Collaborative trade promotion optimization drives improved business results for retailers and manufacturers, according to a DemandTec/Booz Allen study. 92% of retail grocers report collaboration as "very important" to future success; Collaborative manufacturers report 50% higher incidence of effective trade promotions.
Collaboration between retailers and manufacturers is increasingly important in today's competitive marketplace, according to a new joint survey released today from DemandTec, a leading provider of on-demand optimization solutions for retailers and consumer products companies, and Booz Allen Hamilton, a global strategy and technology consulting firm. The Promotion Collaboration survey, conducted in partnership with the Trade Promotion Management Associates (TPMA) and presented at the TPMA Annual Conference here, reveals several insights into the way retailers and manufacturers view the process of creating and executing promotions and related merchandising activities.
The majority of survey respondents said that they believe collaboration is very important to their future success. Among retailers responding, 92% said collaboration was "very important" and 8% said it was "important." Manufacturers rated collaboration as "very important" 56% of the time, and "important" 39% of the time.
Key benefits of collaboration cited by both manufacturers and retailers include not only ROI and effective promotions, but also revenue growth and more efficient planning. At the top of the list, "More effective and efficient planning" was cited by 83% of retailers and 68% of manufacturers. "Revenue growth" is reported by 75% of retailers and 53% of manufacturers. "Reduced out of stocks" is claimed by 58% of retailers and 34% of manufacturers. In similar proportion, 58% of retailers reported "Share growth" due to collaboration, as did 37% of manufacturers. "More effective promotions" and "More efficient new product introductions" are reported by half of both retailer and manufacturer respondents.
"This industry research confirms that collaborative planning can deliver significant benefits to both retailers and manufacturers through better strategic pricing, product assortment and promotion optimization decisions," said Armen Najarian, Director of Product Marketing at DemandTec. "As more retailers and manufacturers embrace collaborative tools and processes, we see a network effect of companies working together to unlock new levels of business value."
Unlike studies that focus strictly on the use of trade funds management systems from a manufacturer perspective, the survey, authored by industry research specialist Coogan & Partners, includes input from many of the world's leading retailers and manufacturers. These companies together represent 40% and 55% of domestic grocery volume, respectively. The research yielded key insights into how the industry can best work together to improve the impact of retail-focused merchandising and marketing efforts both at the shelf and outside of the store.
Other key conclusions from the survey:
* Manufacturers and retailers are becoming increasingly interdependent
In the not distant past visits between senior marketing management and key retailers were rare. Yet both retailers and manufacturers today report that marketing management is as likely to be engaged as the VP of sales or chief customer officer.
* Promotion is a key collaboration touchpoint
When asked to rank collaboration skills across four key areas (general business, promotion optimization, category/shopper management, and supply chain), both retail and manufacturer respondents ranked promotion skills highest. Furthermore, there was strong alignment between manufacturers and retailers around promotion goals and vehicles that will grow in the future.
* There are significant gaps between retailers and manufacturers around analytics and insight
Despite the high profile of shopper marketing in the industry, retailers rate the quality of their interactions with market research and/or shopper marketing representatives well below that of other functions. Manufacturers also had significant concerns about the data they receive from retailers.
* Progress in promotion between manufacturers and retailers is uneven
Though trade promotions are supposed to be mutually beneficial, 87% of manufacturer respondents report they are "not satisfied" with their return on trade promotion events, compared with just 50% of retailer respondents. Cultural issues like alignment of goals and trust with retail partners were of secondary importance to manufacturers. They are also significantly less likely to be using tools to address specific opportunities like pricing optimization, targeted marketing, etc. Retailers cite much stronger levels of progress in both the development and application of tools to support their promotion efforts.
"Brand-centric manufacturers need to pay more attention to the role retailers play as the advocate for the consumer. The survey also shows that retailers are interested in the customer and the category, while manufacturers are interested in events and brands and this can cause a disconnect that results in less than optimal promotions," said Hans Van Delden, Vice President at Booz Allen.
* Increased collaboration can drive more effective business results
"The survey tells us that manufacturers and retailers who engage more of their partners in key collaborative activities report significantly higher levels of satisfaction with their promotion efforts. For manufacturers, this means more adoption and freedom for the field sales force and new tools to effectively manage and measure promotions. For retailers, this means stronger promotion planning and optimization, and improved interactions between marketing, supply chain and research," said Mike Kantor, Managing Director of TPMA. Furthermore, "more collaborative" retailers and manufacturers were able to cite tangible areas of progress (increased sales, profitability, etc.) beyond "soft" benefits like better working relationships or more effective planning.
Methodology
The DemandTec/Booz Allen Promotion Collaboration Survey was conducted in partnership with the TPMA as a web-based questionnaire using industry approved nomenclature and research techniques. The respondent set included 54 unique, qualified respondents from retailers and consumer packaged goods manufacturers representing 40% and 55% of domestic U.S. grocery volume, respectively. Coogan & Partners conducted the survey during July and August 2007, drawing on members of the TPMA, customers of DemandTec and clients of Booz Allen Hamilton.
