Keeping shoppers happy

There is an oft-quoted maxim in the retail trade: the majority of purchase decisions are taken in-store. But is this really true, and if not, what can manufacturers and retailers do to better anticipate shoppers’ needs?
Elsevier Food International, Vol. 11, Number 2, May 2008
Chris Jones

Technology is widespread in the retail trade. From barcode scanners to electronic shelf labels, from loyalty cards to RFID – modern retailers have been quick to embrace innovation in a bid to entice more shoppers into their stores. But there has been an added bonus for retailers as they enter the digital age. The reams of data about shopping habits – at store level, category level or even individual shopper level – have helped retailers gain a far clearer picture about which products are the most popular or how pricing and promotions can help change shopper choice, as well as helping them keep track of stock levels and assisting with just-in-time ordering.

Fact-based evidence
At store level, data about shopping habits is a vital tool to help retailers and manufacturers ensure

So much choice: Customers visit different stores for different types of purchase for a large number of reasons.

that the right products are on the shelf, but the data is of little use if it cannot be correctly interpreted. “It is crucial to have fact-based evidence about shopping needs,” says Sjoerd Schaafsma, vice-president in charge of customer development innovation at Unilever. “Most shoppers use a number of stores for different types of purchase, and their needs differ each time. For example, shoppers may choose a small store close to where they live for certain products but prefer to travel further afield for others because the store offers a wider range or lower prices,” he says. “What we need to do as manufacturers and retailers is to optimise the categories within each store so that it fits best with the shopping needs of target shoppers of the store.”
And that, according to Schaafsma, is why the ‘myth’ about purchase decisions being made in-store, is misleading, especially if it is used as a basis for category management. “If this myth were true, retailers would have any number of opportunities to influence the way shoppers buy through the products on the shelves. But research suggests that it is in fact the other way round: most shoppers know what they want before they go to the store, and that that decision in many cases influences the choice of store they visit.”

Getting the right mix
Understanding why a certain shopper visits different stores for different types of purchase, offers retailers a clear opportunity to differentiate themselves from the competition and indeed to maximise the returns within each of their own stores, since shopper needs are rarely the same across a single range. “There is no one-size-fits-all approach to modern retailing,” says Schaafsma.

Sjoeerd Schaafsma says it’s a myth that purchase decisions are made in store because most customers already know what they want to buy.

“The traditional approach was to try to sell to everyone, everywhere, all the time, but now there is an understanding of the need to tailor the offer in-store, through the right mix of products, brands and services, to meet the specific need that each store fulfils with the shopper base.” Shoppers may choose Carrefour over Casino, Tesco over ASDA or ALDI over Lidl for any number of reasons, and those reasons may not – indeed, probably will not – be the same in every part of the country, depending on the mix in the store, store location, the local economy and any number of other factors.
This, Schaafsma says, is why collaborative differentiation – retailers working together with manufacturers to differentiate their store offer towards shoppers – is so important. “It is about joint value creation, for both retailer and producer,” he says. “Competition on price alone benefits no-one.” Unilever has worked closely with many of its retail partners to develop this kind of value creation, according to Schaafsma. A joint initiative with the Albert Heijn chain in the Netherlands, for example, saw Unilever develop a dough mixture for white bread enriched with fibre – the first time the company had made a bread product – that was baked into loaves in Albert Heijn’s in-store bakeries and sold under the Blue Band brand. “Albert Heijn wanted to attract more families to its stores,” says Schaafsma. “Research showed that mums with young families wanted their children to eat brown bread, because they thought it was healthier but that the kids preferred white bread because of the taste, so we developed white bread that had many of the health qualities of brown, and gave it the Blue Band name that families already knew and liked.”

Shopper vs. consumer
Schaafsma believes that this kind of innovation and collaboration between retailers and manufacturers will be the “future of creating shopping value beyond price” but in order for it to be successful there has to be a clear understanding of exactly what it is that shoppers need. This, according to Peter Lloyd of The Partnering Group, is often not as simple as it appears. “We talk about category management as a ‘triple win’ situation – the manufacturer, retailer and shopper all get better value – but we could also think of it as a ‘quadruple win’, with the consumer as the fourth beneficiary.”
For shopper and consumer are not necessarily the same person – a distinction that may not always have been made in the past but which is being increasingly understood by manufacturers and retailers alike. “Take washing powder as an example,” says Lloyd. “The shopper and consumer in this case are often likely to be the same – the mother of the household. But if you take a product such as, say, a six-pack of beer being bought in a hypermarket, the consumer may well be a different person altogether – the husband, partner or son of the person doing the shopping. So what motivates mum to buy the beer is highly unlikely to be the same thing that motivates dad to drink it, and category management is all about understanding this distinction.”
This same principle applies to the concept of store equity, says Schaafsma. “Shoppers go to a certain store to buy a certain type of product. If they always buy their washing powder from a supermarket and their beer from a convenience store, trying to get that shopper to buy washing powder from a convenience store is unlikely to succeed, no matter how hard retailers try,” he says.
Getting this right can bring big advantages to retailers and manufacturers, says Lloyd. “Companies spend vast amounts of money on marketing their products through in-store communication and promotions but unless these are targeted in the right way at the right shoppers it can have a negative effect on sales. So knowing who their shoppers are – and what products they buy within any given category – is crucial for retailers. They need to know what the barriers and triggers to purchase are and how they can be overcome or embraced to encourage people to buy more.”
So how do category managers achieve this goal? “There is no one perfect way,” says Lloyd. “It’s a combination of shopping data, research, judgement and interpretation, and it needs both qualitative and quantitative research – either one on their own can be hard to interpret properly without the other. Once manufacturers and retailers have assessed which areas of a particular category provide an opportunity to improve performance, they need to decide how they want to do this – do they want shoppers to buy more products, spend more on the products they already buy, buy products more often or attract new shoppers to the category – each of which requires a different approach.”
“But unless you know who your shoppers are and what they want, you can’t make any proper decisions. That is why it is vital for companies to develop the skills and capabilities on translating and interpreting data. Anyone can buy data but it is those companies that invest in adding value to it and turning the data into actionable opportunities that are the most successful at category management. Not taking the time to interpret data is a cardinal sin and companies can really lose their competitive edge as a result,” says Lloyd.

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Tackling shrinkage
Making shoppers happy is not just about understanding how, when and where they shop – it is also about making sure that they are able to get what they want when they come into the shop. That is why looking at new ways of preventing category shrinkage – the difference between the stock that retailers actually have and what they think they have – is also a key element of modern category management. Colin Peacock of Procter & Gamble believes that one of the fundamental problems with tackling the shrinkage issue is that it very often goes undetected. “If store managers do not know that they have a problem with shrinkage – for example because someone has stolen something off the shelves – then that can lead to inventory shortfalls, which in turn leads to new orders not being made in time and products being out of stock.”
That, he explains, is why collaboration between retailers and manufacturers is as important here as it is in any other area of category management. “There is clearly no benefit to manufacturers if their products are not on the shelf because of a delay in processing new orders,” he says. “If we don’t know that shrinkage is happening – or how – then we can’t do anything to tackle it.” And, he suggests, tackling shrinkage is very much a collaborative effort. “This is an issue that affects so many people – from top management through supply chain managers, sales teams, category managers, human resources, etc. – that it is difficult to coordinate unless both retailer and manufacturer are fully committed to doing so.”
The variety of ways in which shrinkage can occur, and the multitude of reasons for it, also makes it hard to tackle. “External causes – usually theft – are traditionally viewed as the main causes of shrinkage but there are many others,” says Peacock. “Products could be sent to the wrong store; a carton of ten items could be erroneously scanned as 100 and the retailer charged for the higher amount; damaged products could be overlooked; several different varieties of the same product could be scanned at the same price.” Other causes include inter-company fraud, process failures or delivery errors.

 

Lose less, sell more
But how does shrinkage affect shopper happiness? “When shrinkage occurs, the buck tends to
stop with the store managers and their natural defence is to blame external theft for the loss. This can lead to increasing numbers of products – razor blades, for example – being removed from the shelves where they can be easily taken and kept behind the counter or till, which means that shoppers have to ask for them, which is more annoying for shoppers.” This can have further knock-on effects. “If razor blades are more difficult to buy, people will use them for longer before changing them, which makes the product less effective and which means retailers and manufacturers don’t sell as many. Tackling shrinkage means that stores can sell more and lose less – it’s a simple as that.”
Simple it might be, but in monetary terms the gains are clear. “For the FMCG industry as a whole, losses from shrinkage are around 2.4 per cent of sales, of which around 1.8 per cent comes from retailers. That means with average profit growth of around three per cent across the retail sector, the opportunity for real growth, without shrinkage, is 4.8 per cent, that’s a 62 per cent percent increase. And that’s a real incentive for companies to work together to tackle this problem.”
The relationship between retailers and manufacturers is often portrayed as strained or difficult, a constant battle for margin. But the reality is rather different – modern retailers and manufacturers have a far more symbiotic relationship, understanding their mutual needs and showing an increasing willingness to work together to create value and, above all, keep the shopper happy.

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