trade promotion management associates
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TRANSCRIPT
Being Demand Driven May 1st, 2007
Trade Promotion Management Associates
“Business models will be built around greater customer intimacy – where every touch point becomes a moment of truth and customer relationships become the key competitive assets of the business.”
-Retail Forward
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Discussion Outline
1. Clarkston Introduction
2. Collapsing Value Chain & You?
3. Examples for thought
4. Ideas on how to leverage a collapsing value
chain
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Presentation Objectives
1. Convince you that your value chain is collapsing
2. Balance sense of urgency against order of
magnitude of change
3. Provide some pragmatic ideas where you may
want to begin adjusting your own model
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Who We Are – Fast Facts
Leading strategy, management and technology consulting firm• 250 employees • Durham, NC (headquarters) and offices in Atlanta, Dallas, Detroit, New York,
Philadelphia, San Diego, San Francisco and Calgary, Canada
Serving global consumer products and life sciences clients since 1991
Focused on the creation and execution of operational business strategies centered on bringing innovative new products to market
One of the highest customer satisfaction rates in the industry – dramatically exceeding industry norms by 20% *
Organically grown to current size
Key measures of Clarkston’s success:70% repeat clients & referrals
Consistent 5-year client satisfaction rating of 95% or higher*
* As measured by
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Unmatched Depth of Expertise
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Consumer Products Industry Experience
Sample Clients
Focused Experience
Food & Beverage Home Personal Care / Beauty & Cosmetics Apparel and Footwear Fast Paced Consumables
Functional Expertise
Strategy and Process Services: Organizational Effectiveness Business and Market Penetration Strategies / Simulations Brand strategies (mergers, divestitures, etc.) Innovation & New Product Development Services Business Process Re-engineering Program and Initiative Management KPIs/Metrics/Scorecards
Process and Implementation Services: Manufacturing and Supply Chain Solutions (planning & execution) Demand Chain Solutions (trade, branding, category management,
ideation, etc.) Customer Fulfillment Solutions Regulatory Compliance Practice – FDA, OHSA, etc. Innovation / New Product Development Warehouse and Logistics Management Quality and Regulatory Management Finance/HR
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The Collapsing Value Chain
Is your value chain is collapsing?
1. Can your company make a major packaging change to a leading product, email samples on a Friday and by Monday morning have 700,000 loyal consumers comment on planned changes?
2. Do you listen to consumers, incorporate one input from them and reduce your number of finished goods by 75% while becoming the category captain & reducing 90% of promotional activities?
3. Can you launch new products in effective tests that yield experience curves for adoption rates in 2 weeks – with very high degree of correlation to actual launch?
4. Does your board of your company know who your most profitable customers are? Would they give the same answers? Likewise does the board know who the most profitable consumer segments are?
5. Does your marketing team plan out of stocks on purpose – and increase demand?
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Industry Evolution – Death of the Average*
* Source of Death of the Average concept MVI Ventures, Cambridge, Mass
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Industry & DSD Drivers – The Collapsing Value Chain
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Industry & DSD Drivers - Technology Adoption Curve
Elapsed Time (Years)
Ra
te O
f A
do
pti
on
(%
)
0 20 60 80 100 120
Electricity
Telephone
Cell Phone
Blackberry
Internet
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Concepts supported by industry peers: AMR Research – Demand Driven Supply Chain
P&G – DDSN Model
Supply Chain Council – SCOR Model (incomplete)
Larry Selden states: “High profit and high-potential
customers deserve a superior experience – not all
customers are created equal and deserve equal treatment”
Today’s consumers are becoming ever more heterogenous
Number of messages touching consumers increasing
Brand loyalty changing
Bottom line – it is our FIRM conviction that today’s battle ground is the store shelf – integrating promotion effectiveness is a must
Summary - The Collapsing Value Chain
59% of U.S. consumers believe that very little, if any, marketing and advertising they see has any relevance to them
Share of media, and hence mindshare, has decreased from 45% in the 1980s to 19% today (CPG Industry)
58% of U.S. consumers believe that there should be more brands and types of products so people can pick the one that best fits their own individual needs
•Increasing number of U.S. consumers believe that it is not important to be brand loyal
Number of Messages
1960 1990 2004
1,5003,000
5,000
Sources: Clarkston research; K-C research; IBM research
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Examples
1. Major Global Tobacco Company
2. Behr Paints
3. P&G / Major Global Tobacco Company
4. Zara*
5. Customer Segmentation from “Angel Customer’s and Demon Customers”, by Larry Selden
A missed opportunity: L’Oreal
* Note – Zara is the only example that Clarkston has not directly consulted with
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Applying the Collapsing Value Chain
The increased size and strength of retailers has resulted in greater pressures on consumer products (CP) companies to quickly deliver customized products at customized products at reduced costsreduced costs.
Many of the classic supply management techniques that focused solely on cost efficiency and effectiveness are no longer appropriate in a consumer-driven consumer-driven environment.environment.
The supply chain must be able to react to customer demands quicklyreact to customer demands quickly to remain aligned to the supply chain of the future.
Retailers have been focused on top-line growth through differentiationdifferentiation and are looking to suppliers to provide improved services and products. Two “must have” requirements from retailers are improved on-shelf availability and innovative improved on-shelf availability and innovative productsproducts.
Customers are requiring manufacturers to be reactive and responsivereactive and responsive to their needs quickly and to keep costs down through lower inventory levels and collaboration.
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31%
21%17% 16% 13%
28%
23%23% 22%
20%
17%
24%27%
20%24%
13%
14% 15%
7% 7%
4%
8% 9%
20%22%
4%6%
6% 4%
6%
1993 1995 1997 2000 2003
Off Invoice
Market Development Funds
Accrual Programs
EDLP (taken Off Invoice)
Slotting Allowances
Scan-Downs
Card-Based ProgramsMenu-Based ProgramseMarketingOther3%
3%
1%4%
4%5%
5%
Trade promotions are changing quickly –
retailers want differentiated shopper marketing!
Applying the Collapsing Value Chain
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Adapting to the Collapsing Value Chain
This is not easy: Puts traditional and learned behaviors at risk
Plants and supply chains still largely evaluated on efficiencies
Entrenched thinking only slowly giving way to lean, six sigma, etc.
Sales people often still highly protective of customers/promotions, block real visibility
Activity based costing woefully under used – real segmentation work requires it
Challenges the fundamental power base – direct consumer demand is only means to fighting commodities and retailer strengths
Trade promotions are the last major frontier to impact behavior at the store shelf, integrate them seamlessly with your S&OP processes, demand planning and supply chain execution (consider DSD when needed)
Not one size fits all – a core capability will be adaptability and unique solutions for customers, categories, products, outlets and events
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Adapting to the Collapsing Value Chain
This is not easy: Consumer focus exceeds customer focus – difficult for many CPG
companies & consumers continue to get smarter with shorter attention spans
Quicker communications, yet much more clutter to sort through
Ever greater percent of sale generated by new products
Ever shorter new product development and launch cycles
Faster, more disruptive technologies
Shrinking / changing natural resources
Globalization – the need to balance centralization with local autonomy
Most struggle to understand – forecast less in a demand driven model, and when we do, at a higher level where noise cancels
Linking disparate data streams is not a core competency – just look at how few CPG companies link RFID case and pallet data with POS data
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Adapting to the Collapsing Value Chain Fundamental starting points are: Pilot projects
Pick one top customer to pilot with; begin with shared vision/strategy
Relationships key, find the partner you can actually make mistakes with
Don’t spend time on detailed benchmarks not much help during pilot phases
Pilot where data exists, build business case and prove new model (measure)
Once CREIDBLE pilot is complete, sell to board – this is a top down change
Customer Segmentation Apply Activity Based Costing principals to allocations
Work with board to prove customer profitability
Begin preliminary consumer segmentation
Capitalize on “new parts of the value chain” New product launches are ideal – slow them down and create a hypothesis and test for each
phase/part of the launch
Strongly consider exclusivity for key customer (that is what they really want)
Avoid over committing the supply chain – save the build up for commercialization
Use creative technologies to reach consumers/information bases – all in small pilots
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Starting points: Create a “Transparent” information infrastructure
Inven
tory
Log
istic
s
DemandMetrics
GlobalGlobalSupply Supply NetworkNetwork
DataData
EnterpriseEnterpriseEnterpriseEnterprise
Customs Customs BrokersBrokersCustoms Customs BrokersBrokers
International International CarriersCarriers
International International CarriersCarriers
Freight Freight ForwardersForwarders
Freight Freight ForwardersForwarders
TPOTPOTPOTPO
CustomersCustomersCustomersCustomers
ContractContractManufacturersManufacturers
ContractContractManufacturersManufacturers
ConsolidatorsConsolidatorsConsolidatorsConsolidators
SuppliersSuppliersSuppliersSuppliers
NPDNPDNPDNPD
Adapting to the Collapsing Value Chain
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Summary
Current state of industry leaves a lot of value on the table
Demand-Driven pioneers are creating profitable consumer-serving machines
Becoming demand-driven is not a quick transition
Customer product proliferation and globalization complicates being demand driven
Change processes, then use technology to automate processes and optimize decisions
Continuously measure to improve