CP Executive Exchange: September 2011

Immediately following P&G’s acquisition of Gillette in 2005, it was widely speculated that one of the core drivers of the deal was the increased leverage P&G would soon realize in its dealings with Wal-Mart and other retail giants. Their product and brand-portfolio expansions would shift the balance of power back to P&G, allowing it to more effectively influence issues around pricing, assortment and merchandising.

Upon further reflection, the Consumer Products industry has always been marked by a power struggle; one that has seen the pendulum shift back and forth through the years.

Years back, the manufacturer-retailer relationship was best defined by the power of the national brands, with consumers intensely loyal to the products they had grown up with. Manufacturers were able to push market trends and dictate purchasing decisions through direct advertising and continual product innovation. This influence and access to consumer insights offered the ability to control many of the levers in the manufacturers’ relationships with retailers.

More recently, this dynamic began to shift. Retailers, after acquisitions and mass expansion of outlets, began to take advantage of their newfound negotiating power. Through their sheer size, they were able to apply pressure on manufacturers’ margins and demand increased promotional marketing support. This shift was also marked by retailers’ investment in their own brands, as the store became the ‘star’ and investment in private label brands quickly began to eliminate secondary and tertiary national brands. Often, they were able to squeeze out the manufacturer by leveraging shopper insights to drive a direct relationship with the consumer.

Considering P&G’s success since their acquisition of Gillette six years ago, it could be debated that their newfound size allowed the ‘power’ to swing back in their direction. However, this is not the case. Their success could be attributed to the fact that they, along with other leading Consumer Products companies, understood where the power currently resides…with the consumer.

To introduce new products, manufacturers need to have a deep understanding of consumer wants and desires to meet their ever changing needs. In setting price, manufacturers need to adapt to a more fickle consumer who is able to leverage various media to seek out aggressive pricing alternatives.

Manufacturers need to share with retailers their knowledge of their consumers. Retailers need to share with manufacturers their knowledge of their shoppers. Together, this will drive collaborative insights to help realize effective promotions, strategically price products, drive innovation and improve the shopping experience.

As we look forward, a constant tug-of-war is only going to alienate consumers. The consumer has the leverage, and it is manufacturers’ and retailers’ ability to understand this that will drive mutual benefit and category growth.

The ability to leverage downstream data represents one of the most prevalent dilemmas facing Consumer Products companies today. Instead of using targeted data to generate actionable insights, organizations are drowning in an ocean of conflicting information.

Clarkston Consulting recently polled leading CP companies to understand their priorities and capabilities around external data. The common theme, that external data is critical across a multitude of business functions was clear, but very few companies are executing at a level they deem adequate. Many of the respondents weren’t even sure that they were looking at the right sets of data much less achieving the desired insight. Further analysis concluded that most organizations have unrealistic expectations about the insights that external data can provide.

Through our analysis, we developed a framework that considers the ways in which organizations could best ensure that their downstream data is being most effectively leveraged.

The first consideration is to ensure that the data an organization is currently buying is in line with the objectives of the business. Too often data acquisition has been an evolution through the years, driven by ad-hoc requests from customer account teams with no overall strategy behind it. This framework touches upon Levers of Advantage, which details how leveraging these data sources could allow an organization to realize greater speed, achieve a greater level of granularity or provide better context to their analysis. The final piece of the framework defines how organizations’ ability to more effectively leverage data will improve Organizational Capabilities such as Retail Execution and Customer Collaboration.

As you begin to think about your challenge within the context of this framework, it quickly raises the question of ‘how much information do I really need to be successful?’ As the amount of data available continues to increase with the influx of on-line and social media insights, it is becoming more important to take a step back and think strategically about your approach.

Focus on the Analysis
Most companies have become effective at managing data streams but lag behind when it comes to the quantitative and qualitative methods it takes to understand the data. It is important to match any investment into the IT infrastructure with an investment into process analytics needed to drive insights. Predictive and advanced analytics need internal resources that understand both the applications and the business to drive success.

Invest in your Strategy
The most common misconception today is that if some data equals good then more data equals great. Companies continue to invest into more detailed data acquisition and centralization without considering the business objectives. The result is a fragmented architecture and multiple versions of the truth. Invest in leading downstream data practices only when it is aligned with how you intend to differentiate in the market. Data will not improve a capability that doesn’t exist. Avoid the temptation to build a data empire; instead, set a strategy to differentiate and use downstream data to aggressive pursue it.

Rather than continue to make investments in expensive data sources and harmonizing technologies, CP companies need to truly leverage the power of the data currently in-house and link future investment directly to organizational strategy.