Teaming Up for New Products
Collaboration among retailers and suppliers around product innovation is evolving rapidly amid technology-driven changes in the modern retail environment.
Digital platforms are enabling product manufacturers to bypass traditional retailers, who are under increasing pressure to improve the store experience and optimize assortments. Traditional manufacturers, meanwhile, are feeling pressure from startups that can leverage those same digital platforms to reach consumers all over the world without the need for an extensive distribution infrastructure.
One of the manifestations of these pressures is the increasing localization of product assortment, as retailers fine-tune their offerings to meet the needs of specific shopper groups. In order to optimize those assortments, retailers and manufacturers need to work together to analyze data around shopping patterns and preferences.
In fact, gaining a better understanding of the customer is at the core of retailer-supplier collaborative activity.
"Retailers have very robust data about their shoppers, and CPG companies have very robust data about consumers, categories, brands, and products, and around both shopping and purchasing behavior," says John Mayer, who recently retired as corporate VP at The J.M. Smucker Co., Orrville, Ohio. "We have to look at how we can data-mine all this, and look at how we can collaborate—whether it is around innovation in products, innovation in thought strategy, or innovation in new retail concepts."
Clear communication is essential to successful retailer-supplier collaboration, particularly during the buildup to new product introductions, he says.
"As I look at retailer-manufacturer collaboration going forward, I see fewer failed products, more localized products."
"As CPG companies develop new products that are truly innovative, communication with the retailer is important," Mayer says. "Communication around the timeline for the launch, around the growth projections, and around the impact on the category."
He cited J.M. Smucker's rollout of Dunkin' Donuts coffee in K-Cups as an example of a product rollout in which the supplier worked hard to keep retailers abreast of its plans, and saw the results in the form of strong sales performance.
"There was a lot of retailer engagement around that," he says. "We had displays in the store the first week, the product shipped within hours of it being available, and there was customer communication for the retailers that went out, with digital and social media that was attached to that.
"That's what I would call successful collaborative planning with retailers around a major significant new item launch," Mayer says. "We had retailers who far exceeded their expectations."
LEVERAGING RETAILER DATA
Steve McGowan, director of shopper marketing at global CPG company Mondelez, says collaboration with retailers using their data, when available, can lead to useful insights around marketing strategies in particular, and can help understand which consumers are buying its brands and which are not.
"We leverage this data to make hypotheses to generate programming that will best achieve the objectives of our marketing plan," he says.
The No. 1 objective is always to drive category growth, McGowan says.
"We don't want to just grow our share, but instead work to grow the overall category, as we believe both the customer and our brands will benefit," he says.
A secondary objective depends upon the specific program. "It could be to increase awareness, drive trial, build repeat or bring new users in," McGowan says.
Retailer-supplier collaboration also plays a key role in determining the right product assortments for each market and for each individual retail location—something that is becoming increasingly important for retailers.
"There has been a lot of discussion in the industry around localization," says Mayer of J.M. Smucker. "You cannot have the same assortment in a store in Atlanta that you have in Albuquerque, for example."
He describes collaboration around product assortment optimization as "a shared responsibility between retailers and CPG companies to understand and communicate which items in a local assortment that are truly reflecting shopper demand."
Increasingly, collaboration around product innovation is evolving to create solutions for specific types of customers, says Thom Blischok, chairman and CEO of consulting firm The Dialogic Group, Phoenix.
"Retailers and manufacturers are exploring both the frequent shopper database as well as the manufacturers' product innovation databases in order to understand the types of products that are most wanted by various consumer groups," he says. "It's clear that not one size fits all anymore."
Blischok describes a "trifurcation" of consumers into three groups based on income:
Survivalists, who make under $40,000 per year and for whom price is a primary concern;
Aspirationalists, who make roughly $40,000 to $100,000 per year, and seek more upmarket products; and
Selectionists, who make more than $100,000 per year and have the ability to choose whatever products they want in the grocery store.
"All three of these types of consumers demand product innovation if you are going to keep their attention," Blischok says. "They may not need product innovation in dish soap, but they need product innovation in healthy eating, or they need product innovation in skin care, health care, tooth care, hair care. They need innovation in meals, meal components and ingredients."
MATCHING CONSUMERS AND NEEDS
While all these consumer groups share specific needs, the specific innovations created to serve those needs will likely vary according to the specific consumer group. For example, aspirationalists and selectionists might seek products that claim to be "authentic," "organic" or "artisanal," while survivalists instead will settle for a simple "better-for you" product that meets their price constraints.
"Many manufacturers and retailers today are aligning their thinking about how to anticipate and understand the minute changes in consumer behaviors, using that data to test to products and concepts and packages," Blischok says.
The next phase of innovation collaboration, he says, will involve alignment among retailers and manufacturers around the needs and wants of consumers—or what he refers to as "usage states."
"Every single shopper has an intent for a shopping trip, and retailers and manufacturers are collaborating to understand the intentions behind shopping trips and using that in product development," he says. "One of the most powerful things retailers and manufacturers can do is to collaborate to understand shifting shopping patterns and behaviors—understanding how consumers are eating differently, how they are taking care of themselves differently, and how they are taking care of their homes differently."
This kind of collaboration can lead to more successful, targeted innovations and fewer failed product launches.
"Rather than the next version of watermelon-strawberry-peach-kumquat drink, there may be a need for a drink that is much more diabetic friendly, or a drink that is much more attuned to soccer moms and soccer kids at 4 p.m.," Blischok says.
RESEARCH AND BRANDS
The research and development/product innovation process represents one of the most significant financial hurdles for food and beverage/CPG manufacturers, says Mark Baum, chief collaboration officer and senior vice president of industry relations at the Food Marketing Institute.
TV shows such as "Shark Tank" and others have made the competitive nature of product innovation more mainstream, and food retailers have embraced the foodie "startup" culture, he says.
"Food retailers are much more proactive in the new product development process than ever before, often translating local consumer preferences and shifting tastes to their trading partners," Baum says.
Collaboration with manufacturers on branded product innovation can help retailers in their efforts to differentiate their offerings from competitors without using private label, says Helayne Angelus, a partner at Kalypso, a Cleveland-based consulting firm specializing in innovation.
"There's a lot more differentiation by type of consumer," Angelus says, citing snack chips as an example. "There's a much deeper assortment of flavor and variety."
However, collaboration on product development can be tricky, especially since a supplier's customer is also a competitor.
"It's always been a difficult situation for manufacturers: How much do we share? How far out? Is it a packaging change? A flavor change?" Angelus says.
While the grocery sector—particularly in perishables—has thus far been relatively insulated from the emergence of digital direct-to-consumer platforms, their presence is being felt in center store and throughout much of the retail landscape.
"I think that idea of these new platforms is going to have a huge impact and affect the whole idea of collaboration," says Mike Friedman, also a partner at Kalypso.
"The increasing availability of big data that has accompanied these technological innovations is changing the stakes when it comes to collaboration," he says, noting that the manufacturer-retailer relationship has reached a "tipping point" when it comes to exerting influence over the purchase decision.
"It's always been a difficult situation for manufacturers: How much do we share? How far out? Is it a packaging change? A flavor change?"
PRINCIPLES OF COLLABORATION
According to Blischok, the "next generation" of retailer-manufacturer relationships will focus on three fundamental principles: serving the needs of the local community, meeting the experiential needs of consumers, and engaging consumers.
"I call it connected commerce," Blischok says. "This says that both the retailer and manufacturer will collaborate on product innovation as well as go-to-market, on a seamless, 7-by-24 model."
With the pressures from alternative channels, retailers will need to work harder than ever around innovation, he says.
"As I look at retailer-manufacturer collaboration going forward, I see fewer failed products, more localized products, and we may even see more personalized products as factories and supply chains change the way they produce."
Blischok notes that many manufacturers are revamping their sales teams so that their representatives are more like general managers who understand the retailers' business as well as the manufacturers' business.
"One of the things that we are going to see occur is that in the strategic planning process, retailers will bring a series of manufacturers much more inside the tent to collaborate on areas where collaboration is important from a product or package perspective," Blischok says. "There will be a set of shopper-centric retailers who surround themselves with a series of shopper-centric manufacturers, and they will innovate carefully and methodically to meet the changing needs of the consumer.
"The retailers and manufacturers that don't play in the space of the connected commerce experience will end up competing on price," he says. "And by the way, they will be competing on price amongst themselves because the online players will have the best price already."