A Clavis Insight Whitepaper: Adapting your Category Management Capability for the Fast Growing Online Channel

Transcription

1 A Clavis Insight Whitepaper: Adapting your Category Management Capability for the Fast Growing Online Channel Digital truly is a whole new world for Consumer Packaged Goods / Fast Moving Consumer Goods, requiring a new framework for Category Management.

2 Contacts Boston London Shanghai Dublin

3 Filter Results Products Analyitics Search Adapting your Category Management Capability for the Fast Growing Online Channel Digital truly is a whole new world for Consumer Packaged Goods / Fast Moving Consumer Goods, requiring a new framework for Category Management. Consumer Packaged Goods / Fast Moving Consumer Goods (CPG/FMCG) suppliers and retailers have developed increasingly sophisticated category management processes in the few decades since the concept was first articulated in the late 1980s. ipad 9:45 AM ProductPerformance A lot has changed in retail since then, but over the next five years, with shifting demographics, and the emergence of ecommerce and mobile technologies, retail is set to change more than it has in the last 100 years. The transformation will require new standards for category management including best practices to follow for CPG/ FMCG manufacturers and retailers whose goal is to win online. In this paper, Clavis Insight, the leading provider of online retail store analytics for CPG/FMCG manufacturers, establishes the new framework for how category management best practices must adapt, to deliver in the ecommerce world Current Stock ExampleTitle e on TitleTwp ExampleTitle ThreeTwenty Title FourSeven one Example Five Example xteen Si Title e on ExampleTitle e on Title FourSeven one Example Five Title e on ExampleTitle ThreeTwenty Example Five ExampleTitlee e on Title e on ExampleTitle ThreeTwenty Example Five ExampleTitle ThreeTwentyOne ExampleTitle e on 0, % Portfolio ze Si Individual Performance In stock 0.1% Out of f tock s 49.5% 1

4 Tipping Point for Online CPG/FMCG ecommerce has already completely transformed the retail landscape. In categories such as books, electronics and fashion, consumers have converted to online shopping in droves. Until recently, however, with the exception of a few markets such as the UK, France and China, CPG/FMCG and the grocery segment in particular had been left relatively unscathed by the internet juggernaut. All indications point to that situation changing significantly in the next couple of years CPG/FMCG ecommerce, in the US and elsewhere, has finally reached the tipping point. A report from the Boston Consulting Group and the Grocery Manufacturers Association (GMA), released in August 2014 confirms it 1. According to the report US CPG/FMCG penetration in the digital channel was a conservative one percent of overall sales, but it forecasts growth to five percent by 2018 and to 10 percent shortly after that. What s more, the influence of online browsing and research behavior on the decision to purchase offline cannot be ignored, with more than half of all US retail sales now influenced in some form by the digital channel, according to analyst firm Forrester. Overall the CPG/FMCG sector has seen very little growth in recent years total dollar sales in the US increased just 1.5 percent in 2013 according to IRI. While traditional channels are faltering, online is striding ahead to such an extent that the GMA now expects online sales will represent over half of all CPG/FMCG growth in the US over the next 10 years. Combined with the offline sales influence, it s more apparent than ever that winning in the category now means winning online. Push Becomes Pull Online there is no longer an actual planned and stacked shelf to pull consumers towards dominant brands, no physical product to hold, and no packs to touch, feel and read. In the online store, market leadership is no longer dictated and perpetuated by the amount of shelf space a brand consumes or where it is positioned on the shelf, but by how brands adapt to manage the new environment. Once brand manufacturers drove their business by first persuading retailers to stock items, and then ran promotions and shopper programs, and distributed displays to drive sell-through. Online, that equation is turned on its head. Anyone with a product can get online distribution, any brand can set up an item detail page and load content, and any shopper can therefore discover the product and make a purchase. It is only then, once the consumer makes the decision to purchase the product, are turn-orders triggered from the retailer to the manufacturer. Whereas offline brands are accustomed to pushing shipments and sales through retailers, now they are learning that online they must create shopper demand to pull sales, and thus replenishment orders and shipments. To make this happen effectively requires new rules and metrics to apply to traditional Category Management concepts. New Metrics for Online Performance In the offline world brands are focused on optimizing category management metrics such as Distribution, Assortment, Packaging, Shelf Placement, Price & Promotions. Online the brand has to ensure its products are in-stock in the online store, consumers can easily find them and when they do are persuaded to buy in sufficient numbers to create demand from the retailer. This means the category management key performance indicators change to something more like; Portfolio, Online Placement, Price, Content, and Ratings & Reviews. In the following pages we will look at each of these metrics in a bit more depth. PORTFOLIO Right Products, Right Stores Right assortment in stock every day PLACEMENT Share of Search, & Menu Page one of Search and Menu results PRICE Track & React Price and Promotional execution Aligned to brand strategy RATINGS & REVIEWS Brand Efficiency, Loyalty 25+ reviews, 3.5 stars or better; Listening & response in place CONTENT Consideration, Image, Proposition Up-to-date images and copy; Engaging & complete content 1 The Digital Future - A Game Plan for Consumer Packaged Goods, August

5 Portfolio In traditional channels brands are measured on how many new points of distribution they achieve and where they are positioned on the shelf. In the early days of ecommerce, brands were delighted by retailers asking them to set up every item, no matter how niche or long-tail the item might have been. The harder to find, the better it would sell online. But online retailers are maturing, and discovering that this can be a very unprofitable approach for many reasons. As a result, manufacturers are starting to ask themselves, does it make sense to set-up all their products in every online store? How do I decide which items to choose for a particular online store? How can I take an approach that demonstrates thought leadership with retailers? Does the same range make sense for all online retailers, or does each retailer require a more thoughtful approach based on the role of the online store? Indeed, not all online stores are the same and each model probably requires a different assortment. To succeed with pure play retailers who rely on national shippers, for example, products tend to require a minimum value-to-weight ratio of about $15 per pound otherwise the single item delivery model doesn t make financial sense. For online grocery stores such as Safeway, AmazonFresh, PeaPod or FreshDirect where heavier, but lower value items, are included in a basket of goods and delivered by owned fleets the weight to value ratio is less important. Thus, a different range will make sense for one model versus the other. Pack or case size is an issue that also needs careful consideration, as does pack format. CI2 RANK BRANDS Do existing formats designed for offline retailers work for online retailers or does your product need specialist ecommerce ready packaging to make it viable in the channel? Ultimately suppliers need to develop the optimum configurations that work in a way that makes a profit for the retailer and the brand. Availability One thing, however, that doesn t change from off-line to online is the primacy of ensuring enough SKUs are in-stock to satisfy consumer demand. Consumers can only buy your products if they are available! Online retailers tend to carry far less inventory with little or no back room inventory, thus increasing the likelihood of out-of-stocks from even the smallest unexpected surge in demand. However, a key advantage of online is that manufacturers can track store level availability more readily and adjust accordingly. Brands who are proactive in monitoring online retailer inventory and sales will quickly gain an advantage over those who take a more passive approach. Placement In the physical world the shelf planogram is the main focus of category management efforts. Brands aim to get their products onto the top shelf, or in the bull s eye depending on brand strategy. Online however as we know there is no shelf so placement is determined by how well products rank for keywords on search results pages, or where they can be found in the category navigation menu structure. See the Clavis Insight white paper Achieving Eye-Level in the Online Store. BRAND NAME CI2 SCORE Numerous studies have been carried out that show the different behaviors of online shoppers: It turns out that in most online grocery stores between 30 and 40 percent of adds-to-baskets involve products that are found through free text search, while a further 20 to 30 percent come from consumers navigating down the menu structure. In Amazon the search bias is higher with up to 70 percent of shoppers using keywords to find items. Ultimately brands want consumers to be able to find their products easily among all the options in the online store. This means it s critical that product content is optimized for search performance in these stores and that your products are listed in an appropriate range of categories and sub-categories. Criteria brands need to consider as they plan their approach include: Retailer: how the online retailer is set up Trip mission: what the buyer is looking for Shopper Maturity: how many times they ve used the particular online store Category: some categories lend themselves to search others more to menu navigation 3

6 Content In the absence of physical product, landing page content becomes the means for brands to educate, inform and convert consumers. In this sense, the internet has democratized the brand battle. Category leader, brand just launched, or regional, niche proposition; each has the same amount of space on its landing pages, and the same opportunity to capture the shopper s consideration. This not only impacts how consumers perceive brand leaders versus up-start brands, but also offers an opportunity for smaller format products to tell a more compelling brand story on their landing pages, instead of being limited, as before, by the size of their packaging. For example, in the past cereal manufacturers were the envy of other suppliers because of the amount of space a cereal pack allows to tell a brand story and provide information to consumers. Online a small jar of baby food has as much brand real-estate as does an extra-large box of corn flakes, so making the most of the space available with appropriate and engaging content is essential. CI2 RANK BRANDS Price & Profitability On the face of it, brands have far less involvement in the price conversation with online retailers, as they might with their offline counterparts. However, tracking and monitoring price, price trends, and competitive activity can help alert them to issues in near real-time and inform broader go-to-market strategies. The dynamics of the online space means that price fluctuates more frequently than in physical stores, especially in the event of oversupply. In the traditional model in which manufacturers push shipments out to retailers, distributors and wholesalers, they were able to control the liquidation of excess stock through pre-determined channels. The advent of online marketplaces such as ebay, Walmart Marketplace and Amazon Marketplace have altered that dynamic. Through the power of mobile technology price is now completely transparent to consumers where ever they are in the aisle or online. As a result, marketplaces act like stock markets where price is determined by supply and demand. If there is excess supply, the price will drop with cascading effect at all online retailers as they match the drop. However, if brands can actively match supply and demand they are more likely to be successful with their pricing strategies in the online space. This is far easier said than done for CPG/FMCG manufacturers accustomed to aspiring to the maximum number of points of distribution, but those brands that choose to take control of their supply chain are better poised to win online. BRAND NAME CI2 SCORE Ratings & Reviews Reviews & Ratings are a significant lever in the online channel, as they can serve to interrupt the trip much like an instore display or a shelf tag might. This is particularly true when consumers are looking for new products or brands. Five stars on the brand the shopper doesn t usually buy may suddenly be of interest when they realize their preferred brand is only 3.5 stars. Reviews are definitely not something to be ignored, but should be cultivated, encouraged and engaged with. Before choosing a product shoppers tend to consider the average rating and the number of reviews, as well as looking at the review content. According to a survey conducted by Dimensional Research in 2013, an overwhelming 90 percent of respondents who recalled reading online reviews claimed that positive online reviews influenced buying decisions, while 86 percent said buying decisions were influenced by negative online reviews. Measuring and tracking ratings and consumer sentiment provides brands with the insights they need to optimize the value of user generated content, enabling proactive brands to identify product champions and improve consumer engagement. What s more, there is opportunity for brands to mitigate negative user comments and maximize the impact of positive reviews, while also delivering valuable insights to support product planning and design. 4

7 Presence Management J F M A M J J A S O N D Brand One Brand Two Brand Three Brand Four Presence Management Digital Performance Ranking Availability Filter Results Products Analyitics Search Brand Intelligence Overview Digital Performance Digital Presence ecommerce Optimization J F M A M J J A S O N D J F M A M J J A S O N D Reviews & Ratings Market Share J F M A J F M A J F M A M J J A S O N D J F M A M J J A S O N D J F M A S O N D Conclusion CI2 RANK BRANDS BRAND NAME CI2 SCORE CPG/FMCG ecommerce holds the potential to provide the next wave of growth for brand owners, but the online channel requires a new Category Management approach even online retailers are increasingly asking their brand partners for help in building new models. Digital truly is a whole new world. If it s not treated as such traditional category leaders may find that the advantages they have built up over years of working with offline retail no longer exist, and that a whole new crop of savvy competitors await to effectively challenge them on equal terms. ipad 9:45 AM Brand Intelligence Overview Digital Performance Ranking The early days of CPG/FMCG ecommerce have to come to an end as we approach the tipping point. Playbooks are being written by industry leaders who were early to invest in the channel, but constant innovation and new technology continue to drive shopper behavior shifts that will keep the industry in turmoil for the foreseeable future. There are yet to be clear winners, such that any new entrant can disrupt the channel and emerge victorious. Availability Market Share J F M A M J J A S O N D J F M A M J J A S O N D M A M J J A S O N D The key for brands is to act now to establish the appropriate Category Management tactics to deliver success in the channel. A major advantage of the online world is that with the right tools, it becomes much easier for CPG/ FMCGs to track and monitor their key online performance indicators such as Portfolio, Placement, Availability, Content and Rating & Reviews. And if it can be measured, targets can be set and improvements delivered. 5

8 About Clavis Insight Clavis Insight is a technology leader at the forefront of the consumer packaged goods/fast moving consumer goods (CPG/FMCG) ecommerce revolution. We deliver ecommerce insights and online retail store analytics for food and beverage, personal care, baby care, pet care, and household products manufacturers and brand owners. Nine out of 10 of the world s largest CPG/FMCG manufacturers, including Nestlé, Procter & Gamble, Unilever and Kimberly Clark use Clavis Insight to analyze their products placement, portfolio and content integrity across leading online stores, mobile websites and mobile shopping apps. The analysis enables them to optimize their digital channel distribution, content and presentment, in order to protect their brands and grow online and offline sales. Contacts 745 Atlantic Avenue 8th Floor Boston, MA #610, 6th floor, 22 Upper Ground London, SE1 9PD Suite 2916, Tower 1, Jing An Kerry Centre, 1515 Nanjing West Rd, Shanghai , China th Floor, O Connell Bridge House, D Olier Street Dublin 2, Ireland