GMA Question: With some 50 loyalty card programs --- arguably, amount the single best source of actionable consumer data --- still operative, why is it that only a handful (such as Tesco’s Clubcard) --- have actually changed the fortunes of a retailer and its suppliers? What would be your prescription for retailers and CPG suppliers for whom a stronger, more differentiated consumer appeal is becoming a matter of life and death?

Synectics Group Response: The prescription for both the CPG manufacturer and the retailer is a strong but simple one…Brand Building! Cannondale Associates a leading consumer and trade promotion consulting organization recently stated that approximately $100 billion dollars is spent annually in the United States in support of trade promotions. Less then half of this investment ever reaches the consumer. Virtually all of the trade promotion spend that does reach the consumer promotes a low price. This current practice is cancerous to both the retailer and the CPG manufacturer. The conventional retailer by promoting aggressive lower prices is basically advertising for the king of low prices Wal-Mart. The CPG manufacturer, against their better judgment, is eroding whatever brand image they are clinging on to. Margins/bottom line profitability, for both the retailer and manufacturer continue to decline at an alarming rate.

A handful of retailers i.e.; Wegmans, U-Krop’s, and H.E. Butt have differentiated themselves from the low price vortex. Retailers like these three have invested significant marketing dollars establishing a brand image for their business. A brand image that is 180 degrees away from price. In addition they have made a concerted effort to focus on the periphery of the store, focusing on innovation, consumer excitement and quality. They have chosen to utilize their marketing dollars as well as the significant CPG trade marketing investment to in effect brand themselves. As a result of this commitment the CPG brands have also benefited with increased brand image/positive consumer exposure.

Headcount/loss leader items will remain critical to the weekly marketing mix, but represent a small percentage of the 30,000+ sku’s in distribution. The retailer and the CPG manufacturer have a unique but finite window of opportunity to truly collaborate and shift paradigm on how this $100 billion trade promotion expenditure reaches the consumer. Take for example 2 well known staple items found in most households; a steak sauce and lemon juice. It is not uncommon to see these two item heavily discounted in the summer season, often at a half price or BOGO feature price. Yet both of these items have an average consumer use-up rate of 6 months. Will having a 52-week supply in the average household result in one incremental ounce of consumption? Would reinvesting these significant trade promotion dollars into an exciting demo/recipe delivery program at store level during peak consumption periods create a win-win scenario for both parties? It seems to be working for innovative retailers like Wegmans, U-Krop’s and the H.E. Butt.

We at Synectics Group call this relationship between the retailer and CPG manufacturer CPM 360™. Simply stated, Collaborative Promotion Management in a 360-degree real time environment for all participants: retailers, manufacturers and brokers. The technology is available to electronically link promotion planning, category analysis, and deduction/payment management in real time. Literally on a Sunday night all the data exists to recap and individual categories performance for a given week and provide a series of volume metric/ profit reports for review by category managers Monday morning. Electronically releasing this data, in as close to real time as possible, to the respective manufacturers would establish a true CPM 360 degree relationship. The retailer and the manufacturer could work from the same powerful data to drive the category to a mutually beneficial profit return. Likewise deduction/payment requests could be electronically be linked to the agreed to plan for automatic approval upon matching or real time recognition of a disputed deduction. This process in itself will result in a significant labor reduction to both partners, and is a part of the Synectics vision for TPM.

The time is not only right but at a critical juncture in the CPG industry. We can continue on the current path and fuel the growth of the Wal-Mart like formats or make a choice to shift paradigm with CPM 360 and strive to bring back diversity, creativity, excitement and most importantly profit growth to an industry we all love.