Retailers and CPG companies have historically had a strained relationship when it comes to data. Retailers have it, CPGs want it, and guess who doesn’t want to share?
But that’s changing. Today, retailers and CPGs are realizing the benefits of teaming up to unlock customer insights. “The relationship between the supplier community and the retailer is changing,” said Adrian Sosa, SVP, membership and analytics at Westborough, Mass.-based BJ’s Wholesale Club, which operates membership-based retail warehouse clubs in the Eastern United States.
“It’s really about the consumer. Given the speed at which the consumer can get and consume information, they expect retailers and suppliers to treat them differentially and to know them better… So retailers and CPG companies that aren’t doing that and aren’t using data to do that are falling behind.”
In 2013, BJ’s Wholesale Club partnered with Aimia and Kantar Retail on a pilot program with four CPGs: Kellogg’s, Unilever, Kimberly-Clark and Clorox. They tested a number of things across different categories, including determining if competing brands could be co-promoted, and identifying items that could be delisted with very little risk. CPG participation has since grown from four to 18+ and the program was formally launched last November.
Sosa and David Buckingham, U.S. president of retail at Aimia, gave a talk in Toronto recently about the importance of data-sharing partnerships. And they spoke to Marketing about how they made it work.
Why it’s important for retailers and CPGs to work together and share data…
Buckingham: “As the level of competition between retail organizations increases, the need to find an extra edge has become more important. Couple that with the fact that more and more data is available on customer behaviour. Organizations that can harness the power of that customer data have the opportunity to not only build advantages over their competitors, but through engaging their CPG vendor community, they can drive a much more collaborative set of relationships that ultimately benefits consumers. So indirectly, you’re building towards overall customer loyalty.”
The data challenge for BJ’s Wholesale Club…
Sosa: “We had made some great strides on some analytical work over the past couple years. However, there was a large underserved community within our organization and that was our merchandising [team]. They didn’t have ready access to a lot of insights to make merchandising decisions and trade promotion decisions. [In addition], we had a small, lean team and data scientists are scarce. But, being a low-cost retailer, we have to keep costs down so we’re not looking to build monolithic teams. We were trying to keep the costs down and find a way to serve our merchant and supplier community with insights from our membership database. The partnership with Aimia and Kantar allowed us to do that.”
BJ’s Wholesale Club uses Aimia’s proprietary platform called Self Serve. Within the system, there are different modules that are structured around a specific objective.
Sosa: “As an example around assortment review, there are modules [within Self Serve] that help you understand what the impact will be if you want to delist a certain category or item. Will demand simply transfer to the other SKUs in the assortment or will you lose that consumer for that category, or for the Club or for the store in general?”
Buckingham: “That’s a really good point because traditionally, retailers only had sales data to go on. So when you’re trying to determine which products are the right ones to carry, you can look at pure sales, which is fine to a point, but it’s potentially dangerous as well. What would happen at any assortment review process is without any customer insights, there is a risk that the lowest selling items would be the ones that would be most relevant to cut from the range. However, you risk alienating potentially important customers. By bringing in the customer angle, you can understand who’s buying those low-selling items, what their loyalty is to those products and what else they buy in your stores. It could be while those items don’t sell very much, the people who buy them only ever buy that product in that category, and therefore the risk [of losing that customer] is quite high. It may also be customers who are incredibly valuable in terms of their overall basket and the risk of losing them is quite high as well.”
Analytics in action…
One example from the pilot program was in the baby wipes category. BJ’s Wholesale Club felt the number of SKUs being carried was possibly too high. The “Assortment Module” in Self Serve was used to identify SKUs with both low sales and low member loyalty.
Buckingham: “You’ve got a very big and powerful CPG vendor who at first might have thought it’s not in their best interests for one of the products to be delisted… but actually through these detailed analytics we’re able to show that a very high proportion of the sales would most likely transfer to other items within the existing range. Therefore, the risk on category sales was very low and the risk on the CPG manufacturer sales was very low. So we did make that change and we found there was actually a positive effect.”
What can other retailers and CPGs learn from this…
Buckingham: “Firstly, the power of collaboration with a supplier community is measurable in terms of the impact on category sales. A collaborative, category-based approach will have dramatic effects on stocking the right assortment, the right kind of promotions, having the right price points and the right communication. That leads to the second overall benefit, which is ultimately driving a better experience for customers, which engenders higher levels of loyalty. Ultimately, you’re trying to make it an easier, more enjoyable, more personalized shopping experience for customers.”