Traditionally it's been difficult for food retailers toconvert customer transaction data into value that actually creates growth, butthat is changing. Today, the Customer Management discipline provides a scalableprocess that allows both grocery retailers and brands to unlock that value andproduce new growth via targeted collaboration.

In this conversation, we ask Jean-Marc Sallenave and JimDippold, co-founders of Customer Management Partners and authors of the book CustomerManagement: How Retailers Must Change to Survive and Succeed , to walk usthrough that process with a focus on the opportunities it presents for brandsand retailers to work together so that they both grow their respective businessesby giving targeted customer segments more of what they want.

Whether you are an executive leading a retail or CPGorganization or the person accountable for the growth of a specific brand/category,understanding the value and application of Customer Management is vital becauseof the growth potential available when retailers and brands work together in thisway.

Editor’s notes: We know there is a lot of detail here, so tomake it easier to get to what you need this post has two sections – Section I. TheFramework/Process and Section II. Retailer/Brand Collaboration Opportunities.

I. THE FRAMEWORK/PROCESS

BILL: Can you briefly describe the benefits CustomerManagement offers to retailers and brands and how it works?

JEAN-MARC: Customer Management gives retailers a way todefine and execute different strategies for different groups of customers usinga scalable, repeatable process that allows them to target the needs of theirmost profitable customers to grow the business.

It’s a 5-step process for organizing and managing aretailer’s portfolio of customers as strategic assets to achieve enhancedbusiness results by attracting, keeping, and growing customers.

This process guides the retailer and brands to shiftresources from less productive spending areas in marketing and merchandising tomore productive areas and thereby drive growth. It integrates the rulesnecessary to translate customer-identified data into positive action andgrowth. All an organization needs to do is to follow those rules in the CustomerManagement process.

The process is driven by the retailer, but brands have anessential role in bringing it to life.

STEP 1.CUSTOMER UNDERSTANDING

BILL: Can you illustrate why understanding customers isso important? Where do we begin?

JEAN-MARC: It’s important because different customers expectdifferent things from the retailer.

You might have a customer we’ll call “Emily.” She caresabout food quality and where it comes from, and favors premium brands. Theretailer has a lot of customers like her, so it creates a customer segment for them andcalls them “Deluxe Meals” customers.

You might also have a customer we’ll call “Maria.” Maria istoo busy to cook. Saving time is more important to her than saving money. Shelooks for foods that are easy and quick to prepare. She eats on the go a lotand is a bit impulse-driven. The retailer has a lot of customers like Maria, soit creates a segment for them called “Easy Meals.”

If you are a grocery retailer, you typically need to serveboth of these customers at once. Actually, it’s even more complicated becauseyou might need to serve 7 or 8 kinds of customers, each as different from eachother as these two!

So the first step – Customer Understanding – is aboutcapturing these different customer segments, being able to describe them, quantify them, andmeasure their performance.

This chart shows the full distribution of customersat a typical grocery retailer.

BILL: How does a retailer know how high a specific brand’s customers index across the customer segments?

JEAN-MARC: Let’s look at the number of the retailer’s customersthat are reached by a typical large manufacturer - in this case, we’ll use Conagraas an example.

The gray bars show the number of customers reached by thismanufacturer.

Considering how Conagra's customers fall across the segments,we see a clear skew towards Easy Meals. Of the two million or so Easy Mealscustomers, nearly half of them (or 961,000) bought Conagra products.

This is an important insight because it tells us that Conagraand the retailer both have an interest in growing the Easy Meals customer segment,and they are natural partners for working on it together.

STEP 2.CUSTOMER STRATEGY

BILL: Once a retailer has an understanding of its customersegments and the brands that are most important to each segment, what comes next?

JIM: Defining a customer strategy comes next because it’s impossibleto make a good and informed decision without it. The strategy serves as aroadmap that tells the retailer and brands what success looks like and how to get there.

The process involves prioritizing customer segments based ontheir value to the retailer, with an emphasis on the highest value segments,and then assigning financial objectives to each segment.

Customer strategy uses all the previously gathered customer knowledge to formulate customer priorities, allocate resources, and set performance targets that link to the retailer's topline financial and marketing objectives. This process accelerates responsiveness to the demands of the customer and provides guidance for marketing and merchandising actions througout the organization. The table below is a key output; it shows therevenue strategy and targets for each customer segment.

Focusing on the Easy Meals segment we talked about before, itis assigned a “Secondary” role in driving revenue. The retailer's intention is to“Develop” these customers, because it believes it has an opportunity torecapture shopper trips lost previously when it raised the price of certainfrozen categories.

Another key output of this strategy step is to prioritizecustomer initiatives. This includes either preexisting initiatives, orinitiatives that emerge from the analysis of customer data. Such initiativestypically cut across categories and departments, so they are often neglected inthe traditional category management world.

Once the key initiatives are identified, the retailer canallocate resources against them and approach trading partners who can helpbring them to life. In the example below, we can see a “single portion meals”initiative that aligns well with the Easy Meals segment. Given Conagra’s closealignment with these customers, as we saw in the previous step, they wouldclearly be a good candidate for collaborating with the retailer on thisinitiative.

STEP 3.CUSTOMER PLANNING

BILL: How can the retailer make sure that the customerstrategy gets implemented?

JIM: To make sure the customer strategy gets implemented, weadvocate for the creation of customer segment plans with specificrecommendations by category and product. To understand how this is done, let’slook at one category within the Easy Meals customer segment: Frozen Entrees.

The chart below shows that, based on a number of keymetrics, Frozen Entrees is a very important category in the Easy Meals segment.Among all of the retailer’s categories, it ranks 3rd in sales, 11th in purchasefrequency, and 8th in share of wallet for these customers. This issignificantly higher than its ranking for all customers, as we can see in the columnto the right. Based on these metrics, Frozen Entrees are assigned a “Primary”role for this Easy Meals customer segment.

Since we’re using “if-then” business rules to do this, wecan quickly scale the approach to every category and segment. Here’s what theoutput might look like for the Easy Meals segment:

These roles serve as an essential guide for making all kindsof decisions at the point of sale. For instance, a category designated as“Primary” for the Easy Meals customer segment might be given the widest assortment, competitive pricing, and heavy promotion spend to serve these customers' needs. On the other hand, a “Minor” category for the Easy Meals segment can be given abasic assortment, with minimal facings and promotion investments to meet these customers' needs.

This powerful and systematic approach can help the retailerlocalize its merchandising efforts and optimize the selection of personalizedoffers, among other things.

BILL: The Customer Management process clearly providesimportant information to the retailer. How do the retailers involve themanufacturers in appealing to the most important customer segments?

JIM: The customer plan is actually where the rubber meetsthe road relative to collaboration between retailers and brands. In short, CustomerPlanning ensures that manufacturers align their trade marketing andmerchandising investments and plans to the retailer’s customer priorities.

Now let’s look again at how Conagra products align with the EasyMeals segment.

Conagra’s Marie Callender’s brand (pot pies, dessert pies,etc.) fall under the Primary and Preferred categories for the Easy Meals customer segment. This means that Conagrashould present a plan to offer “consistently superior” value to this retailer’sEasy Meals customers on these products: competitive pricing, robust promotionalactivity, and so on. In return, Conagra can expect the retailer to carry thefull range of SKUs and allocate a lot of shelf space to the Conagra brands that are important to the Easy Meals segment.

At the other end of the scale, Conagra’s fudge brownie mixand jarred salsa brands fall under the Minor categories. Conagra should proposea bare-bones assortment, with minimal investment, on these brands.

STEPS 4& 5. CUSTOMER EXECUTION & MONITORING

BILL: What is theopportunity in Customer Execution to make better product decisions, and how canthese decisions be made at scale based on each product’s ability to improvecustomer performance?

JEAN-MARC: Customer Execution is about how the retailer cantranslate the customer insights and priorities discussed above into day-to-daydecisions about what products to carry, at what price, in which store, withwhat promotions, shelf space, and so on.

As an example, let’s take a single item, Marie Callender’sChicken Pot Pie.

The table above shows the kinds of item characteristics we’vedeveloped. Each row is derived analytically by combining various metricscomputed from the retailer’s loyalty data. If you look at thesecharacteristics, you’ll see that a lot of them don’t really talk about theproduct itself. They talk about the customer who buys the product, like whetherthey are price sensitive, or use the mobile app, or it talks about the impactthe product has on customer behavior (drives traffic to the store, can be usedto defend the customer from going to other retailers, and so on).

From these characteristics, moving to the second table, wethen use prescriptive analytics to make recommendations on assortment, pricing,promotion, and target marketing.

This approach is a radical improvement compared to currentpractice for two reasons.

• It makes product decisions that are much moretargeted to the customer.
• It’s much more granular in that it can informdecisions right down to the individual UPC, store, and even customer.

What makes it possible is that we’re automating the processwith algorithms and business rules, so it’s scalable over the entire businessand allows fact-based decisions to be made on every category and item, not justthe top sellers.

II.RETAILER/BRAND COLLABORATION OPPORTUNITIES

BILL: Can you give us an overview of the different ways retailers and brandscan use the Customer Management framework to work together more effectively to jointly create value?

JEAN-MARC: If you work at a manufacturer or a retailer, we challengeyou to think about your business and how you can enhance the way you work withyour trading partners in five areas.

1. Customer Strategy . How can you refocus yourtrading relationships on growing customers rather than products?

> This is about understanding whichcustomers you both have an interest in growing and aligning your efforts and investmentson those customers in the same way that Conagra is aligned with the Easy Mealssegment.

2. Customer Initiatives . Where are thegrowth opportunities? This means retailers and brands working together on growthinitiatives like single portion meals.

> One thing to note about theseinitiatives is that they transcend individual categories, so they need to bemanaged at a higher level than the retailer’s traditional category managementorganization.

3. Customer Plans . How can you worktogether?

> This starts with defining how your brandwill contribute to the retailer's customer segment plans. In the Conagraexample, it's understanding what the retailer wants to do with Easy Mealscustomers, what the product priorities are for that segment, and defining how they’lluse Marie Callender’s products to go after them.

4. Key Brands and Items . How will you sellmore to customers?

> This focuses on developingassortment pricing and promotion tactics down to individual items much like retailersdo today, except now they're aligned against customer objectives, not justcategory objectives. For example, the Marie Callender’s promotion plan is nowaimed at recapturing customers and trips – not just meeting its own sales performance number.

5. One-to-One Marketing . How can we makethis scalable?

> Direct one-to-one marketing leveragesthe increasingly effective personalization platforms available to retailers anduses them to support the specific customer strategy.

Our experience shows that a lot of growth potential isavailable to retailers and brands when they work together in these areas.

Want to learn more about customer-focused collaboration opportunities and Customer Management?

For a detailed overview of the retailer/brandcollaboration opportunities, please watch this 30-minute video .

For adeeper dive into the complete Customer Management process, read the book .

Invitation:Moving towards Customer Management

At Brick Meets Click, we believe that Customer Management will be central to the way grocery retailing and shopping will be executed in the future, and our goal is to encourage adoption and ultimately broad-scale use by interested retailers and brands.

Together with Customer Management Partners, we are offering a CustomerManagement Readiness Assessment.

• Thisanalysis will explore how retailers are using customer data to run theirbusinesses and assist in identifying opportunities for improvingcustomer-centric retailing efforts.
• Byparticipating in the analysis, you and your organization will gain accessto the study findings and be able to request a free, personalized reportshowing how your customer-centric capabilities compare to your peers.

Ifyou are a retailer, please take this short, no-obligation survey to see how youcompare with the available benchmarks via this link .

FYI - Multiple people from the same organization are welcome to participate. The more participants, the better the results.

Special thanks to our contributors

Jim and Jean-Marc are theco-founders of Customer Management Partners , aconsulting and professional services firm dedicated to helping retailers unlockprofitable customer growth. They recently published a book on the subject thatwas featured in a Winsight Grocery Business article late last year.

• Jim Dippold co-foundedEYC and guided leading retailers in implementing shelf design, categorymanagement, inventory replenishment, and customer-centric retailingsolutions while at Nielsen and IRI.
• Jean-Marc Sallenave has over 20 years of management consulting experiencedeveloping growth strategies and operational improvement plans for leadingbrands and retailers around the globe.

Related Posts

> Customer Management: Unlock new sources of profitable growth in grocery retail for 2020 & beyond (blog)

> Guidance for 2020: What will Amazon do next in grocery? (paper)

Brick Meets Click is a strategic advisory firm with extensive experience, expertise, and perspective on the changes challenging the retail grocery industry. We work with organizations to create and evaluate the right path forward to achieve growth in today’s fast moving market. Learn more about our services .