Saturday, June 26, 2010

Sam’s Club’s CEO Brian Cornell: Retailing in the New Normal

June 16, 2010
Delivering the retail keynote at Nielsen’s Consumer 360 conference this afternoon, Sam’s Club President and CEO Brian Cornell said that retailing today can be a “daunting task” and understanding what is important to your consumers and what value means to them is key to retailing success in the “new normal.”

Cornell noted that while everything around us is changing, we’re also dealing with the tough realities of the current economy. Consumers’ expectations have changed dramatically and they have recognized the need to change their behavior.

“For the first time in my 20-year CPG career, consumers have aligned their attitudes and actions. They are absolutely harmonized,” he said.

Cornell outlined two major consumer trends important to retailing success today, the first being a shifting consumer landscape, including aging baby boomers and young multicultural families. Understanding today’s consumer requires the realization that dad is just as important as mom in the shopper decision trip, that many consumers are likely thinking about making healthy lifestyle adjustments and that consumers are connected. A big part of today’s consumer’s recreation is tied to a keyboard or smartphone.

The second major consumer trend retailers are thinking about a lot today is the return to basics, or home economics. Cornell noted that today’s consumer is forced to become much more disciplined. Consumers are trying to simplify their lives by decluttering their homes, giving things away, downsizing to smaller spaces and opting to refresh instead of replace.

As part of this trend, Cornell predicts that consumers’ focus on thrifty or smart shopping is here to stay. Consumers are cooking again, some learning to cook at home for the first time in years and entertaining at home — “home is my castle.”

Cornell stressed the need to learn about the consumer and take advantage of these broader trends to the audience of retailers, manufacturers and media companies in attendance. In the case of Sam’s Club, the retailer understands the world through the eyes of its members and developed its strategy around the insights it has learned from them.

“Value means very different things to the consumer depending on the category,” Cornell said. “We have many categories where our members expect great, everyday value, but we also know that we have members that shop categories looking for a ‘wow’ experience in categories like fresh food. It’s a different definition of value.”

Cornell went on to explain that Sam’s Club members look for newness in entertainment categories, but in other categories, they look for simple solutions, leading brands, and knowledgeable service.

Communication is another key area where it’s important to know your consumer and Cornell described the importance of moving from mass communication to targeted, relevant, individualized communication. Sam’s Club focuses on talking to the right member, delivering a particular message that is interesting to him in a medium they want to receive. Loyalty starts with the needs of that consumer, knowing what drives their demand, what they are looking for and then meeting their needs, he said.

Thursday, June 24, 2010

Secrets to Revenue and Innovation in New Product Development

June 22, 2010

Tom Agan, Senior Vice President, Professional Services
At the Nielsen Consumer 360 conference, secrets were revealed as to why some companies see tremendous success when they are developing and launching new consumer packaged goods (CPG) products and others don’t.
The big takeaway? Manage ideas lightly and manage process precisely.

Companies with less senior management involvement in the new product development process generate 80% more new product revenue than those with heavy senior management involvement. And companies with rigid stage gates average 130% more new product revenue.

There’s More to Innovation than Ideas
Thousands of companies are searching for answers on how to successfully develop and launch news products. Having an innovation emperor like Jobs at Apple and removing the constraints and getting more ideas is always a great start, but there is more to innovation than ideas. Excellence in selection, development, execution and learning make a huge difference on performance and results. For example:
  • Using an outside ideation firms (vs. not) tends to result in a 15-20% improvement.
  • Selecting the right idea and commercializing it correctly can deliver a 130% increase.
  • Learning from mistakes can create an uplift of 50% to 90%.
To understand how successful companies win at new product development, Nielsen conducted a study among 30 CPG companies and identified about two dozen best practices that drive better-than-average incremental revenue from new products.

Manage Ideas Lightly
Simply being physically near corporate headquarters can actually stifle new idea generation. In fact, having no “Blue Sky” innovation team at all is better than having a team on-site at corporate headquarters. The best place for your breakthrough innovators? Far, far away. According to Nielsen’s research, companies with an off-site Blue Sky innovation team report 5.7% of revenues coming from new products, compared to 2.7% when the team is on-site.

One key insight from the study is that heavy involvement in new product development from the senior staff can destroy value. Senior management is often too quick to get involved in the creative process, especially when things are not going well. Their mere presence can stifle free-thinking and boundary-less ideas, which can doom the new product development process to failure.

Manage the Process Precisely
One of the important keys to success is to precisely manage the new product development process, not the ideas themselves. CPG companies with rigid stage gates – decision points in the process where a new product idea must pass certain criteria to proceed forward – average 130% more new product revenue than companies with loose processes.

The most successful new products tend to have:
  • Two to three stage gates that are strictly followed across the organization. The first stage gate is typically designed to identify ideas that will then be developed into a concept and prototype, while the last stage gate is usually designed to determine whether a product should be committed to production and market.
  • A focus on growing brands, not ones acquired or designated by senior management.
  • An innovation planning cycle that spans several years.
  • A formal scorecard to evaluate financial results.
  • A standardized and required post-mortem on all new product development efforts.
  • A knowledge management system to retain key lessons and insights from previous product launches.
The truth is, companies with successful innovation track records go to great lengths to create an ideal creative environment and the right behaviors, supporting policies and procedures. When they execute well, the best ideas rise to the surface and into consumers’ homes.

Sunday, June 13, 2010

Six Trade Promotion Tips: Why Less Can Be More

April 16, 2010
David Kellen, Director, Price & Promotion Practice
Kurt Kaiser, Senior Manager, Product Leadership
SUMMARY: Trade promotions are the 800 pound gorilla of marketing spending, representing 60% of the marketing budget and accounting for more than $100 billion per year. Getting the right mix of pricing and promotion for each channel can be like playing five-dimensional chess, with all the parts moving at once: price elasticity, price gap elasticity, promotion type, frequency and discount level. What consumers buy, where and when can be influenced with the right game plan.
Ever wish your favorite team could know in advance if a critical play would work? Unfortunately, not possible. How would you like to run your next trade promotion in advance to determine the right temporary price reduction and duration? Fortunately, very possible, thanks to predictive analytics that enable marketers & sales teams to simulate consumer sales and project the impact on manufacturer and retailer financials before committing dollars in the real world.

Displays and Deals
All promotions are not created equal. Nor do they have equal impact. Consider the effect of a display on the following four categories: beer, toilet paper, toothpaste and yogurt. Will the same size and located display generate the same lift? No—not by a long shot. Toilet tissue wipes up the competition with an 82% display-driven lift, with yogurt a distant second at 28%, beer at 15% and toothbrushes at 14%. Further analysis reveals that display-sensitive categories tend to be “must have” products or “easy-to-eat” meals that are stockable and traditionally demonstrate above average sensitivity to promoted price changes.
Tip #1: Characteristics of Categories with High Display Response
  • 14 of top 15 display categories are either “Must Have” products or “Easy to Eat” meals
  • Most are stockable
  • Tend to have above average sensitivity to promoted price changes
Tip #2: Characteristics of Categories with High Feature Response
  • Many utility products that are frequently purchased in Mass channel
  • Consumed on a frequent basis, often for lunch or quick dinner
  • Tend to be higher price
  • Have above average response to promoted price and displays
Another factor influencing the ability of displays to drive sales is unit price. Consumer shopping patterns expose the fact that shoppers are less likely to purchase expensive items on display or with a temporary price reduction (TPR). Products typically less than $5 per unit enjoy significantly more lift from both promotional options. Nielsen simulation capabilities can take the guesswork out of promotion planning, pumping up sales volume and stretching available dollars.
Tip #3: How to Promote Expensive Items
  • Shift display space from high to low price items unless they are impulse driven or have reasonable discount
  • Large discounts needed to drive volume with TPRs
Trade Promotions chart_1

Multiple Effects
Offering multiples is a popular promotional technique, but one with a distinct success profile. Multiples work for items with expandable consumption, that are easily stored, where the multiple number makes sense (e.g. a five-pack lunch item that corresponds to a five-day work week). The total price should come in under $10 with a unit price no greater than $1.00, such as a 10 for $10 offer.
Tip #4: What Works When Pricing Multiples
  • Expandable consumption
  • Easily stored
  • Heavily promoted categories
  • Logical multiples
  • Total price at or below $10
  • Price per unit of $1.00, such as 10 for $10
Channeling Value
Channel differences can dictate promotional success. On the pricing front, food shoppers like deals and are highly responsive to promotions. Drug channel consumers, on the other hand, value convenience over price and mass merchandiser patrons expect lower regular prices, rendering TPRs less valuable for these segments.
Tip #5: Price Responsiveness Varies by Channel
  • Food – highly responsive to regular and promoted price changes
  • Drug – people look for convenience before price
  • Mass – lower regular prices means consumers value TPRs less than in Food
On the display front, food shoppers prove to be high impulse/unplanned utility item buyers. Drug channel consumers plan their purchases and look for features, but are less responsive to displays, and mass merchandiser patrons exhibit an average response to displays, seeking overall value from the channel on the regular price.
Trade Promotions chart_2
Tip #6: Promotion Responsiveness Varies by Channel
  • Food – High impulse and unplanned utility item purchases drive display lifts
  • Drug – Planned purchases make features impactful and displays less relevant
  • Mass – Average response to promotions, shoppers looking for overall value with regular price
Consumer Views
When considering the promotional mix, factor in some salient shopper facts:
  • Consumers demonstrate lower price sensitivity for products with high brand loyalty that are infrequently purchased or niche offerings with few competitive options.
  • Display-based promotions work for stockable, must-have and easy-to-eat products.
  • When placed on feature, utility products like paper goods and detergents can draw shoppers to the store.
  • Food store shoppers tend to be impulse-driven, drug store shoppers come with a purpose and mass merchandiser patrons seek everyday value.
Case in Point
Manufacturer X noted a decline in base volume for its premium product, while private label value brand sales continued to grow. Assessing promotional options, the company articulated four objectives:
  1. Maintain or grow category sales
  2. Build base sales for its premium product line
  3. Maintain or grow retail profit
  4. Maintain or decrease trade spending
Historically, TPRs were the most common promotion type in the category, usually featuring a 20% discount. The standard category TPR ran for three weeks, and at the 20% discount level, generated about the same lift as a one week feature at a 30% discount. Manufacturer X typically opted for eight weeks of TPRs each year and four weeks of feature advertising.

Assessing Options
To stir things up in the category and drive sales to its premium offering, manufacturer X considered three alternative promotional schedules. Option 1—eliminate two weeks of feature activity and replace them with two TPR periods of three weeks each. Option 2—increase the private label base price and raise promo prices by $0.10. Option 3—increase the private label base price, but hold promoted prices at current levels.

Running the simulation, manufacturer X discovered a clear winner. Only Option 1 delivered against every objective: growing unit and category sales by 0.9%, increasing CPG profit margins by 2.4%, boosting retailer profits by 0.8% and decreasing trade spending by 3.1%.
Trade Promotinos_chart 3

Predictable Success
Price and promotion simulations succeed because they begin with the consumer behavior needed to shape an outcome. Knowing that consumers shop products and channels very differently, simulations should be preceded by an analysis of sales tendencies by product and retailer. This will enable the composition of a plan that leverages product strengths and minimizes weaknesses in different retail environments. While tactical, event-by-event simulation and planning is a requirement, take the time to simulate entire planning periods with different combinations of price and promotion activities to decide the approach that best fits your objectives. The definition of a truly successful promotion plan is one that delivers results for retailers and manufacturers alike. By looking at sales from a consumer perspective, you’ll be able to do just that.

Thursday, June 10, 2010

U.S. Demographics are Changing… Are Your Marketing Plans Ready?

March 10, 2010
Tom Pirovano, Director of Industry Insights

If you live in the U.S., you’re starting to hear more and more about the upcoming census. Even before we get data back from the country-wide headcount, we know that America’s demographic profile is undergoing major changes. By 2050, more than half of the U.S. population will be non-white (African-American, Asian, Hispanic). This dynamic growth represents not only significant cultural shifts, but also one of the more remarkable marketing opportunities in history. By that same 2050 milestone, the economic opportunity for brands in the multicultural CPG space is projected to exceed $500B.


Being able to keep pace with these increasingly diverse and demanding segments will require marketers to have a detailed view of what ethnic households buy as well as how they consumer media across TV, Internet and Mobile. When compared against the general population, minority households tend to over-index on some key shopping and media metrics.

Topline Multicultural Buying Insights

When compared to the general population, on average…
Hispanic Shoppers
  • Tend to spend more on categories for babies and children — (Hispanic households represent 11.8% of CPG total spending, but 16.6% of disposable diaper sales.)
  • Tend to spend more in traditional mass merchandise and warehouse clubs
  • Tend to spend more on food consumed at home
African American Shoppers
  • Tend to spend more on health and beauty products, like fragrance (African Americans represent 11.0% of CPG total spending, but 20.3% of dollars spent in beauty supply stores.)
  • Tend to spend more in drug and dollar stores
  • Tend to spend more on ingredients used to cook from scratch
  • Tend to buy fewer items on deals or with coupons
  • Tend to spend more on food consumed at home
Asian American Shoppers
  • Tend to spend more in club stores (Asian Americans represent 3.0% of CPG total spending, but 5.5% of dollars spent in warehouse clubs.)
  • Tend to spend more on categories for babies and children
  • Are more likely to eat outside of the home

Topline Multicultural Media Insights

Hispanic Media Consumers
  • Strong following of Telenovelas
  • On average, watch more broadcast and satellite TV
  • Display higher usage of mobile internet
African American Media Consumers
  • Have the highest TV usage of any demographic at nearly 80 hours a week per household
  • Have a higher percentage of multi-set households
  • Display higher usage of mobile internet
Asian American Media Consumers
  • More likely to have newer technology (DVD, HD, Digital Cable)
  • Tend to watch less TV

While each group has many layers of cultural, economic and social diversity within, these broader trends are worth noting, and planning for, if marketers are to meet the needs of their fastest growing consumer base.

Wednesday, June 2, 2010

P&G's Healey on Invading 'Whitespace' via Innovation

May 30, 2010

- Elaine Wong

An uncertain economy hasn’t prompted Procter & Gamble to stop emphasizing innovation over price. Recent introductions including Crest 3D White (with an improved formula that promises whiter teeth) and Gillette Fusion ProGlide (which has been redesigned to give a smoother shave) show the company is committed to using R&D to grow and defend its market share. In an e-mail interview, Procter & Gamble North American group president Melanie Healey discussed the strategy. Excerpts below.

Brandweek: One of your responsibilities at P&G includes leading new product launches. How has the recession affected P&G’s long-term innovation goals?

Melanie Healey: Our commitment to innovation and our willingness to invest behind it has not diminished at all through this economic cycle. We invest nearly $2 billion in R&D and more than $350 million each year in consumer/shopper research to deeply understand our consumers’ needs, so we can innovate in ways that deliver value most relevant for each consumer segment—increasing performance for performance seekers—and reducing cost and price points for price seekers.

BW: Where are opportunities for innovation?

MH: We innovate in everything we do. We define innovation broadly, starting with product and packaging, but also including work process, manufacturing, etc. We are focused on accelerating the pace of innovation, particularly big, disruptive innovations as well as multibranded commercial innovations like P&G’s [new online] eStore and [our sustainability platform] Future Friendly. The simple way to look at how we are leveraging our innovation is how we expand our portfolio vertically, horizontally and into whitespace.

BW: As in?

MH: We’re expanding our categories vertically into the premium end of our markets for consumers who value the superior benefits that premium products provide. Examples include Olay Pro-X, Always Infinity and Tide Total Care. We’re also expanding our portfolio deeper into the value-priced segment, with more value-tier offerings and categories. We’ve done this with several key brands like Era, Bounty and Charmin Basic. [And], we’re expanding our core brands horizontally into adjacent product segments and expanded product regimens. Our Olay and Febreze Brands are excellent examples.

BW: P&G’s mantra is that the consumer is boss. How has that consumer changed following the downturn and how has the company responded to that?

MH: Consumers are de-manding more value every year, especially in those areas they consider to be important in their lives. Value is not just about price. It is about benefit and how the brand’s purpose fits into our consumer’s life. In tough economic times, you have to be even closer to your consumer and understand what they want and need from the brand. We are changing how we communicate with our consumers. Our objective is to serve our consumers with our brands so that their lives are better. Consumers have high expectations of companies and brands. They want to know what the company stands for. They also have complete freedom and access to information. Brands must be transparent about what they stand for and how they are a force for good in the world.

BW: P&G has built its portfolio on leading brands. Given consumer trade down, are brands as powerful coming out of the downturn?

MH: P&G is a company of leading brands, with 22 brands that each generate more than $1 billion in sales each year. We believe our results indicate that consumers still see P&G’s brands as an excellent value. P&G is profitably growing market share in the U.S. and globally, and in [the January to March period], it delivered 7 percent volume growth— the fastest rate in 18 quarters.