How retailers & manufacturers work together in Customer Management to win the customer

Traditionally it's been difficult for food retailers to convert customer transaction data into value that actually creates growth, but that is changing. Today, the Customer Management discipline provides a scalable process that allows both grocery retailers and brands to unlock that value and produce new growth via targeted collaboration.

In this conversation, we ask Jean-Marc Sallenave and Jim Dippold, co-founders of Customer Management Partners and authors of the book Customer Management: How Retailers Must Change to Survive and Succeed , to walk us through that process with a focus on the opportunities it presents for brands and retailers to work together so that they both grow their respective businesses by giving targeted customer segments more of what they want.

Whether you are an executive leading a retail or CPG organization or the person accountable for the growth of a specific brand/category,understanding the value and application of Customer Management is vital because of the growth potential available when retailers and brands work together in this way.

Editor’s notes: We know there is a lot of detail here, so to make it easier to get to what you need this post has two sections – Section I. The Framework/Process and Section II. Retailer/Brand Collaboration Opportunities.  

 I. THE FRAMEWORK/PROCESS

BILL: Can you briefly describe the benefits Customer Management offers to retailers and brands and how it works?

JEAN-MARC: Customer Management gives retailers a way to define and execute different strategies for different groups of customers using a scalable, repeatable process that allows them to target the needs of their most profitable customers to grow the business.

It’s a 5-step process for organizing and managing a retailer’s portfolio of customers as strategic assets to achieve enhanced business results by attracting, keeping, and growing customers.

This process guides the retailer and brands to shift resources from less productive spending areas in marketing and merchandising to more productive areas and thereby drive growth. It integrates the rules necessary to translate customer-identified data into positive action and growth. All an organization needs to do is to follow those rules in the Customer Management process.

The process is driven by the retailer, but brands have an essential role in bringing it to life.

STEP 1.CUSTOMER UNDERSTANDING

BILL: Can you illustrate why understanding customers is so important? Where do we begin?

JEAN-MARC: It’s important because different customers expect different things from the retailer.

You might have a customer we’ll call “Emily.” She cares about food quality and where it comes from, and favors premium brands. The retailer has a lot of customers like her, so it creates a customer segment for them and calls them “Deluxe Meals” customers.

You might also have a customer we’ll call “Maria.” Maria is too busy to cook. Saving time is more important to her than saving money. She looks for foods that are easy and quick to prepare. She eats on the go a lot and is a bit impulse-driven. The retailer has a lot of customers like Maria, so it creates a segment for them called “Easy Meals.”

If you are a grocery retailer, you typically need to serve both of these customers at once. Actually, it’s even more complicated because you might need to serve 7 or 8 kinds of customers, each as different from each other as these two!

So the first step – Customer Understanding – is about capturing these different customer segments, being able to describe them, quantify them, and measure their performance.

This chart shows the full distribution of customer sat a typical grocery retailer.

BILL: How does a retailer know how high a specific brand’s customers index across the customer segments?  

JEAN-MARC: Let’s look at the number of the retailer’s customers that are reached by a typical large manufacturer - in this case, we’ll use Conagra as an example.

The gray bars show the number of customers reached by this manufacturer.

Considering how Conagra's customers fall across the segments,we see a clear skew towards Easy Meals. Of the two million or so Easy Meals customers, nearly half of them (or 961,000) bought Conagra products.

This is an important insight because it tells us that Conagra and the retailer both have an interest in growing the Easy Meals customer segment,and they are natural partners for working on it together.

STEP 2.CUSTOMER STRATEGY

BILL: Once a retailer has an understanding of its customer segments and the brands that are most important to each segment, what comes next?

JIM: Defining a customer strategy comes next because it’s impossible to make a good and informed decision without it. The strategy serves as a roadmap that tells the retailer and brands what success looks like and how to get there.

The process involves prioritizing customer segments based on their value to the retailer, with an emphasis on the highest value segments,and then assigning financial objectives to each segment.

Customer strategy uses all the previously gathered customer knowledge to formulate customer priorities, allocate resources, and set performance targets that link to the retailer's topline financial and marketing objectives. This process accelerates responsiveness to the demands of the customer and provides guidance for marketing and merchandising actions through out the organization. The table below is a key output; it shows the revenue strategy and targets for each customer segment.

Focusing on the Easy Meals segment we talked about before, it is assigned a “Secondary” role in driving revenue. The retailer's intention is to“Develop” these customers, because it believes it has an opportunity to recapture shopper trips lost previously when it raised the price of certain frozen categories.

Another key output of this strategy step is to prioritize customer initiatives. This includes either preexisting initiatives, or initiatives that emerge from the analysis of customer data. Such initiatives typically cut across categories and departments, so they are often neglected in the traditional category management world.

Once the key initiatives are identified, the retailer can allocate resources against them and approach trading partners who can help bring them to life. In the example below, we can see a “single portion meals”initiative that aligns well with the Easy Meals segment. Given Conagra’s close alignment with these customers, as we saw in the previous step, they would clearly be a good candidate for collaborating with the retailer on this initiative.

STEP 3.CUSTOMER PLANNING

BILL: How can the retailer make sure that the customer strategy gets implemented?

JIM: To make sure the customer strategy gets implemented, we advocate for the creation of customer segment plans with specific recommendations by category and product. To understand how this is done, let’s look at one category within the Easy Meals customer segment: Frozen Entrees.

The chart below shows that, based on a number of key metrics, Frozen Entrees is a very important category in the Easy Meals segment.Among all of the retailer’s categories, it ranks 3rd in sales, 11th in purchase frequency, and 8th in share of wallet for these customers. This is significantly higher than its ranking for all customers, as we can see in the column to the right. Based on these metrics, Frozen Entrees are assigned a “Primary”role for this Easy Meals customer segment.

Since we’re using “if-then” business rules to do this, we can quickly scale the approach to every category and segment. Here’s what the output might look like for the Easy Meals segment:

These roles serve as an essential guide for making all kinds of decisions at the point of sale. For instance, a category designated as“Primary” for the Easy Meals customer segment might be given the widest assortment, competitive pricing, and heavy promotion spend to serve these customers' needs. On the other hand, a “Minor” category for the Easy Meals segment can be given a basic assortment, with minimal facings and promotion investments to meet these customers' needs.

This powerful and systematic approach can help the retailer localize its merchandising efforts and optimize the selection of personalized offers, among other things.

BILL: The Customer Management process clearly provides important information to the retailer. How do the retailers involve the manufacturers in appealing to the most important customer segments?

JIM: The customer plan is actually where the rubber meets the road relative to collaboration between retailers and brands. In short, Customer Planning ensures that manufacturers align their trade marketing and merchandising investments and plans to the retailer’s customer priorities.

Now let’s look again at how Conagra products align with the EasyMeals segment.

Conagra’s Marie Callender’s brand (pot pies, dessert pies,etc.) fall under the Primary and Preferred categories for the Easy Meals customer segment. This means that Conagra should present a plan to offer “consistently superior” value to this retailer’s Easy Meals customers on these products: competitive pricing, robust promotional activity, and so on. In return, Conagra can expect the retailer to carry the full range of SKUs and allocate a lot of shelf space to the Conagra brands that are important to the Easy Meals segment.

At the other end of the scale, Conagra’s fudge brownie mix and jarred salsa brands fall under the Minor categories. Conagra should propose a bare-bones assortment, with minimal investment, on these brands.

STEPS 4& 5. CUSTOMER EXECUTION & MONITORING

BILL: What is the opportunity in Customer Execution to make better product decisions, and how can these decisions be made at scale based on each product’s ability to improve customer performance?

JEAN-MARC: Customer Execution is about how the retailer can translate the customer insights and priorities discussed above into day-to-day decisions about what products to carry, at what price, in which store, with what promotions, shelf space, and so on.

As an example, let’s take a single item, Marie Callender’s Chicken Pot Pie.

The table above shows the kinds of item characteristics we’ve developed. Each row is derived analytically by combining various metrics computed from the retailer’s loyalty data. If you look at these characteristics, you’ll see that a lot of them don’t really talk about the product itself. They talk about the customer who buys the product, like whether they are price sensitive, or use the mobile app, or it talks about the impact the product has on customer behavior (drives traffic to the store, can be used to defend the customer from going to other retailers, and so on).

From these characteristics, moving to the second table, we then use prescriptive analytics to make recommendations on assortment, pricing,promotion, and target marketing.

This approach is a radical improvement compared to current practice for two reasons.

• It makes product decisions that are much more targeted to the customer.
• It’s much more granular in that it can inform decisions right down to the individual UPC, store, and even customer.

What makes it possible is that we’re automating the process with algorithms and business rules, so it’s scalable over the entire business and allows fact-based decisions to be made on every category and item, not just the top sellers.

II.RETAILER/BRAND COLLABORATION OPPORTUNITIES

BILL: Can you give us an overview of the different ways retailers and brands can use the Customer Management framework to work together more effectively to jointly create value?

JEAN-MARC: If you work at a manufacturer or a retailer, we challenge you to think about your business and how you can enhance the way you work with your trading partners in five areas.

1. Customer Strategy . How can you refocus your trading relationships on growing customers rather than products?

> This is about understanding which customers you both have an interest in growing and aligning your efforts and investments on those customers in the same way that Conagra is aligned with the Easy Meals segment.

2. Customer Initiatives   . Where are the growth opportunities? This means retailers and brands working together on growth initiatives like single portion meals.

> One thing to note about these initiatives is that they transcend individual categories, so they need to be managed at a higher level than the retailer’s traditional category management organization.

3. Customer Plans . How can you work together?

> This starts with defining how your brand will contribute to the retailer's customer segment plans. In the Conagra example, it's understanding what the retailer wants to do with Easy Meals customers, what the product priorities are for that segment, and defining how they’ll use Marie Callender’s products to go after them.

4. Key Brands and Items . How will you sell more to customers?

> This focuses on developing assortment pricing and promotion tactics down to individual items much like retailers do today, except now they're aligned against customer objectives, not just category objectives. For example, the Marie Callender’s promotion plan is now aimed at recapturing customers and trips – not just meeting its own sales performance number.

5. One-to-One Marketing . How can we make this scalable?

> Direct one-to-one marketing leverages the increasingly effective personalization platforms available to retailers and uses them to support the specific customer strategy.

Our experience shows that a lot of growth potential is available to retailers and brands when they work together in these areas.

Want to learn more about customer-focused collaboration opportunities and Customer Management?

For a detailed overview of the retailer/brand collaboration opportunities, please watch this 30-minute video .

For a deeper dive into the complete Customer Management process, read the book .

Invitation:Moving towards Customer Management

At Brick Meets Click, we believe that Customer Management will be central to the way grocery retailing and shopping will be executed in the future, and our goal is to encourage adoption and ultimately broad-scale use by interested retailers and brands.

Together with Customer Management Partners, we are offering a Customer Management Readiness Assessment.

• This analysis will explore how retailers are using customer data to run their businesses and assist in identifying opportunities for improving customer-centric retailing efforts.
• By participating in the analysis, you and your organization will gain access to the study findings and be able to request a free, personalized report showing how your customer-centric capabilities compare to your peers.

If you are a retailer, please take this short, no-obligation survey to see how you compare with the available benchmarks via this link .

FYI - Multiple people from the same organization are welcome to participate. The more participants, the better the results.

Special thanks to our contributors

Jim and Jean-Marc are the co-founders of Customer Management Partners , a consulting and professional services firm dedicated to helping retailers unlock profitable customer growth. They recently published a book on the subject that was featured in a Winsight Grocery Business article late last year.

• Jim Dippold co-founded EYC and guided leading retailers in implementing shelf design, category management, inventory replenishment, and customer-centric retailing solutions while at Nielsen and IRI.
• Jean-Marc Sallenave has over 20 years of management consulting experience developing growth strategies and operational improvement plans for leading brands and retailers around the globe.