Solving for “The Trust Gap”

  By Jay Dennis, EVP of Retail, and Elizabeth Buchanan, VP of Retail Effectiveness

The marketplace is disruptive—and, if you’re a manufacturer or retailer, it’s likely that you’re feeling the force of it. That’s because a major paradigm shift is underway. At Nielsen, we see this shift firsthand every day as our manufacturer and retailer clients are increasingly leaning on us to help them navigate this change and pursue growth. So what are the major themes that have emerged from these conversations? Here are three that we see affect consumer packaged goods (CPG) companies most.

THREE THEMES AFFECTING CPG

First, we’re operating in an attention economy. A cursory look at the enterprise valuations of companies like Facebook, Google, Netflix and Amazon demonstrate that we are in an era of capturing and retaining consumer attention. These companies continue to do well and soar over other media stalwarts from a business perspective because they’re focused on creating solutions that meet evolving consumer needs in innovative and useful ways. Consumers are more demanding, social, connected and in search of convenience-oriented experiences than ever before, so it’s important for enterprise organizations—whether in CPG or otherwise—to use technology to engage and capture the attention of their target consumers. This starts by focusing on their needs.  

The success of companies like Facebook and Amazon has taught us that the marketplace rewards enterprises that are connected to consumers, able to capture their attention and have the capacity to meet their needs. This reality means that CPG professionals in the established areas of traditional advertising, trade marketing promotions, category management and merchandising now have a tall order of finding new and interesting strategies to connect with consumers.

Outside of CPG, we’re seeing other industries experimenting with outside-of-the-box programs and business models to build relationships with consumers. For example, many smart TV manufacturers have created advertising networks as “sidecar” businesses. By doing this the networks have created new revenue streams gotten to know the consumers who use the networks on a more personal level.

So why do we bring this up? Well, this type of experimentation can translate to CPG—it’s not just the high-tech players who are on the forefront of what’s next. We’ve helped launch a number of similar efforts for our retailer and manufacturer clients that are aimed at connecting them to shoppers. In a world where consumers are highly disloyal and have nearly unlimited options to buy what they want when they want, it’s more important than ever for CPG companies to be a source of innovation when it comes to serving consumer needs.

Next is demand stimulation. As this industrywide push to connect with consumers makes waves across CPG, it’s becoming more noticeable that manufacturers and retailers need to partner to truly evolve the way they connect with consumers and stimulate purchases. At Nielsen, we’re able to measure the full consumer lifecycle—from measuring media consumption through to actual sales. So we know that, if you’ve managed a marketing budget in the last five years, it’s probable that you’ve seen this shift in the form of marketing dollars being moved from traditional mass advertising to targeted digital advertising.

But, it’s likely that you’ve also seen a similar trend take place with shopper marketing as well, as allocation among trade spend and promotional budgets has shifted too. More companies are leaning on addressable and cohort-based simulation models of stimulation to help them succeed.

For example, we’re seeing a rise in:

•     Promotional programs that leverage retailer customer data
•     Retailer-owned media platforms
•     Manufacturers using direct-to-consumer methodologies for collecting customer data
•     The intervention of media players like Instagram, Facebook, and Google to enable CPG retailers and brands to build more intimate relationships with their customers

As these trends grow, we believe that retailer and manufacturer budget allocation will continue to shift and therefore how the effectiveness of their budget and market impact is measured will shift too. Lucky for CPG, our Nielsen teams are in lock-step with these changes. We’ve built collaboration tools and measures that help both manufacturers and retailers better connect with consumers and achieve mutual growth in an increasingly complicated and omnichannel world.

Lastly, algorithms are owning more decisions and activations. We are seeing an explosion in the use of modern computing and data approaches to help CPG companies better serve consumers. These technological advances help pricing, trade promotion, category management and merchandising professionals determine:

•     What incremental assortments to put on the shelf
•     Which are best prices to implement
•     How to respond to market demands and pricing competition in the most effective ways possible

For years, these activities have been completed in a collaborative yet mostly analog fashion between retailers and manufacturers. But this legacy way of doing business allowed each side to bring their own understanding of the category and shopper to the table for lengthy discussions. In today’s fast-paced and connected world, retailers and manufacturers need a better, faster and more efficient way to quickly overcome these tensions and optimize category assortment and pricing.

This is where we come in. We’ve been working with retailers and manufacturers for years now and understand the tensions and opportunities where their objectives meet. In this intersection is also a palpable opportunity for growth.

We’re working with a large number of retailers to execute daily or sub-daily pricing changes in response to competition and consumer preference. On the flip side, we’re also working with manufacturers to optimize their pricing strategies across brands and distribution channels. We believe that, as these activities become more automated, there’s a prime chance to have a collaborative model of the retailer-manufacturer relationship that’s built for the modern world. In this model, both parties bring their objectives and expertise to the table and quickly agree on a mutual way to reach the consumer and get on a path to growth.

WHAT DOES IT ALL MEAN?

These three industry shifts are amplified and encouraged by retail leaders whose business models have both the supply and demand side. What we’re seeing is the potential elimination of the “trade desk.” So that begs the question: “But then what?”

To truly be mutually beneficial to customers, retailers and manufacturers must work together. We call this the consumer demand chain. This chain shows how every dollar spent supports creating and satisfying demand and represents hundreds of billions across the full spectrum.

Retailers and manufacturers must navigate these industry shifts while delicately managing investments and optimizing spend in the pursuit of growth.

We foresee that as these forces continue to unfold and that the “tried and true” approaches for partnership-led growth creation will transform. The critical steps in stimulating awareness, driving sales (price, placement, promotion) and ultimately converting a sale are ripe for disruption. The industry is at an inflection point: Retailers and manufacturers must find new ways to work with one another in order to anticipate the consumer needs and capitalize on opportunities for growth.

In spite of decades of establishing joint planning and shared accountability models, however, our retail and manufacturer clients are telling us that working together isn’t really working well today. This is evident in some recent survey work we performed with representatives from both our retail and manufacturer clients:

Understanding “The Trust Gap”

The massive amount of effort that is being ignored or discounted is one of the most unpleasant and frustrating realities in the industry today. We can see this in a typical joint planning effort: A manufacturer, we will call them “MFG Co.,” spends weeks preparing for an upcoming top-to-top with its key retailer partner, we will call them “Retail Co.” MFG Co. is using its own tools for data, algorithms and analytics to develop recommendations to expand distribution of some items that are performing well and to add new items that MFG Co. analyses suggests will be successful with Retail Co.’s shoppers and stores. At the same time, Retail Co. is performing its own analysis in MFG Co.’s categories and has determined that there is an opportunity for innovation. Retail Co. has performed its analysis based on a category, pricing strategy and decision tree that is built from its own data and analytics models. Each party is operating out of its own siloed view of the world.  

The result: When the meeting occurs, neither party achieves its goals because they spend much of the time trying to reconcile and debate the work of the other. The manufacturer and retailer are coming to the table with different numbers because they used different tools, data sets, etc. in addition to recommendations now being considered. We call this “The Trust Gap.”

Instead of aligning on these predictions and insights, the retailer and manufacturer are competing. Not only is this not efficient, but it is very expensive. Nielsen has found tremendous duplication and cost opportunities in the industry today related to the movement, storage and manipulation of data for purposes of supporting joint planning. Think of all the data lakes and shadow IT in place today, supporting work at the front lines. We estimate this to be hundreds of millions of superfluous dollars being spent in the CPG industry. Retailers and manufacturers must drive significant efficiencies in the way they work in order to reinvest those savings in growth and transformation opportunities.

Closing the Gap

Nielsen believes the path forward involves unlocking the unique assets of both the retailer and the manufacturer. We see retail collaboration through three philosophies:

•     Use open technology: This enables scalable and interoperable collaboration—with flexibility. It powers data science to drive more decisions and activation.
•     Address the entire demand chain: You cannot evaluate investment in media, supply chain and trade in a silo. The auction for the dollar is happening across stimulation levers.
•     Drive business process ROI: Driving mutual benefit maintains equilibrium in the ecosystem, fostering innovation, driving efficiency, creating better outcomes for consumers and shoppers.

When \retailers and manufacturers can work side-by-side they can optimize price, promotions, assortment and marketing strategies to ultimately drive growth. Democratized data and analytics for all industry participants removes silos and fosters efficiency and growth for all.  

In the collaboration model, everybody wins—the retailer, the manufacturer, and, most importantly, the customer.