A lot of our work with retailers is focused on helping them improve their collaboration with suppliers. The explosion of big data in recent years has given retailers and suppliers the tools to understand their businesses at an unprecedented level of detail. But is has also shone a new light on the places where retailer and supplier priorities are misaligned.
The tension of competing priorities between retailer and supplier is nothing new. For most in the CPG business it is simply the air they breathe. What is new is the level of detail and granularity with which both retailers and suppliers can see exactly what is happening with products and customers. In the past when retailer and supplier collaborated on a big promotion, if sales volume went up everyone would high five and go home for the day.
These days, the game has changed. Every promotion, every transaction, every customer interaction can be dissected and analyzed. Sure, volume was up. But was it up for the right reasons…with the right margin…because of the right kind of customer…and with the right halo effect? In this environment, the differences in objectives between retailer and supplier become more pronounced.
The retailer’s primary objective is to win more sales from their competitors. This is not to say there aren’t other objectives – for example, getting a customer to buy a new product or consume more than they usually would. But the easiest sale to make is to get the customer to buy something they already buy. We can drill into this further and say among things you already buy, the easiest sale to make is to sell you something that you are indifferent about where you buy it.
As the diagram above illustrates, every customer has certain things they prefer to buy in a certain store. Maybe a customer always buys diapers at Retailer A because they consistently have the lowest price. And perhaps they buy meat at a specialty shop that has the highest quality. It is not impossible to get a customer to switch retailers in these categories – but it is not easy. But there is a group of items in the middle that the customer is planning to buy, but it doesn’t much matter to them where they buy it.
The items will be different for each customer, but household staples and commodities often fall into this category. The customer might choose based on price. Or they might choose based on convenience (“I will buy it here because I am already in the store.”) Much retail marketing focuses on trying to influence this decision.
For the supplier, this decision is almost completely unimportant. If I manufacture a brand of peanut butter, it matters very little to me whether a consumer buys it at Retailer A or Retailer B. My objective is to win a purchase from my competitors – not other retailers, but other manufacturers of peanut butter.
The different priorities of retailers and suppliers can then be illustrated like this:
Essentially, the retailer is trying to influence the decision of which store a customer will go to. The supplier is trying to influence the decision of which product a customer puts in the cart once he is already in the store. How are we to resolve this tension?
Aligning Around the Customer
Retailers and suppliers have a choice. They can fight amongst themselves to gain the upper hand and meet their own priorities. Or they can cooperate to find areas of mutual benefit. What happens in the real world is usually a mix of both.
However, there is a shift in focus that can help. Because there is another party in this transaction whose priorities haven’t been mentioned yet: the customer. It turns out when retailers and suppliers stop focusing on achieving their own objectives and turn towards the customer to understand his objectives, they both win. For the retailer, it is the shift from buying from the supplier to selling with the supplier.
When retailers and suppliers put the customer at the center by sharing and analyzing customer data together, several things happen:
- They spot opportunities sooner
Retailers and suppliers have different areas of expertise. And they have different views of the customer. Retailers have incredibly deep and valuable quantitative data about brand preferences, product affinities, and shopper behavior over time. Suppliers have rich qualitative data about shopper motivations, habits, and preferences. When retailers and suppliers put their heads together and put the customer first, powerful insights emerge.
- They act quicker
When insights come from shared analysis and strategy, they are much easier to act on. Both retailer and supplier are already invested and bought in to the process. When an opportunity to meet a customer need and grow sales is identified, both parties are naturally ready to do something about it – whether it is an assortment change, a new product launch, or a digital campaign.
- They accelerate learning
Retailers and suppliers who mine data for insights and created shared marketing efforts learn faster about what works and what doesn’t. That knowledge is then carried into the next analysis…and the next campaign.
- They maximize investment
Shared insight and action combined with accelerated learning means every promotion dollar can be maximized. Suppliers who find something that works to grow sales will allocate more funds to it. Retailers who develop a true partnership with suppliers that benefits everyone will attract more investment. The result is a positive upward spiral.
There is no quick fix here. The give and take between retailers and suppliers has always been part of the business…and always will be. But by making the decision to focus their efforts on delighting and growing customers, both parties can take a big step towards creating a win for everyone.