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 As the recession bites and the trading climate gets even more challenging, relationships between retailers and suppliers come under renewed pressure.
So what customer engagement capabilities do suppliers need to develop when trading is tough, and what makes a best-in-class supplier in retailers’ eyes?
Every year, IGD undertakes a detailed survey of retailers and suppliers to understand how trading relationships are evolving. Most of the 150 retailers and suppliers we surveyed this year, strongly believe that building more strategic relationships with trading partners is becoming even more important in a fragile economic environment.
Building customer engagement capability
For suppliers, developing customer engagement capability is the key to developing longer-term, more strategic relationships with key customers.
Our research shows that best practice customer engagement capability spans across many core competencies. These include brand, marketing & innovation; customer management; financial management; category leadership; structure & people; supply chain management and data & shopper insight – all of which have been summarised within our Capability Shield model. The model is underpinned by a detailed scorecard which suppliers can use to assess and benchmark their business performance across these core competencies and identify areas of strengths and weaknesses.
Best practice customer engagement is about developing capability in all these areas. In other words, the greater your Capability Shield, the better! But it is unlikely you will be able to develop your capability across all these areas at the same time, so prioritising is key.
What capabilities should you prioritise this year?
Four key capabilities are becoming increasingly important for suppliers in the current climate: customer understanding, supply chain excellence, promotion management and the ability to leverage shopper insight.
- Shoppers have been very quick to adapt their behaviour in the economic downturn and many retailers are also responding extremely fast to the new market conditions by making bold changes to their ranging and promotional strategy. There is, therefore, a renewed urgency for suppliers to truly understand their customers’ strategic direction and adapt their approach accordingly.
- As customers focus on growing cash flow as a result of the credit crunch, cost reduction and inventory management initiatives become a strategic priority. Supply chain considerations are playing a more important role than before in negotiations and, for retailers, getting the basics right in terms of service levels is a non-negotiable capability that suppliers must display. Going forward, there are still many untapped opportunities for retailers and suppliers to develop joint initiatives to understand product flows, reduce waste and tackle sustainability issues together, although this seems to remain relatively uncharted territory at present.
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Cost reduction and inventory management initiatives are becoming a strategic priority |
- The combined effects of an increase in promotional intensity and pressure on input costs, mean that the suppliers which are more advanced in terms of promotion management and trade spend evaluation, have a real edge on their competitors. Best in class suppliers are leveraging their knowledge of trade spend effectiveness to manage costs, spend “wisely”, and maximise trade spend impact with their key customers.
- Finally, shopper insight capability is becoming a must-have to cement effective trading relationships and identify joint growth opportunities in a tough trading climate. As shoppers are jolted out of their habits and investing more time in-store to identify the best value products, understanding “why, where and how” they shop, and turning this insight into action is more crucial than ever.
Although many suppliers still find this area challenging due to costs involved and switch from traditional consumer marketing to shopper marketing, there are many opportunities to be gained in developing shopper insight capability. Shopper insight can form the basis of fact-based and action-driven discussions with retailers. It can also help “cut the waste” by providing a clear direction for investment, as well as highlighting opportunities to add value and protect profitability.
Shopper insight is most powerful when retailers and suppliers pull their resources together to gain a joint understanding of the opportunity. However our research suggests it’s still early days and much remains to be done to leverage this joint opportunity.
Are you focusing in the correct areas?
Although retailers and suppliers agree on the need to improve service levels and manage promotions effectively, there is a lack of alignment in the level of focus that should be given to developing shopper insight capability. Our research reveals that six in ten retailers want suppliers to focus on developing their understanding of the shopper, compared to only three in ten suppliers who considered this a priority.
In addition, although both parties recognise the need for supplier teams to have a good understanding of retailers’ strategic direction, there is a call from retailers for their suppliers to go one step further, and gain greater awareness of their customers’ economic model and KPIs.
New product launches is another area where suppliers run a risk to be misaligned with their customers. Although retailers expect best in class suppliers to have a meaningful NPD pipeline and value the ability for suppliers to launch successful innovations, only one in ten believe this will be a key focus of trading relationships this year, versus four in ten suppliers. Clearly, innovation is still important but it must be relevant and shopper-driven to drive successful customer engagement.
As one retailer commented: “Best in class suppliers have the basics covered week in and week out and a meaningful NPD pipeline. Beyond this they are sharing future plans well in advance and provide actionable category-wide customer insight. They are very aware of what drives our thought processes and actions, so that they can either support our plans or provide a compelling case to change them”.
So what does this all mean?
There’s no doubt that the current trading environment is challenging and is forcing both retailers and suppliers to reassess the way in which they do business and refocus their efforts. Clearly, challenging conditions are always a bigger risk for the weakest, and now is therefore a good time to widen the gap with your competitors. Reinforcing your customer engagement capability in the right areas may well be a very effective way to do this.
More information:
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