February 6, 2008
CPGmatters: Cadbury Schweppes Plans to Collaborate with Retailers on Pricing and Promotions
By John Karolefski
Through a special arrangement, what follows is an excerpt of
a current article from CPGmatters, a monthly e-zine, presented here
for discussion.
Cadbury Schweppes Americas Beverages is planning to start collaborating
with retailers on pricing and promotions. Its first trading partner in this
new effort will be Food Lion, the operator of 1,300 supermarkets largely in
the southeast.
The beverage marketer will be building on a successful relationship with Food Lion in the areas of space management and assortment planning.
According to Craig Hodnett, vice president of category management at Cadbury Schweppes, many retailers are using the different strategies of category management very effectively with their pricing and promotion strategies. For example, say next month the retailer wants to drive traffic.
“Typically a manufacturer would give a deal (to the retailer),” he said. “But what we’re really talking about is an opportunity. Before the manufacturer throws out a deal, we can understand what the strategy is. What’s the best package to do that with? How does that differentiate the customer in the marketplace? Now, let me present the deal to the customer. That’s new thinking. It doesn’t work that way today.”
He outlined the new initiative following a presentation on trading partner collaboration at the recent National Retail Federation (NRF) convention.
“We’ll be doing ‘what if’ strategies,” adds Mr. Hodnett. “Because of the speed, we can quickly evaluate different strategies. That will be a real point of difference. These guys already deal with assortment and space. We can take it to another level by applying strategy to price.”
Marc Dietz, vice president of product marketing of DemandTec, the pricing and promotion software provider, said the discipline of category management is changing in three fundamental ways: “One, it is becoming more analytical and integrated. Pricing and promotion are certainly linked; assortment and space have always been linked. It’s really a holistic process. What is the right assortment often depends on whether the price is right. Second, category management is becoming more shopper-centric, and third, it is becoming more collaborative.”
Indeed, collaborative planning can deliver significant benefits to trading partners through better strategic pricing, product assortment and promotion optimization decisions, according to DemandTec’s president and CEO Dan Fishback.
Mr. Hodnett said trading partner trust built up through collaboration in space management and assortment planning can carry over to price and promotions. It is shaping up to be a win-win.
“Price is so strategic,” he said. “That is where 80 percent of your funds are being spent. I predict a lot more companies will get on board. I sit on two share groups with all the big CPG companies and we talk about this area a lot. I know it’s drawing the attention of my peers. The collaboration doors are really opening up with retail partners.”
Discussion Question: What do think of extending category management beyond space and assortment to pricing and promotions? What challenges do you see in suppliers and retailers collaborating around pricing and promotions at this level?
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This is so critical–and so rife with the trust issues that continue to dog retailer-manufacturer collaboration.
Absolutely the CPG brand should understand what the retailer is trying to accomplish. Absolutely they should work together to define a promotion that is a win-win for both of them. But for that level of collaboration to happen, both companies really need to lay their cards on the table–where is the ‘softness’ and the ‘hardness’ in the numbers, what kind of objectives the retailer is trying to hit–and which key consumer segments. This is hard to pull off.
Perhaps software tools can act as the intermediary–distancing people a bit from the emotional part of the numbers, but it still requires a level of trust that I don’t think we’ve even managed to achieve on the supply chain side, and price is a much more sensitive topic.
Is this even legal?
Can manufacturers in the same category work together with a retailer to plan how they will price and promote their products against the competition? Who (from the manufacturer side) would want to even work with a retailer who is going to turn over the manufacturer’s promotion plans to a “Category Captain” who is one of their competitors?
It seems this whole thing requires a complete rethinking of how category management has been implemented and retailers really have to think about the added operating costs they will have to absorb to maintain the integrity of the information they are being provided. This may mean taking full responsibility for managing the assortment and display aspects of category management.
From a field point of view, I would say that vendor/retailer collaboration is critical to the success of any promotion. But (and this is a big but) the needs of the vendor sometimes conflict with the retailer, especially if formats differ from location to location. The vendor wants more space and they give price breaks for that space which can easily clutter up a sales floor.
Can you imagine Schweppes getting more floor space than Coke or Pepsi?
Floor managers I have worked with will tell you that space is a zero sum game and to give to one means taking from another. Collaboration is very important but it must be exercised with caution taking into account the needs of the business over anything else.
Manufacturers collaborating with retailers in implementing pricing and promotion strategies that are mutually beneficial can certainly help in improving the bottom line for both parties and from the manufacturers perspective can improve retailer ‘pass-through’ rate of Manufacturer-sponsored in-store promotions.
Manufacturers adopting an ‘open-kimono’ approach with retailers may also have strategic implications due to the proliferation of Store Brands. Retailers’ pursuit of faster growth in their Store-Brands and Manufacturers’ interest in defending their market-share in mostly mature categories creates an interesting dynamic and collaboration on tactical levers like pricing and promotion makes this an even more interesting mix. On the other hand, collaboration may just be the right step in slowing down the price competition spiral so characteristic of mature categories.
It’s about time somebody got the ball rolling in this direction. I spent 2 full days at a Category Management conference last year waiting for someone to talk about taking the process beyond piles of numbers and statistics–and was very disappointed when it didn’t happen. CM needs to get into the 21st Century and kudos to Cadbury for leading the way!
To say CPG companies have not been pushing promotion and pricing along with assortment and space to Category Managers or, as I refer to them, Super Buyer, is wrong. Every CPG company presents ideas for items after they have been sold in and the facings determined. Most promotions are planned months in advance. So what is new?
Maybe it is a CPG company trying to look through the eyes of the retailer, not their own. This simple change should significantly increase promotional effectiveness. All CPG companies have suggested promotion and non-promotion pricing for years, mostly based on what their competition has achieved with other retailers. Pricing strategy is far more complex and requires looking at a lot more than one CPG company’s category. It is unlikely CPG companies can make the same transition on pricing as they should on promotions.
Product, Place, Price, Promo. The basics of Category Management.
Craig’s endeavors are not new to this industry. Their use of a commercially available software pushes the edge a bit, but really isn’t that far off the Collaboration efforts used by many leading companies over the past 5-10 years.
Cadbury has a great team with great leadership. They will be successful because they want to be.
Pricing and Promotion are only the first steps on a path where retailers and manufacturers need to work together to set goals and objections that are clear and open. The next step is in the area of new items and line extensions. As the price and promotions piece is laid in, new items should be given clear objectives for net contribution over a period of time where the manufacturer and retailer work their plan and let the items fail or succeed based on an actual plan rather than who has the most slotting.
While this Cadbury Schweppes effort may not be revolutionary, it does represent a fresh and intelligent approach to collaboration at the point of interaction with the consumer. Collaboration has been an over-used term used to describe everything from basic product data to supply chain info.
The real brass ring for both sides of the value chain will be to influence consumer spending by using BI tools to identify which price points and promotion are driving profitable lift for both CPG manufacturers and their retail partners. That may not be new in theory, but it has remained an elusive goal for the industry.
The need for collaboration is certainly a concept that has been talked about for years. And working with leading “business partners” in aligning resources and getting synchronized is vital.
Collaboration is defined as a structured, recursive process where two or more people work together toward a common goal—typically an intellectual endeavor that is creative in nature–by sharing knowledge, learning and building consensus.
From the press information released by the parties involved, it would almost appear that the implications of the Cadbury-Food Lion ‘collaboration’ is more closely a ‘concoction’. Concoction is defined as a scheme to suit some purpose…and I’m not sure that the purpose of the concocted strategies will necessarily result in a consumer-focused outcomes.
I’ll be anxious to see the results and see how they tie back to pricing strategies and assortment planning (aka effective category management).
The Cadbury Schweppes category management and price promotion collaboration acknowledges the everyday exchange of price collaboration between most retailers and most suppliers. It’s rare to have any kind of serious negotiation, especially during promotion planning, without discussing price points. If price isn’t the #1 determinant of unit volume, what is?
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This is so critical–and so rife with the trust issues that continue to dog retailer-manufacturer collaboration.
Absolutely the CPG brand should understand what the retailer is trying to accomplish. Absolutely they should work together to define a promotion that is a win-win for both of them. But for that level of collaboration to happen, both companies really need to lay their cards on the table–where is the ‘softness’ and the ‘hardness’ in the numbers, what kind of objectives the retailer is trying to hit–and which key consumer segments. This is hard to pull off.
Perhaps software tools can act as the intermediary–distancing people a bit from the emotional part of the numbers, but it still requires a level of trust that I don’t think we’ve even managed to achieve on the supply chain side, and price is a much more sensitive topic.
Is this even legal?
Can manufacturers in the same category work together with a retailer to plan how they will price and promote their products against the competition? Who (from the manufacturer side) would want to even work with a retailer who is going to turn over the manufacturer’s promotion plans to a “Category Captain” who is one of their competitors?
It seems this whole thing requires a complete rethinking of how category management has been implemented and retailers really have to think about the added operating costs they will have to absorb to maintain the integrity of the information they are being provided. This may mean taking full responsibility for managing the assortment and display aspects of category management.
From a field point of view, I would say that vendor/retailer collaboration is critical to the success of any promotion. But (and this is a big but) the needs of the vendor sometimes conflict with the retailer, especially if formats differ from location to location. The vendor wants more space and they give price breaks for that space which can easily clutter up a sales floor.
Can you imagine Schweppes getting more floor space than Coke or Pepsi?
Floor managers I have worked with will tell you that space is a zero sum game and to give to one means taking from another. Collaboration is very important but it must be exercised with caution taking into account the needs of the business over anything else.
Manufacturers collaborating with retailers in implementing pricing and promotion strategies that are mutually beneficial can certainly help in improving the bottom line for both parties and from the manufacturers perspective can improve retailer ‘pass-through’ rate of Manufacturer-sponsored in-store promotions.
Manufacturers adopting an ‘open-kimono’ approach with retailers may also have strategic implications due to the proliferation of Store Brands. Retailers’ pursuit of faster growth in their Store-Brands and Manufacturers’ interest in defending their market-share in mostly mature categories creates an interesting dynamic and collaboration on tactical levers like pricing and promotion makes this an even more interesting mix. On the other hand, collaboration may just be the right step in slowing down the price competition spiral so characteristic of mature categories.
It’s about time somebody got the ball rolling in this direction. I spent 2 full days at a Category Management conference last year waiting for someone to talk about taking the process beyond piles of numbers and statistics–and was very disappointed when it didn’t happen. CM needs to get into the 21st Century and kudos to Cadbury for leading the way!
To say CPG companies have not been pushing promotion and pricing along with assortment and space to Category Managers or, as I refer to them, Super Buyer, is wrong. Every CPG company presents ideas for items after they have been sold in and the facings determined. Most promotions are planned months in advance. So what is new?
Maybe it is a CPG company trying to look through the eyes of the retailer, not their own. This simple change should significantly increase promotional effectiveness. All CPG companies have suggested promotion and non-promotion pricing for years, mostly based on what their competition has achieved with other retailers. Pricing strategy is far more complex and requires looking at a lot more than one CPG company’s category. It is unlikely CPG companies can make the same transition on pricing as they should on promotions.
Product, Place, Price, Promo. The basics of Category Management.
Craig’s endeavors are not new to this industry. Their use of a commercially available software pushes the edge a bit, but really isn’t that far off the Collaboration efforts used by many leading companies over the past 5-10 years.
Cadbury has a great team with great leadership. They will be successful because they want to be.
Pricing and Promotion are only the first steps on a path where retailers and manufacturers need to work together to set goals and objections that are clear and open. The next step is in the area of new items and line extensions. As the price and promotions piece is laid in, new items should be given clear objectives for net contribution over a period of time where the manufacturer and retailer work their plan and let the items fail or succeed based on an actual plan rather than who has the most slotting.
While this Cadbury Schweppes effort may not be revolutionary, it does represent a fresh and intelligent approach to collaboration at the point of interaction with the consumer. Collaboration has been an over-used term used to describe everything from basic product data to supply chain info.
The real brass ring for both sides of the value chain will be to influence consumer spending by using BI tools to identify which price points and promotion are driving profitable lift for both CPG manufacturers and their retail partners. That may not be new in theory, but it has remained an elusive goal for the industry.
The need for collaboration is certainly a concept that has been talked about for years. And working with leading “business partners” in aligning resources and getting synchronized is vital.
Collaboration is defined as a structured, recursive process where two or more people work together toward a common goal—typically an intellectual endeavor that is creative in nature–by sharing knowledge, learning and building consensus.
From the press information released by the parties involved, it would almost appear that the implications of the Cadbury-Food Lion ‘collaboration’ is more closely a ‘concoction’. Concoction is defined as a scheme to suit some purpose…and I’m not sure that the purpose of the concocted strategies will necessarily result in a consumer-focused outcomes.
I’ll be anxious to see the results and see how they tie back to pricing strategies and assortment planning (aka effective category management).
The Cadbury Schweppes category management and price promotion collaboration acknowledges the everyday exchange of price collaboration between most retailers and most suppliers. It’s rare to have any kind of serious negotiation, especially during promotion planning, without discussing price points. If price isn’t the #1 determinant of unit volume, what is?