances with their retail customers. On a scale of one to 10, they give their alliances a passing grade of 7.0.

Here again, the smallest manufacturers (less than $500 million gross sales) tended to be less likely to have strategic alliances with retailers -- just 36% responded in the affirmative. Among brokered organizations, slightly more than half (55%) were involved with strategic alliances.

Among all respondents, the average number of strategic alliances was 11, with very large ($10 billion-plus) companies leading the pack with an average of 41. HBC and household product manufacturers also beat the norm, with respective averages of 26 and 22 strategic alliances. Nelson said she interprets this result to reflect such companies' greater involvement with mass merchants.

Primarily direct organizations averaged 18 alliances, while brokered companies had about 6.5 alliances on average. This suggests that brokers may be something of an obstacle to such activity, she said.

Strategy Changes

Many brand marketers said they have already implemented major sales and/or marketing strategy changes. At the top of the list is the reduction of deal complexity, which has been done either in test, regionally or broadly by 75% of the respondents, and which is in the future plans for another 21%.

Other strong positive responses were noted regarding the investment in improved software tools for promotion analysis (75%), shelf management (70%) and account-level analysis (76%).

"These are the comparatively easy fixes," said Nelson. She said the software is primarily being used by headquarters experts in the marketing and market research areas, especially for promotion design and analysis.

"This may connect with the earlier finding of dissatisfaction regarding their return on software investment," she said. On the other hand, many companies' trade marketing/customer marketing groups are really getting mileage out of the software.

In general, manufacturers do not plan to change their strategic direction with regard to private label, survey results indicate. While 48% said they have offered private labels in the same categories as their branded products, only 8% said they plan to go that route in the future. Twenty-one percent said they have offered private labels in related categories.

Category Management

A strong 88% of all respondents said they have made at least a partial commitment to category management. One in four (26%) said they have completely embraced the discipline, while two of three (62%) are involved but still have a way to go.

Here again, HBC and household product manufacturers showed a somewhat higher involvement than the total sample. Nelson said she believes this maybe due to the high stockkeeping-unit counts in some personal care categories, which have forced manufacturers to adopt the tools to assist the trade in SKU optimization.

Overall, those companies executing category management gave it an average success rating -- 6.1 on the one-to-10 scale. Among the major obstacles to its success they cite lack of retailer acceptance; lack of or high cost of information; and lack of management or marketing expertise.

Customer Service

In the service area, topping the list for manufacturers were customer-specific programs, which 93% of respondents said they have either tested, done regionally or done broadly. Implementation of electronic data interchange with uniform communication standards drew second rank, with 87% already involved.

However, manufacturers have been slower to implement other customer-service enhancements. Slightly more than half (56%) of respondents said they have taken some action to eliminate deductions and shipment errors. A smaller number (43%) said they have begun to operate their businesses with account profit-and-loss statements.

Many of the listed items have been demanded by the trade, said Nelson. On customer-specific programs, for instance, "the trade has been hammering away on this forever. They want the money and they want to use it their way."

She said the results point toward a "big control issue" about market development and other trade funds. "It makes it extremely difficult to control not only how trade uses but sale force uses them."

One solution, she said, is to simultaneously undertake incentive program analysis. "If you loosen up the funds, you have to make people responsible for the results."

Efficient Consumer Response

"More than half of the total sample (54%) said they are committed to ECR at top management level. But few have an action plan, few of those have communicated it broadly and fewer still have tested it," said Nelson.

But a smaller fraction of brokered sales organizations (46%) and smaller companies (37%) have made the commitment to ECR, the survey results show.

Nelson interprets this result to indicate that smaller companies "just don't have the funds." She added that ECR was an area where the survey points toward the greatest amount of confusion due to lack of definition or understanding.

Most organizations (59%) said they have established ECR-based supplier/distributor alliances. However, they are rated as only moderately successful (6.3 on a scale of one to 10).

Nelson said the survey identifies several perceived barriers to making ECR happen, all of which relate to communication issues. Most frequently mentioned were: lack of retailer support; lack of internal support; and lack of information and understanding of what ECR is.

Can in-store marketing build brand franchises over the long term? YES 68% NO 32%

Have you made a commitment to category management? YES 26%

SOEMWHAT 62% NO 12%

How do you use brokers now?

Retail coverage 91%

Shelf management 85%

Headquarters coverage 78%

Order placement/invoicing 66%

Resource for other technology 25%

How will you be using them in five years?

Retail coverage 85%

Shelf management 75%

Headquarters coverage 67%

Order placement/invoicing 42%

Resource for other technology 31%

Do you have any strategic alliances/partnerships?

Overall industry YES 68% NO 32%

Smaller companies YES 36% NO 63%

How do strategic alliances rate, on a scale of 1 to 10?

Overall rating 7.0

What changes have you made in customer service?

(Multiple answers allowed.)

Add more customer-specific programs 93%

Implement EDI / UCS 87%

Lengthens promotion leadtimes 83%

Improve on-time delivery 79%

Reduce order cycle time 78%

Increase top-to-tops 77%

Improve order fill 74%

Centralize order management 68%

Re-organize to improve responsiveness 65%

Create multi-function teams 57%