EFFORTS TO CUSTOMIZE UNEVEN, STUDY FINDS

LUCIA MOSES

McCLEAN, VA. - Retailers and manufacturers are spending a lot of time and effort to differentiate their products and services, but only half of those efforts are paying off.

That's one of the main findings of a study by Booz Allen Hamilton here for the Grocery Manufacturers Association on the value of customization to retailers and packaged goods companies. Full results will be shared at the GMA's Merchandising, Sales and Marketing Conference in Palm Beach, Fla., Sept. 25-27.

Other conference highlights include panels on localizing store formats, recruiting leaders and Publix Super Markets.

Trading partners are actively pursuing customization strategies that they hope will yield greater sales and supply chain efficiencies. Those strategies often take the form of a unique package size or display unit, dedicated in-store support or premixed pallets.

In a typical example of a successful customization effort, a manufacturer might produce a package in a larger, more economical package size and build a custom display to showcase it. The product would be displayed several extra weeks. The manufacturer's profits and the retailer's category share would grow during the length of the promotion.

Yet a survey of the 26 manufacturer and nine retailer participants in the Booz Allen study, representing a variety of grocery categories and channels, showed half of their customization initiatives failed to create value. Booz Allen's own case studies, which looked at incremental sales volume, cannibalization and costs of such efforts, validated the survey's findings, said Matthew Egol, a principal at Booz Allen.

Programs fail because the parties don't know the costs involved or don't fully implement the program. Displays don't get put up in stores, or come down before they're supposed to, Egol said.

"We found cases where the cost of providing customization can be off by as much as 50% relative to the break-even point where you need to create value," he said. "In some cases, the compliance levels were less than half. If you don't have it up when it's supposed to be up, then you don't have the benefit."

Customization programs also tend to start as an ad hoc request from the retailer and evolve without formal success measurements, said Richard Kauffeld, a vice president at Booz Allen. "What's required is a clearer process around how you manage these kinds of activities," he said.

And so while manufacturers may find they don't get the incremental sales needed to offset the cost of producing the customized package or display, the retailer may forego sales it could have gotten by displaying something else.

"While these programs may not be paying off for manufacturers, there was the assumption that it works for retailers," Kauffeld said. "The assumption is that retailers had less incremental cost, and so it was worthwhile for them. But when we surveyed the retailers, they're saying, 'No, for the effort we put in, we don't see the incremental lift as well.'"

With the vast majority of respondents expecting customization to continue in the next few years, there's potential for plenty of waste if current practices stand. On the upside, participants saw ways to make customization more successful.

"Those who work more closely together on collaboration, picking up the customization more holistically, are able to get substantially higher levels of effectiveness," Egol said.