DemandTec Enhances Network
For CPG Manufacturers, Retailers
By Al Heller
The grocery channel’s largest network automating deal management between CPG manufacturers and retailers has added more sophisticated tools. Sporting a new brand name, the DemandTec TradePoint Network also has a new Funds Tracker application that serves as an electronic checkbook, and a software partner program underway with Interactive Edge that enables quick creation and updates of sell-in presentations.
With these new capabilities, the network is poised to serve as a platform for more merchandising and marketing activities. Although DemandTec has developed its network on its own, the company this year has made “a very conscious effort to get close to GS1 and VICS. We can help shape their standards around promotion synchronization, pricing synchronization, and other merchandising and marketing processes, and build industry compliance,” said Armen Najarian, senior director-product marketing at DemandTec, in an interview with CPGmatters.com.
Through Deal Management, one of the core software services residing on the network, more than 1 million trade promotion plans have already been entered, submitted, negotiated and archived on the network; that translates into a 33% share of grocery channel ACV, according to Najarian. Since every step is done in a standard manner and is electronically tracked, deals done on the network address Sarbanes-Oxley compliance requirements and “provide the single source of truth that everyone seeks,” he added.
Nine major retailers including Safeway have 1,500 users on the network, and 140 major CPG suppliers and brokers have 3,500 users on the network. Beyond the network’s workload efficiencies (CPG can save 80%-90% in deal-handling costs), the practical elimination of offline communications means every deal opportunity offered by CPG is evaluated. “Otherwise, 10% of deal offers enter a black hole and are never considered,” said Najarian. In addition, CPG companies receive exception reports whenever retailer billing data and proof of execution don’t align precisely with details of a specific deal sheet.
Since data are shared bi-directionally on the network, true collaboration between partners is possible. The Funds Tracker application gives an accurate read of trade fund balances available, up-to-date as events are planned, “so CPG managers can make more informed business decisions, commit to deals more quickly, and focus on higher-value trade planning activities,” he added.
The other new network application is Interactive Edge’s XP3 Presentation Builder software. It enables CPG account teams to rapidly populate sell-in presentations with the latest data from planning systems. Dr Pepper Snapple Group recently began using DemandTec software in a category planning toolkit, along with the Interactive Edge solution. “From our perspective, having the services work together makes a lot of sense,” said Craig Hodnett, vice president of category management. “We expect this partnership to help our business users save valuable time updating customer category presentations with the latest promotion data from DemandTec.”
JUNE 2008
Understand ‘Net Brand Effect’
To Leverage Entire Portfolio
By Paul Thompson
Most CPG manufacturers have a good understanding of what trade promotional tactics work best for their brands. They have a good idea of the right frequency of promotions and depth of discount. But very few manufacturers understand – or even consider – the wide-range effect.
How do your brand promotions affect the rest of your portfolio, your competitors’ brands, and the total category? How cannibalistic are different sizes to other sizes within your portfolio? When you promote the smaller size, are you sourcing from sales you would have had in the larger size?
It is critical to understand how the brands and sub-brands within a category compete, while determining the amount of cannabalization at the brand/segment level for specific promotions. Understanding how your spending on customer marketing interacts across the portfolio provides better spending and portfolio management direction as well as improved Return on Investment (ROI).
This understanding, called “Net Brand Effect” (NBE), integrates cross-brand switching from a consumer- driven market structure. The latter is driven by consumer purchase switching behavior. It provides a precise understanding of volume flow between SKUs based on substitutability options. NBE lets manufacturers understand the true loyalty of consumers to a brand in order to provide the most accurate understanding of brand’s sensitivity to pricing or promotional changes. Understanding NBE allow manufacturers to focus on driving ROI improvements across the entire portfolio.
NBE is especially critical in very fragmented categories with high SKU count like breakfast cereal. For the retailer, volume flows from NBE can be aggregated to understand the Net Category Effect of promotions. This helps understand if promotions are providing truly incremental volume to the category or just trading volume share among the major brands in the category. Understanding Net Category effects is critical to the retailer to maximize promotional incrementality of key promoted groupings.
Understanding NBE effect also helps derive the most incremental product bundling strategies to maximize promotions. For example, when promoting variety-driven cereal, having the right mix to satisfy a broad range of consumer needs within a segment will maximize the revenue and profit for a promotion.
All of this learning also has to weigh against the menu cost of a merchandising event. Categories that are need driven like cold and flu products are not usually as promotion sensitive. The menu cost can contribute to a significant portion of the total merchandising cost. In such cases, it makes more sense to bundle broader segments of complementary and similar products – despite their cannibalization effect – actually promoting items together minimizes cannibalization as well as spread menu cost to offset the menu cost per event.
This helps to maximize the retailer’s revenue per advertising event as well. Such an approach works with Every-Day-Low-Price (EDLP) promotions to determine if there is greater incremental benefit to having all or just part of the portfolio at an everyday low price. Retailer will often want to have all of the products in a portfolio discounted at the shelf when the same benefit could be achieved at a higher ROI by only discounting specific products within the portfolio.
NBE also plays an important role in understanding a brand’s everyday pricing strategy and the true brand impact of a price increase rather than an SKU by SKU view. Most manufacturers look at price elasticity at the SKU level to determine the impact of taking a list price increase. NBE takes into account the switching between products within the same brand to determine how much of the volume stays with the brand when taking a list price increase. Often the net effect of a price increase is not as negative to the overall brand as the manufacturer might have initially thought by using NBE.
As part of our consulting work at Henry Rak Consulting Partner, we have developed models to integrate market structure which a representation of the way the consumers organizes a category based on their actual behavior, with promotional modeling to understand NBEs and overall category effects. The results have created a very different view of how to promote the portfolio by class of trade. Often the pack size that might have the highest promotional response rate can be very cannibalistic of larger and more profitable sizes and may not be incremental to the category. The key is to start to understand the interaction between and among brands to drive the greatest return for your portfolio and the category.
Paul Thompson is a partner in the Dallas office of Henry Rak Consulting Partners, a Chicago-based consultancy.
