Leave the haggling over price behind. Retailers and suppliers will grow their businesses better through creative collaboration. Siân Harrington reports
Each year 150,000 retail buyers and manufacturer sales staff spend 10 million days in negotiation activity at a cost of £4bn. Yet in western Europe the grocery industry is growing at a meagre 1%-2% a year while gross domestic product growth is 5%. And in the past five years its share of the consumer’s wallet has fallen from 17% to 12%.
What this all adds up to is a negotiation-based relationship that is a waste of time, effort and money, says Gary Coombe, Procter & Gamble general manager, customer business development.
“There are significant teams of people spending many hours negotiating over the price of goods, value of a promotion and price rebate. It is taking an enormous amount of energy and time, yet together we are not doing well at growing our businesses,” he says.
For years the industry has been full of talk of collaboration yet little appears to have moved forward. Coombe argues, however: “If we truly align strategies and share capabilities, competencies and assets we can co-create value.”
How can retailers and suppliers move beyond this to adopt practices that will bring benefits to both parties?
The key to what P& G calls joint value creation is to break the negotiation-based relationship between buyer and seller. This requires trust and investment by each side. According to Coombe, the obstacles are not at the most senior levels - persuading Sir Terry Leahy or Tony DeNunzio that creating value with manufacturers is a good concept is not hard. The problems are with middle management.
“The difficulty is turning the joint value concept into action and getting middle management to buy in,” he says. “For buyers the concept of success means screwing another half a percent out of a supplier. We could get buy-in from the top but then it would be down to a slightly more progressive category buyer.”
Although it is early days, P&G has found a number of progressive buyers at Asda and Tesco. “They want to move beyond the constant argument over price,” says Coombe.
Convincing the retailer is not the only obstacle. “It is also difficult to sell up and down in manufacturers, particularly with a sales force whose measure of success is in squeezing in an extra box to make up the numbers,” says Coombe.
To overcome this P&G has created a 27-strong team drawn from across the business to work with the sales teams to deliver value creation for itself and its customers. The team comprises 20% of the company’s brand marketers, 15% of finance, half its market research staff and members of the logistics team.
“Winning companies understand that profitability is linked to the profitability of their customers so they must put real investment behind creating value - not just two or three people,” says Coombe.
Putting the shopper at the centre of the relationship is the start of the process, he says. “We have had to increase our investment in the area of the shopper. We were famous for our consumer research but realised we had not been studying these consumers as shoppers,” explains Coombe.
“We talk about the first and second moments of truth. The second is when the consumer uses the brand at home. This has been the subject of all our attention in the past, with 99% of our investment spent on ensuring the brand delivers what it promises in the home. The first moment is when the shoppers choose whether or not to buy our brand. We have failed to concentrate on this in past but the ratio has now moved from 99/1 to 70/30.”
The company does shopper research regularly with its retail customers and last year examined 20,000 consumers through accompanied shopping trips, focus groups and questionnaires. “We learn both the generic and the specific and can share this with our customers.
“For example, we have found that only one in five shoppers has a list and that they rely on the store layout as a trigger. But about 20% of shoppers we study fail to make a purchase because the store layout does not provide a memory trigger or they cannot find the product. This amounts to a lot of missed sales for the retailer.”
Another strand to new ways of working is innovation - product innovation, commercial innovation and instore innovation. “Historically, when we did new product development we would go with the finished product to the retailer in a seller and buyer relationship,” says Coombe.
“Now we are involving retailers earlier in the process.”
This involvement includes bespoke marketing and sizing, says Coombe.“We can get differentiation as long as we put the same investment behind each retailer.”
Every quarter P&G takes retailers such as Tesco, Asda and Sainsbury to its head office in Geneva to look at what is in the innovation pipeline.
Coombe points to two recent success stories - Kandoo and Fairy Power Spray. Retailers were involved in sizing, packaging, launch timings and marketing executions. The result - £10m and £5m brands respectively which have added growth to the category. P&G is also working with retailers like Sainsbury on commercial initiatives (see panel above).
As far as instore innovation is concerned, the emphasis is on adjacencies and availability. Coombe cites Pampers as an example. “Pampers was always a mess in store. The sizes were all over the place and shelves wrongly filled. By understanding the issues store staff faced we developed plastic Pampers trays. These are now in 5,000 stores in the UK and are both easy to fill and, vitally, easy to shop.”
One major step forward has been in finding further ways of cutting costs in the supply chain. In the past year P&G has embarked on a vendor management deal with Tesco.
P&G places all orders, ensuring the retailer’s inventory levels are low because it has access to warehouse and store stock data. This collaboration brings wins to both sides. “It has meant better availability in Tesco stores and lower costs for Tesco because of lower inventory, while it helps us with our production needs,” says Coombe. He concedes that initiatives like this are in their infancy but says he is talking to all the major chains about turning the joint value creation concept into reality across their businesses. This month Richard Baker, Boots chief executive, will take a team from Boots to P&G’s Swiss HQ. The Co-operative Group’s board also recently visited the offices.
“There are terrific examples in all retailers that could fuel the fire. It is not roaring yet,” says Coombe, “but it is working - and working globally.
“P&G is growing and this approach is delivering value to our customers.
“Take dishwashing. This category has been static for 50 years. Together we introduced Fairy Power Spray and we will see double digit growth for the next few years.”
So does joint value creation signal the death of sales?
No, Coombe says adamantly.“It is an addition to negotiation and trading, not a replacement. Neither is it about cutting budgets we spend with our customers, although there is no doubt industry spends a huge amount of money in a zero sum game.”
But if it stopped grocery’s decline in share of consumer spending, that would be a good start,he concludes.
“For it is clear that if we focus all our efforts on negotiation we’re not going to get very far.”
In March this year Sainsbury said it planned to run a corporate programme under the banner of Fresh Start. At the same time P&G wanted to relaunch its health and beauty range.
Together they aligned the two strategies and jointly invested in above-the-line and below-the-line advertising campaigns around the Fresh Start theme. To ensure optimum benefit a joint team was created to oversee execution.
P&G also worked with retailers for the launch of Fairy Power Spray, which Coombe says has helped to bring growth to the dishwashing category.
Retailers were consulted over sizing, packaging, launch timing and marketing execution as well as how to present the product on-shelf. This year it is predicted retail sales will be worth £5m.
Creating value
>>how P&G works with retail customers
In March this year Sainsbury said it planned to run a corporate programme under the banner of Fresh Start. At the same time P&G wanted to relaunch its health and beauty range.
Together they aligned the two strategies and jointly invested in above-the-line and below-the-line advertising campaigns around the Fresh Start theme. To ensure optimum benefit a joint team was created to oversee execution.
P&G also worked with retailers for the launch of Fairy Power Spray, which Coombe says has helped to bring growth to the dishwashing category.
Retailers were consulted over sizing, packaging, launch timing and marketing execution as well as how to present the product on-shelf. This year it is predicted retail sales will be worth £5m.
Each year 150,000 retail buyers and manufacturer sales staff spend 10 million days in negotiation activity at a cost of £4bn. Yet in western Europe the grocery industry is growing at a meagre 1%-2% a year while gross domestic product growth is 5%. And in the past five years its share of the consumer’s wallet has fallen from 17% to 12%.
What this all adds up to is a negotiation-based relationship that is a waste of time, effort and money, says Gary Coombe, Procter & Gamble general manager, customer business development.
“There are significant teams of people spending many hours negotiating over the price of goods, value of a promotion and price rebate. It is taking an enormous amount of energy and time, yet together we are not doing well at growing our businesses,” he says.
For years the industry has been full of talk of collaboration yet little appears to have moved forward. Coombe argues, however: “If we truly align strategies and share capabilities, competencies and assets we can co-create value.”
How can retailers and suppliers move beyond this to adopt practices that will bring benefits to both parties?
The key to what P& G calls joint value creation is to break the negotiation-based relationship between buyer and seller. This requires trust and investment by each side. According to Coombe, the obstacles are not at the most senior levels - persuading Sir Terry Leahy or Tony DeNunzio that creating value with manufacturers is a good concept is not hard. The problems are with middle management.
“The difficulty is turning the joint value concept into action and getting middle management to buy in,” he says. “For buyers the concept of success means screwing another half a percent out of a supplier. We could get buy-in from the top but then it would be down to a slightly more progressive category buyer.”
Although it is early days, P&G has found a number of progressive buyers at Asda and Tesco. “They want to move beyond the constant argument over price,” says Coombe.
Convincing the retailer is not the only obstacle. “It is also difficult to sell up and down in manufacturers, particularly with a sales force whose measure of success is in squeezing in an extra box to make up the numbers,” says Coombe.
To overcome this P&G has created a 27-strong team drawn from across the business to work with the sales teams to deliver value creation for itself and its customers. The team comprises 20% of the company’s brand marketers, 15% of finance, half its market research staff and members of the logistics team.
“Winning companies understand that profitability is linked to the profitability of their customers so they must put real investment behind creating value - not just two or three people,” says Coombe.
Putting the shopper at the centre of the relationship is the start of the process, he says. “We have had to increase our investment in the area of the shopper. We were famous for our consumer research but realised we had not been studying these consumers as shoppers,” explains Coombe.
“We talk about the first and second moments of truth. The second is when the consumer uses the brand at home. This has been the subject of all our attention in the past, with 99% of our investment spent on ensuring the brand delivers what it promises in the home. The first moment is when the shoppers choose whether or not to buy our brand. We have failed to concentrate on this in past but the ratio has now moved from 99/1 to 70/30.”
The company does shopper research regularly with its retail customers and last year examined 20,000 consumers through accompanied shopping trips, focus groups and questionnaires. “We learn both the generic and the specific and can share this with our customers.
“For example, we have found that only one in five shoppers has a list and that they rely on the store layout as a trigger. But about 20% of shoppers we study fail to make a purchase because the store layout does not provide a memory trigger or they cannot find the product. This amounts to a lot of missed sales for the retailer.”
Another strand to new ways of working is innovation - product innovation, commercial innovation and instore innovation. “Historically, when we did new product development we would go with the finished product to the retailer in a seller and buyer relationship,” says Coombe.
“Now we are involving retailers earlier in the process.”
This involvement includes bespoke marketing and sizing, says Coombe.“We can get differentiation as long as we put the same investment behind each retailer.”
Every quarter P&G takes retailers such as Tesco, Asda and Sainsbury to its head office in Geneva to look at what is in the innovation pipeline.
Coombe points to two recent success stories - Kandoo and Fairy Power Spray. Retailers were involved in sizing, packaging, launch timings and marketing executions. The result - £10m and £5m brands respectively which have added growth to the category. P&G is also working with retailers like Sainsbury on commercial initiatives (see panel above).
As far as instore innovation is concerned, the emphasis is on adjacencies and availability. Coombe cites Pampers as an example. “Pampers was always a mess in store. The sizes were all over the place and shelves wrongly filled. By understanding the issues store staff faced we developed plastic Pampers trays. These are now in 5,000 stores in the UK and are both easy to fill and, vitally, easy to shop.”
One major step forward has been in finding further ways of cutting costs in the supply chain. In the past year P&G has embarked on a vendor management deal with Tesco.
P&G places all orders, ensuring the retailer’s inventory levels are low because it has access to warehouse and store stock data. This collaboration brings wins to both sides. “It has meant better availability in Tesco stores and lower costs for Tesco because of lower inventory, while it helps us with our production needs,” says Coombe. He concedes that initiatives like this are in their infancy but says he is talking to all the major chains about turning the joint value creation concept into reality across their businesses. This month Richard Baker, Boots chief executive, will take a team from Boots to P&G’s Swiss HQ. The Co-operative Group’s board also recently visited the offices.
“There are terrific examples in all retailers that could fuel the fire. It is not roaring yet,” says Coombe, “but it is working - and working globally.
“P&G is growing and this approach is delivering value to our customers.
“Take dishwashing. This category has been static for 50 years. Together we introduced Fairy Power Spray and we will see double digit growth for the next few years.”
So does joint value creation signal the death of sales?
No, Coombe says adamantly.“It is an addition to negotiation and trading, not a replacement. Neither is it about cutting budgets we spend with our customers, although there is no doubt industry spends a huge amount of money in a zero sum game.”
But if it stopped grocery’s decline in share of consumer spending, that would be a good start,he concludes.
“For it is clear that if we focus all our efforts on negotiation we’re not going to get very far.”
In March this year Sainsbury said it planned to run a corporate programme under the banner of Fresh Start. At the same time P&G wanted to relaunch its health and beauty range.
Together they aligned the two strategies and jointly invested in above-the-line and below-the-line advertising campaigns around the Fresh Start theme. To ensure optimum benefit a joint team was created to oversee execution.
P&G also worked with retailers for the launch of Fairy Power Spray, which Coombe says has helped to bring growth to the dishwashing category.
Retailers were consulted over sizing, packaging, launch timing and marketing execution as well as how to present the product on-shelf. This year it is predicted retail sales will be worth £5m.
Creating value
>>how P&G works with retail customers
In March this year Sainsbury said it planned to run a corporate programme under the banner of Fresh Start. At the same time P&G wanted to relaunch its health and beauty range.
Together they aligned the two strategies and jointly invested in above-the-line and below-the-line advertising campaigns around the Fresh Start theme. To ensure optimum benefit a joint team was created to oversee execution.
P&G also worked with retailers for the launch of Fairy Power Spray, which Coombe says has helped to bring growth to the dishwashing category.
Retailers were consulted over sizing, packaging, launch timing and marketing execution as well as how to present the product on-shelf. This year it is predicted retail sales will be worth £5m.
No comments yet