Inconsistency Mars Measurement
Of In-Store Execution, ROI
By Al Heller
The industry now has some new, telling metrics around the in-store execution “blind spot” that has long weakened category management.
Key findings of a new survey of 69 consumer packaged goods suppliers shed light on why execution challenges persist today. It is largely a matter of CPGs inconsistently measuring in-store return on investment (ROI), or not having all the elements in place to do so accurately, and rarely tying results to executive compensation.
The report, Global In-Store Practices, Part 2: Results of the 2010 Industry Benchmark ROI Survey, comes from Quofore, a mobile sales force automation supplier, and the Booz & Company consultancy. The data show that:
- Just 62% of CPG companies surveyed measure in-store ROI.
- Among CPGs that plan to add ROI measurement capability in the future, 36% expect this to occur within 12 months, 45% within 24 months, and the rest later on.
- 83% of all respondents cite out-of-stocks (42%) or trade promotion compliance (41%) as the greatest shapers of in-store ROI.
- 77% of smaller- and medium-sized companies (less than $1 billion annual sales) say out-of-stocks are their #1 influence on in-store ROI vs. 32% of larger CPG manufacturers; this is likely because they find it harder to defend their shelf and display presence.
- By contrast, 62% of larger CPGs consider trade promotion compliance to be their top influence on in-store ROI vs. just 21% of the smaller companies; this is probably because larger CPGs run so many more events.
- A minority of 44% of CPG companies surveyed measure and review ROI by program; a cumulative majority measure ROI periodically—15% weekly, 24% monthly, 12% quarterly, 3% semi-annually and the rest other.
- For the one-third of CPG respondents that don’t measure in-store event ROI, 45% say IT issues are at fault.
- Only 3% of CPGs survey respondents say their companies link pay to ROI performance.
In a sense, the report challenges CPGs to improve ROI reporting and act on results by pointing out what the researchers feel are shortcomings in ROI practices. One critical dichotomy it notes: 62% of CPG companies say they measure ROI for in-store sales and merchandising activities, yet only 19% operate at the highest level of managing in-store activities (using mobile technology for near real-time data) to drive their brands and events.
Therefore, the report poses, are ROI calculations too simplistic? Do they involve all elements they should? How accurate are ROI calculations? How can CPGs figure the percentage attained of an event’s potential?
Some 32% of larger CPGs include more elements in their in-store event ROI calculations, such as sustained post-event sales, labor costs and competitors’ activities, vs. 13% of smaller CPGs that are as comprehensive.
This ROI Report, being released this month, is a sequel to an April 2010 report issued by Quofore and Booz on global in-store practices. More than 100 CPG respondents to that initial study were so taken by one particular finding about ROI that they asked the researchers to dive deeper with a follow-up study. Their motive: “learn more about current industry practices and future plans to understand, share and build ROI around trade spend and in-store executional activities, and the technologies and processes that help make in-store environments more compelling places to shop for CPG brands,” the report states.
The earlier finding that drove this report: 37% of CPG companies achieve their target ROI for their in-store sales and merchandising promotions, while 63% don’t achieve it or don’t know if they do.
This follow-up report showed further that “among the 37% that do achieve in-store ROI, 60% have integrated trade promotion management, and 40% have promotion compliance applications plus other processes/technology to monitor competitors’ merchandising and pricing activity.”
While many of the figures in the survey relate to trade events, the report addresses out-of-stock issues, particularly for smaller- and medium-sized CPG, and a range of day-to-day in-store executional and analytical matters.
“Perhaps the singular lesson coming out of this recession is that there is no substitute for knowing ROI—what pays and what doesn’t—and having processes in place to expediently share insights with decision makers who shape brand success and CPG relationships with retailers,” states the report. “It becomes critical for CPG to course-correct on the fly based
on the latest accurate in-store data, and be certain about which levers to pull to yield the highest ROI.”
The research indicates that “CPG has widely adopted technology to monitor in-store conditions such as shelf presence, orders, deliveries and merchandise displays, and is implementing the next phase to improve field productivity and task management in stores.”
Also, TPM systems “will have to become better oriented around processes and skill sets than they are today,” and there is “movement toward a future driven by global Best Practice, where automation is a means toward optimization (not an end in itself), where visibility drives incremental productivity gains, and where robust analysis of field metrics helps companies focus on winning at retail,” note Quofore and Booz.
Al Heller is co-author, Consumer-Centric Category Management (Nielsen/Wiley) and president, Distinct Communications, LLC.
JUNE 2010
What Marketers Need to Know about Today’s Process
By Paul Thompson
Category management has historically been a defined 8-step process that has been somewhat tactical and very much influenced by the Efficient Consumer Response initiative of the 1990s. Many of the benefits were supply-side driven and/or distribution driven. Yes, CPG manufacturers achieved retail improvements, but they often came at huge costs in man hours and were driven by how the retailer defined the category, not by the consumer.
The paradigm of category management is changing. Retailers are poised to integrate manufacturers’ consumer data with what they know about their shoppers. In fact, much effort by retailers is being done to understand and influence shopper behavior at the point of purchase. Retailers have segmented shoppers based on demographic and psychographic profiles. The primary goals of retailers are to:
- Increase the frequency of trips
- Increase the ring per trip
- Expand categories purchased
Meanwhile, many CPG companies have vast amounts of consumer and shopper research that give them incredible insights about how, where, when and why consumers buy and use their products. Unfortunately, that information often never becomes actionable with Sales organizations to improve performance with retailers. If managed correctly, the knowledge estate that CPG manufacturers have spent millions of dollars to create can be leveraged to create strategic platforms with retailers around macro trends like health and wellness, aging population, convenience, and so forth. Retailers are also looking for insights and understanding to drive new and cutting-edge store design concepts that are more relevant with consumer purchase behavior.
Integrating the use of consumer and shopper information with go-to- market information benefits the CPG manufacturer in many ways. First, this information serves to align marketing and sales internally on the role of the marketing mix. Externally, it gives the retailer a better understanding of how the category is organized from a consumer perspective and where the growth will come from. What makes these insights actionable for the retailer is the integration of information such as promotion response, shelving and assortment with consumer and shopper data.
The manufacturers’ knowledge estate may take on many forms and be in different levels of development, but it consists primarily of:
Competitive Frame – What does the product compete with at broad level and what products can be substituted for its use?
Purchase Structure – How are the segments of this category organized and how do shoppers make their purchase decisions?
Need States – What is the attitude and usage information that defines what needs the product fulfills and the important benefits it provides?
Channel Switching – What causes shoppers to switch brands and channels and where do they go when they do switch?
Promotion Response – What is the role of trade promotion for merchandising and what is the most effective use?
Shelf Management and Assortment – What is the best way to organize the shelf based on how the consumer shops the category? What selection of products best fulfills their needs?
Consumer insights are no longer used just for marketing products. Best-in-class CPG companies are working hard to get these insights into the hands of retailers so they can
make better decision about how to organize store layout, shelf layout, and product adjacencies based on how consumer shop. With this information, they can make better decisions about how to merchandise the category for consumer relevance and where the pressure points are
in regards to price-gap relationship to private label products, etc. By having a better understanding of what products are complementary and substitutable, they will make better decisions about what products can be bundled together for merchandising and co-promotion that provide incremental sales and which are cannibalistic.
From an assortment perspective, the goal is to make sure that all of the distinct consumer segments are represented with the right number of SKUs and the consumer’s preferences for things like flavors and forms are consistent with their level of importance in the purchase hierarchy. This consumer-driven view of assortment in many cases is not how retailers and their syndicated data providers have previously organized category information.
In sum, the face and direction of category management is changing. It is morphing into
a more consumer-centric “shopper management” approach. Most importantly, this metamorphosis is an integrated activity between the combined knowledge estates of the manufacturer and the retailer.
Paul Thompson is a managing partner with Henry Rak Consulting, a Chicago-based consultancy. To learn more about HRCP and its services, visit www.hrcpinsights.com.
