Control the 'Controllables' – Customer Strategies
By Jim Gabriele, Managing Director

Controlling your "controllables" is a way to avoid the time-consuming and unproductive re-plans that Jayne Eastman describes in her article in this edition of the Rak Report. One key to controlling your destiny is a focused, measurable go-to-market strategy.

In response to the rise in retailer power over the past 15 years, manufacturers have invested significant human and financial resources in customer-specific market research, shopper insights, marketing, and promotional programming. While some of this investment may be useful in "building relationships," much of it is unfocused and financially ill advised. The types of strategies engendered by these investments rarely provide a financial return that is incremental at the total brand or manufacturer level.

By contrast, best-in-class companies demand that customer strategies deliver a measurable impact on revenue and profit at the total brand or company level (vs. at the customer level).  Experience has taught them how difficult it is to implement programs that truly meet the definition of 'win-win.'  

The low-margin retail business model, compounded by organizational barriers between buyers and across functions, makes many programs a challenge to create and execute. So instead, great companies focus on doing a few things well. First, they flawlessly launch new products, the lifeblood of any successful company. Beyond this critical strategic area, great companies focus all of their organizational energy, resources, and investment against three simple strategies that can lead to consistent increases in revenue and profit for both customer and manufacturer:

1.  Shelf Flow The organization of categories into a shelf set that is intuitive and efficient for consumers to shop

2.  Assortment The SKU set within the shelf flow that both maximizes variety for a consumer and minimizes duplication for the retailer, leading to maximum revenue and profit.

3.  Price Promotion The vehicles, frequency and depth of discount at a given retailer that maximize incrementality of revenue and profit to the brand in total.

Many, if not all manufacturers, spend time and focus energy against these areas. But the approach used to generate and execute these strategies differentiates the best in class. A Market Map based on consumers' actual behavior will define a brand's competitive frame of reference, enable its positioning, and optimize spending and strategic pricing. It can also be used to drive customer strategies.

How? A Market Map precisely identifies how consumers organize both their usage and purchase of a given competitive set of products. Let's say a fictitious  snack food company used its Market Map to identify that their brand of cheese cracker brand competed not just with other cheese crackers (a small market), but with all flavored salty snacks such as flavored potato and tortilla chips (a much larger market). They used this knowledge to create a strategy to win vs. all flavored salty snacks. The strategy included a new positioning vs. salty snacks, new advertising spending principles that took into account the spending levels in the salty snack market, etc. The same logic that was applied to these strategies can be applied to the core customer strategies as well. Here are thre ways:

1.  Shelf Flow Based on the competitive frame identified by the Market Map, cheese crackers should be shelved next to flavored salty snacks such as potato chips and tortilla chips. While this is an enormous change for retailers, the benefits are obvious: shelving the category in the same way the consumer uses the products makes it more intuitive and efficient to shop. While the category as a whole will benefit, our fictitious manufacturer stands to gain the most since its consumer strategy of positioning the brand vs. potato chips aligns most closely with the new shelf flow.

2.  Assortment With the shelf flow now defined according to consumer behavior, the manufacturer can maximize its product assortment. Formerly, its cheese cracker brand was defined by retailers as part of a small cheese cracker segment, and forced to constantly fend off discontinuation efforts by cracker titans like Ritz and Wheat Thins. The industry's standard linear, velocity-based assortment modeling would have looked at the SKUs in the cheese cracker market in the context of the cracker category. It would have incorrectly optimized the SKUs in this brand's lineup in the context of the cracker category, continuing to eliminate them due to their size and velocity vs. other crackers, expecting the volume to move to other items in the cracker category.

Market-Map-based assortment, informed by actual switching    behavior, would show that cheese crackers are an independent market segment from a consumer perspective, and interact highly with salty snacks. This assortment philosophy optimizes the brand's SKUs in the context of a much differently defined market.  As a national brand, its SKUs actually turned much more quickly than many small regional snack players. With its completely aligned growth story of new positioning, spending principles, and shelf flow strategy, the brand is now a growth brand in a growing snacking segment.

3.  Price Promotion With the shelf flow and assortment defined, the manufacturer can turn its attention to price promotion. As a competitor in the cracker category, the cheese cracker brand was promoted two to three times per year during major holiday periods via temporary price reductions. With its new strategy however, its promotion principles will need to change. Salty snack competitors compete in an expandable consumption category and can be promoted more frequently.

But what are the right promotional tactics? Scanner data-based promotional evaluation approaches would emphasize the tactics that maximize revenue or profit within a specific retailer. The Market Map approach is different. Because it is based on switching data that encompasses all channels, this approach identifies the tactics that maximize revenue and profit at the brand level. In this case, the market structure highlights the importance of feature and display –with limited price discounts – to drive impulse purchase and pantry loading 15 to 20- times per year. That is more in line with the promotion tactics of other salty snacks and considerably more than two or three times per year. 

Companies that approach customer strategies this way have made them an integral an integral part of their overall growth agenda. First, they focus limited organizational resources on strategies a retailer can execute easily:  Shelf Flow, Assortment and Price Promotion. Second, they link these customer strategies directly to consumer strategies via the Market Map. The same Market Map used to enable positioning, spending principles and strategic pricing is used to create customer growth strategies. With this integrated approach to growth, key customers can become partners in a brand, the category, and growth vision. It also puts companies that use it at the head of their class in terms of thought leadership and profitable volume growth.