Many small and medium-sized companies in Europe have failed to take advantage of the benefits of efficient consumer response (ECR) and category management (CM) because of concerns about the cost of data analysis.
Elsevier Food International, Vol. 8 Number 3, September 2005
Chris Jones

“The problem with getting SMEs involved in ECR is partly one of communication,” said Valentin Wepfer, member of the management board for GS1 Switzerland, responsible for ECR and marketing. “Most presentations about ECR and CM tend to focus on the large companies and in any case smaller companies do not have the time or the resources to send people to these presentations. Smaller companies are also less likely to be asked about their CM measures, and so in all probability the number of small and medium-sized companies using CM is under reported.”
However, there are other, more concrete, reasons why SMEs are less involved in CM than  their larger counterparts are. “The main reason, of course, is that SMEs have less access to the  data from their retail partners, who tend to focus on their key (i.e. large) suppliers. Even if  they did have access to the data, the majority of smaller companies don’t have the IT tools to analyse them, or indeed in many cases the understanding of what they are looking for.”

‘Category management is easy’
With these specific problems in mind, organisations such as ECR Europe and GS1 (the data synchronisation organisation created by joining EAN International and UCC Net) have created CM programmes tailored to the needs of SMEs.
“These tend to be smaller events,” said Wepfer, “day or half-day workshops focusing on the  message that ‘CM is easy’. We try to explain that effective CM can be achieved with a  minimum of investment, and that the systems used by the larger suppliers can be adopted quite easily by SMEs. For example, while a major company might use 200 or more templates to collect data for analysis, SMEs can achieve useful results with just 12-18 templates, giving them a ‘dashboard’ to effectively run their CM programmes.” Nor is investment in IT a requirement, says Wepfer. “Around 70 per cent of the process can be carried out using Excel, so CM need not involve spending large amounts of money on complex software.” For Wepfer, it is vital that SMEs play a more active role in CM, despite their concerns about cost. “Flying blind is dangerous for everyone,” he said. “The more transparency we have, the clearer the data we have, the easier it is for everyone to navigate their way though the increasingly treacherous retail trade. Effective CM, based on ECR data, can be vital to the survival of smaller companies. Knowing, for example, that fresh juice is the major profit centre within soft drinks could prove a lifeline for a smaller company operating in that sector where there are a lot of major suppliers.”
But above all, for large and small companies alike, good CM needs to be based on trust.
“Companies that benefit the most from CM are those that are not afraid to be open with their  partners - the greater the openness, the greater the success.”

Prozeus in Germany
Some national ECR organisations have gone a step further and set up ECR schemes specifically for SMEs. In Germany, for example, the ‘Prozeus’ project is run with the support of the government and is designed to “strengthen the e-business competence of SMEs,” according to Monika Gabler, spokeswoman for GS1 Germany.
Prozeus is a German acronym that stands for ‘processes and standards in e-business’. The  project is run by GS1 Germany, which covers the FMCG element, and IW Consult, which  focuses on the industrial sector. It brings together companies looking to implement e-business practices such as EANCOM, CPFR and VMI. The project was launched in 2003 and  more than 20 pilot projects have been successfully implemented since then.
The project entails working with SMEs to adapt existing ECR standards to the requirements of smaller companies. For example, the complicated system for EANCOM messages (exchange of electronic data) has been recreated as Web-EDI for SMEs, allowing smaller suppliers to deliver data to their customers at a much lower cost.
“In other cases, it is not a question of technical procedures needing to be simplified but rather  of helping SMEs to effectively gather the necessary information, as with the SINFOS system of pooling article data. The Prozeus project in this area is helping SMEs cope with the challenge of gathering all the necessary information,” said Gabler. Gabler and Wepfer agree that the biggest challenge for SMEs is the fear of the cost involved in the process, and the belief that the sheer quantity of data is too large to handle. But while it is the major companies that have pioneered ECR, and set up structures tailored to their specific requirements, the process is nonetheless important for SMEs as well. Gabler: “It is relevant in terms of competition, because it allows SMEs to distinguish themselves from their competitors. CM can, in that respect, mean the difference between success and failure for some small companies.”
Gabler said that the Prozeus project would most likely be prolonged until 2008, adding that a second project, focusing on helping SMEs to implement EDI/ECR standards, was also due to be launched later this year.

US: from template to insight
While SMEs in Europe are slowly starting to take a more active role in CM, their counterparts in the US are already at a more advanced stage. In fact, in many cases SMEs have become the driving force behind CM. This, explained Bob Hilarides, managing director of consultancy Cannondale Associates, is the result of a major shift in focus over the last ten years, away from the template-driven approach to CM that is still widely used in Europe and towards a more “insightful-based” method.

“The more transparency we have, the easier it is for everyone to navigate their way through the increasingly treacherous retail trade.”

“CM in the States has become much more solution-driven and results-oriented over the  last five to ten years, and this has levelled the playing field for SMEs,” Hilarides says. “CM is  now increasingly based on manufacturers’ insights - their assessment of what we call
‘shopper marketing’, things such as trade promotions, aisle architecture and couponing that influence the way customers react within the store itself - and in many ways SMEs are better placed to gauge these factors than some of the larger manufacturers, as they perhaps  operate closer to the consumer.”
With retailers increasingly keen to differentiate their product offer from that of their rivals, this approach to CM can be very helpful. “Based on their insights, some manufacturers have begun tailoring their packaging design to the needs of individual retailers,” said Virginia Valkenburgh, vice-president of research at Cannondale.
“This ‘collaborative discovery’ approach, with manufacturer and retailer working very closely together, is ideally suited for SMEs. Larger manufacturers often have their own agendas to push and are less concerned about the needs of their retail clients, so we’ve seen a real shift in the balance of power towards smaller companies. Indeed, many retailers now use the insights of their smaller suppliers as ‘validators’ for the category as a whole, realising that the larger manufacturers can often give a biased view designed to support their own case.”

Less focus on price
“The ‘four Ps’ of CM - price, product, place and promotion - are still very important, but this new approach based on insight has led to a shift in emphasis,” explained Hilarides. “Before, the focus was very much on price and product, but now place is playing a much larger role. For example, suppliers and retailers are now working together on in-store fixtures, which can be different for each of the supplier’s retailer partners.”
Despite the obvious success of this approach in the US, Hilarides said he was doubtful whether it would work as well in Europe. “The US grocery sector is much more fragmented than Europe, which means that the retailers have much less power over their suppliers. Furthermore, because of the size of the private label sector in Europe, retailers are also marketers and can therefore gain their own insight into shopper habits rather than relying on the help of their suppliers.”
Yet the growing might of a handful of European retailers - notably Tesco - could favour the development of this US-style approach, according to Valkenburgh. “One of the main reasons for the shift towards insight-driven CM here was the strength of Wal-Mart, which led other companies to look for new ways of creating the best value. If Tesco, or any other European retailer, were to achieve the same level of dominance as Wal-Mart, perhaps then its rivals would change their approach to CM as well.”