Promotion Collaboration

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1 IBM Software Industry Solutions Promotion Collaboration Five steps to success

2 Promotion Collaboration The game changes when trading partners truly collaborate on promotions Retailers and manufacturers share common insights and use data to drive superior promotion and merchandising decisions based on reliable forecasts and the expectation of mutual success. Trust emerges based on common understanding, transparency and shared success. Benefits accrue for both parties, as factbased promotion collaboration becomes their embedded, everyday mode of interaction a way of doing business not just this month s slogan. Leading retail and consumer product companies are already collaborating to win. They are learning to work together for mutual, sustainable promotion and category management success. Consumer-centricity is galvanizing our industry Retailer and manufacturer alike are working to better understand and get closer to shoppers. These initiatives are driving opportunities to collaborate throughout the demand chain, serving as the foundation for joint business value creation. The shopper insights and enabling technology for demand data-empowered collaboration are available today. Before you plan another promotion, set another price, refine another assortment, or negotiate another deal with your trading partner, review this book and discover the sustainable advantage collaboration can build for your business. What we have learned Manufacturers and retailers who engage more of their partners in collaborative activities report better success from their promotions. For retailers collaborative engagement means improved interactions on demand analytics and win-win planning. For manufacturers collaborative engagement means more freedom for the field sales force and new tools to more effectively manage and measure promotions. IBM and Booz & Company, in partnership with Trade Promotion Management Associates, jointly sponsored research on this issue because we observe trading partners striving to gain greater collaboration and mutual benefit. The Promotion Collaboration Survey is the first known to address trade promotion optimization and collaboration. The resultant insights imply ways that the industry can best work together to improve retail-focused merchandising and marketing. The big ideas: Manufacturers and retailers are becoming increasingly interdependent. Trade promotion optimization is a key opportunity and the next frontier in collaborative activities. Increased collaboration can drive more effective business results. In addition, the survey found that most retailers and manufacturers believe collaboration is important to their future success. Of the respondents: 92 percent of retail grocers report collaboration as very important to future success and 8 percent consider it important. Manufacturers rated collaboration as very important 56 percent of the time, and important 39 percent of the time. It s no secret. While retailers tend to be most interested in shopper dynamics and category health, manufacturers have historically maintained focus on consumer events and brand profitability. Bridging this disconnect can help promotions perform better. Retailers and manufacturers share related concerns about demand forecasting and differing objectives (e.g., category growth versus trade spend ROI). 2

3 IBM Software When retailers rate importance and effectiveness of vendor capabilities, three gaps stand out [Figure 1]. Survey question: Please rate the importance and effectiveness of your vendor partners in the following skills that support collaboration. When manufacturers rate the importance and effectiveness of their customers capabilities, the largest gaps differ. However, both share concerns about demand forecasting [Figure 2]. Survey question: Please rate the importance and effectiveness of your retail partners in the following skills that support collaboration. Figure 1 Source: The Promotion Collaboration Survey Figure 2 Source: The Promotion Collaboration Survey 3

4 Promotion Collaboration Trust remains a key factor in collaboration effectiveness, but relatively less important than other barriers. Data inconsistency, inappropriate tools, misaligned or lack of defined objectives, and lack of a process are considered to be greater barriers to collaboration than a lack of trust. It is also highly likely that any efforts to eliminate these other barriers would also have the secondary benefit of building and ensuring trust within the relationship and the collaboration activities. Survey question: Please rate the importance and effectiveness of your vendor partners in the following skills that support collaboration. Figure 3 Source: The Promotion Collaboration Survey 4

5 IBM Software Collaboration can benefit retailer and manufacturer partners in a variety of ways. Figure 4 Source: The Promotion Collaboration Survey 5

6 Promotion Collaboration There are five key steps that provide a framework to effective collaboration between retailers and manufacturers. Step one: plan collaboration holistically It has to begin with the big picture. Collaboration is more than a joint planning meeting and simply sharing data. It s a way of doing business that defines how retailers and manufacturers go to market, day in and day out. It requires data and tools, but also depends on people and processes. As with any enduring change initiative, it behooves companies to consider how it could impact their businesses across several dimensions: Who Define who is involved in your organization and who they will be interacting with in your trading partner s organization. Be certain your people are empowered with the authority to get the job done. What Define the processes and roles clearly. Know exactly what you are trying to accomplish and what has to happen. Be ready to state it clearly. Where What must take place in person versus by phone, , or in a shared, Web-based workspace? Does the work take place on your premises? At your trading partner s? When Establish a timetable for collaboration that considers joint goals, availability of solutions, and sets milestones for key tasks. Why The reason to collaborate may seem self-evident. However, clearly stating the primary objectives can help shape the rest of the plan and also help both parties modify or expand the initiative as new opportunities emerge. Also, your trading partner s stated reasons to collaborate may be slightly different than you expect. Key considerations for retailers: Is promotion collaboration centered around the category management team? Who else should be involved? Who will interact with counterparts on the supplier side and what tools will they use? Are you ready to implement programs developed with your partners? In addition to planning for your own improvements, are you identifying ways to enable your supplier community to lower its cost to serve you? Key considerations for manufacturers: Have you empowered your field-based account teams to take action? Are you engaged in a dialog with retail customers around collaborative promotion planning? Are you ready to leverage transaction log data in your promotion strategies and tactical recommendations? Have you identified ways to lower your cost to serve your most important retail customers? Step two: set rules of engagement Collaboration is not a no holds barred proposition Trust is built in part by setting limits and defining rules. For some in the industry, collaboration is simply synonymous with sharing data, but there are ways to collaborate that need not involve any disclosure. Also, levels of collaboration may vary, and some capabilities may be enabled without sharing sensitive data. Overall, retail leaders are opening up more of their businesses to collaboration with suppliers in order to achieve the benefits of joint planning and execution. In these cases, limits do apply. It s important to recognize that the retailer sets the rules of engagement. 6

7 IBM Software Key considerations for retailers: Based on what you want to achieve, determine what information your vendor needs. Analyze the different types of vendors you do business with and define how collaboration might differ between them. Authorize vendors to use software, access reports, or even use specific data sources based on their roles. Key considerations for manufacturers: Build your capabilities around retailers rules. Share best practices and marketing know how. Leverage your consumer knowledge. Step three: define key performance indicators and goals How do you measure success? Successful trading partners jointly establish key performance indicators (KPIs) from the outset of a collaborative relationship. There is no substitute for candor in this discussion, because both sides must recognize that what is optimal for one may be unacceptable for the other. It s well understood that a promotion that drives one brand s short term sales at the expense of overall category objectives is not sustainable. Previously, many of these promotions have been executed at retail because neither party had a better alternative, and perhaps experimenting with something new (versus repeating what was done last year) was too risky. In this day and age, this should not be considered acceptable. For successful collaboration, it is essential to define what you will measure. This can enable both parties to raise the bar from what they have done in the past. Key considerations for retailers: Establish KPIs for promoted item sales, but also overall category sales and profits. Analyze cannibalization of private label or other brands as you evaluate deals or offers from different vendors. Using KPIs, request that promotional offers from your suppliers meet agreed-upon thresholds. Finally, consider customer segmentation strategies. Request promotional offers that are not only good for the category but are better targeted to your key customer segments. Key considerations for manufacturers: Recognize retailers interests and how they evaluate competing deals. For win-win collaboration, make sure your customer understands your goals for volume, cost-per-incremental volume, and trade spend ROI. Explain how lowering the cost-to-serve a given customer would benefit the customer. Bring deep consumer insights and research to the table, and align with the retailer s loyalty insights and other shopper insights to plan targeted promotions together. Step four: establish collaboration tools Make success possible. Even more than that make breakthrough success the everyday norm. Empower sales and category management teams with tools that support quick, more accurate, informed decision-making, reliable forecasts and dependable, rapid monitoring of results. 7

8 Promotion Collaboration Advanced promotion planning software applications today apply the science of consumer demand modeling and predictive simulation. These can be based on a modeled platform of either retailer POS/t-log data or syndicated market data. Retailers and manufacturers can benefit when comparing forecasts and other analytics in an apples-to-apples manner. Using the same methodology and science over different data sets is a significant opportunity. Using the same underlying data can make this even more powerful. Key considerations for retailers: Use advanced promotion planning tools to compare vendor offers against each other and with regard to the agreed-upon KPIs and thresholds listed in Step Three. Create additional what-if scenarios to forecast what different deal terms or different uses of ads and displays could generate. For the most collaborative retailers, consider enabling your suppliers to receive metrics (e.g., volume forecasts) from your modeled environment (subject of course to the rules of engagement defined in Step Two). Key considerations for manufacturers: Choose the right metric system. Your plans can be more easily sold in if the analytics used to prove their value are consistent with what your customer uses. Use the same promotion planning system as your customer with your syndicated data. This helps ensure that both parties are not only comfortable with the modeling and forecasting approach, but process efficiencies can be gained as well when data is not entered multiple times. Encourage your customers to open up their analytical platforms to give you the key metrics you would need to help drive their business and meet the established KPIs and thresholds. But recognize that your customer sets the rules of engagement. Step five: continuously measure and adjust Build a cycle of success. Empowered, informed collaborators continually measure, evaluate and adjust merchandising programs based on a common understanding of mutual goals and gains. The outcome is a virtuous collaboration cycle that engages both retailers and manufacturers in an upward spiral of performance that yields mutual benefits. Just as importantly, the iterative process influences trading partners to reduce sub-par or non-performing programs, freeing scarce resources that may be reallocated to more powerful and productive promotions. Key considerations for both retailers and manufacturers: Based on the KPIs defined in Step Three, are promotion plans achieving the goals each party set? Don t forget to scorecard the process itself. Even if all KPIs are in the green, is the process working as efficiently as it can be? Re-assess Steps One through Four. Should others be involved in the process? Are you measuring the right KPIs and using the best tools? 8

9 IBM Software A continuous and collaborative cycle to measure and adjust ensures objectives are being met Sample scorecard Retailer Performance Target Actual Status On-time reports 100% 90% On-time payments 100% 85% Manufacturer Performance Figure 5 Target Actual Status On-time reports 100% 87% On-time billing 100% 92% Collaboration KPIs Target Actual Status Promoted brand volume + 8% + 5% Category profitability + 4% + 5% Cost per incremental unit - 3% - 2% Category cannibalization - 2% - 3% Private label volume loss - 10% - 6% Best customer alignment 75% 81% Trade spend ROI + 4% + 6% This is not the last word... Collaboration is a big concept that is certainly not limited to trade promotion. It is fundamental to driving innovation and yields great advantages in assortment and new item planning, shelf planning and other category management activities. For many retailers and consumer product manufacturers, most collaboration to date has been taking place in some of these other areas with fewer initiatives centered on improving promotions. Given new technology and changing attitudes towards win-win promotion planning, trade promotion collaboration is now a key initiative for more and more leading innovators in our industry. About IBM Enterprise Marketing Management Designed to address the specific needs of particular marketing and merchandising users, the IBM EMM Suite is comprised of four individual solutions. Digital Marketing Optimization enables digital marketers to turn online prospects into repeat customers and loyal advocates. With Marketing Interaction Optimization, customer relationship marketing groups can engage each customer and prospect in a one-to-one dialog across communications channels. Price, Promotion and Product Mix Optimization allows merchandisers and sales planners to align price, promotions and product offers to increase customer loyalty and profit. And with Marketing Performance Optimization, marketing leaders, planners and decision-makers can improve overall marketing operations, and in particular the planning process, to reduce costs and increase results to maximize marketing ROI. For more information To learn more about IBM Enterprise Marketing Management please contact your IBM marketing representative or IBM Business Partner, or visit the following website: Smarter Commerce: An integrated approach IBM DemandTec products are part of the IBM Smarter Commerce initiative. Smarter Commerce is a unique approach that increases the value companies generate for their customers, partners and shareholders in a rapidly changing digital world. To learn more about Smarter Commerce, visit: 9

10 Copyright IBM Corporation 2012 IBM Corporation Route 100 Somers, NY U.S.A. Produced in the United States of America August 2012 IBM, the IBM logo, ibm.com and DemandTec are trademarks of International Business Machines Corporation in the United States, other countries or both. If these and other IBM trademarked terms are marked on their first occurrence inthis information with a trademark symbol ( or TM), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common lawtrademarks in other countries. Other product, company or service names may be trademarks or service marks of others. A current list of IBM trademarks is available at Copyright and trademark information at: ibm.com/ legal/copytrade.shtml The content in this document (including currency OR pricing references which exclude applicable taxes) is current as of the initial date of publication and may be changed by IBM at any time. Not all offerings are available in every country in which IBM operates. The performance data discussed herein is presented as derived under specific operating conditions. Actual results may vary. THE INFORMATION IN THIS DOCUMENT IS PROVIDED AS IS WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OR CONDITION OF NONINFRINGEMENT. IBM products are warranted according to the terms and conditions of the agreements under which they are provided. Please Recycle ZZW03170-USEN-01

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