Description
The “good old days” of mom and pop retailing have faded to a pleasant, sepia-toned reminiscence. In that magical time, early in the last century, understanding customers’ needs seemed easy. Shop owner-operators knew their customers by name and their preferences by heart.
OF MERCHANDISING & MARKETING
Customer Insights at the Point of Decision
A DEMANDTEC eBOOK:
nextGEN OF MERCHANDISING & MARKETING
TABLE OF CONTENTS
Introduction: Retail Evolution and Customer Intimacy 2
The Mythical Average Customer Meets Shopper Marketing 4
Operationalize Your Customer Segments: 6
Optimize Merchandising and Marketing Together 6
Plan Assortments and Understand Image Items
by Customer Segment 8
Tailor Promotions to the Right Customers 10
Set Competitive, Effective Prices 13
Collaborate With Consumer Products Partners 14
nextGEN: Putting It All Together 15
About DemandTec 16
OF MERCHANDISING & MARKETING
Customer Insights at the Point of Decision
Page 1
nextGEN OF MERCHANDISING & MARKETING
RETAIL EVOLUTION AND CUSTOMER INTIMACY
The “good old days” of mom and pop retailing have faded to a
pleasant, sepia-toned reminiscence.
In that magical time, early in the last century, understanding
customers’ needs seemed easy. Shop owner-operators knew their
customers by name and their preferences by heart.
Merchandising wasn’t very scienti?c, but it was personal and, in
its way, intimate.
With the explosion of mass media and the economic expansion of
the 1950s, mass retailing boomed also, to feed the surging demand
of a culture oriented around consumption. Manufacturers could
reach customers with a 30-second spot on three TV networks and
a coupon in the Sunday paper. Retailers rolled larger and larger
stores out across the landscape, pacing the expansion of suburbia
and serving the hegemony of the national brands.
In the mass-market era the customer became an abstraction –
a mass market responding to mass methods. For a brief, golden
period, merchants could stack ‘em high and watch ‘em ?y.
In the mass-market era, the customer
became an abstraction – a mass
market responding to mass methods.
Page 2
nextGEN OF MERCHANDISING & MARKETING
The growth of mass markets led over time to industry consolidation
and the emergence of truly national and global retailers. By the
1980s and 1990s we were experiencing an explosion of consumer
product choices and media outlets. Retail chains grew larger and
more operationally intricate, even as cable television and the
Internet caused audiences to splinter.
Retailers and manufacturers adapted by adding technologies to
their arsenal. By the 1990s, retailers were hiring consultants to
build econometric models representing consumer demand and
provide advice on pricing, promotion and assortment to optimize
their categories. By the turn of the century, these techniques
were packaged into software tools designed to enable demand
modeling, forecasting and optimization on a repeatable and
scalable basis. Retailers reaped signi?cant rewards from category-
centric merchandising optimization, with the ability to better meet
consumer demand and achieve their business objectives.
But, along the way, true intimacy with the customer had been lost.
Even sophisticated demand analytics could only reveal a story
about the average customer.
Today mass is past as are one-size-?ts-all analytic models. The new
era is all about segmentation.
In the next generation of retail, demand analytics and
optimization intersect with customer segmentation in brave new
ways. And retailers are prepared with next generation tools built
to let them operationalize their segment strategies in both
merchandising and marketing.
At DemandTec, we call that nextGEN retailing.
segmentation
Operationalize segment strategies in
both merchandising and marketing.
Page 3
nextGEN OF MERCHANDISING & MARKETING
The opportunity to regain customer intimacy has always been with
us. We just needed to ?nd the right ways to marry the merchandising
optimization techniques with customer segment strategies.
THE MYTHICAL AVERAGE CUSTOMER MEETS
SHOPPER MARKETING
Despite years of entrenched mass merchandising practices, all
retail professionals know instinctively there’s no such thing as the
average customer. Each individual differs in his or her desires and
preferences. In fact, they vary with every trip to the store.
Even in today’s complex store environments, customers leave
hints about themselves with every transaction. For decades, retail
marketers have taken advantage of this data with customer
segmentation programs that uncover behavioral traits of different
groups of customers. These investments have resulted in better
performance across their marketing programs. However, the
category-centric optimization tools used by the merchants did not
support insights and decisions at a segment level.
The Death of “Average” – What’s Driving Retail Evolution?
nextGEN retail
? Mass markets ? Segmented markets
? Mass media ? Targeted media
? Prototype store ? Clustered stores
? Uniform assortments ? Cluster-level assortments
? Treat all customers the same ? Focus on key customer segments
? Share of market ? Share of wallet
? One optimized price ? Segment-targeted prices
NEXT GENERATION RETAIL MASS ERA RETAIL
Page 4
nextGEN OF MERCHANDISING & MARKETING
As retailers and manufacturers adopt new tools for understanding
and managing customer data, we confront promising new
opportunities. We can put individual faces back on our customers.
We can get to know them personally again. We can learn to see
what makes them different.
We can meet their needs and exceed their expectations.
In the next generation of retail, we understand which customers
are most valuable to our long term success and what they
?nd important.
This means we merchandise and go to market based on customer
and segment insights as well as category and brand objectives.
Just knowing isn’t enough. We need to take effective action on
this new and improved understanding. Routinely. By embedding
highly responsive practices into our operations every day.
nextGEN technology is ready to help us renew our intimacy with
the customer, target our plans, and deliver competitive advantage.
competitive advantage
We can put individual faces back on our customers. We can get to know them
personally again. We can learn to see what makes them diferent.
Page 5
nextGEN OF MERCHANDISING & MARKETING
OPERATIONALIZE YOUR CUSTOMER SEGMENTS
For retailers, merging advanced customer segmentation with
merchandising optimization capabilities can have a huge impact
on the business. The shift from mass and average to targeted and
differentiated has a profound effect in how retailers:
? Optimize merchandising and marketing together
? Plan assortments and understand image items by
customer segment
? Tailor promotions to the right customers
? Set competitive, effective prices
? Collaborate with consumer products (CP) partners
In the next generation, all of these transition from an
optimization process based on averages to a more ?nely-tuned
process that detects and leverages the variability in demand
among customer groups.
Retail strategy de?nes various goals in key areas: ?nancial,
customer and category. Plans ?ow from these objectives, informed
by customer insights and our best understanding of demand.
To be effective, we must tune our planning and execution process
to address both category objectives like sales and pro?t, as well
as customer objectives like trips or loyalty.
Optimize Merchandising and Marketing Together
Strategy Measurement
Planning
& Execution
Customer
Customer Segment:
? Trips
? Total Spend
? Category Conversion
Category:
? Sales
? Pro?t
? Volume
Financial
Customer
Category
Category
Collaboration and Master Calendar
Page 6
nextGEN OF MERCHANDISING & MARKETING
Page 7
The new breed of retail applications extends optimization science
in exciting new ways:
? Customer segmentation becomes integral to the merchandising
optimization process
? Customer insights are embedded at the point of decision
? Superior planning and collaboration are enabled with consumer
products suppliers
In next generation retailing we combine segmentation and
merchandising optimization and can act on subtle yet important
segment differences. We know intuitively that young families
with children have different purchase priorities than retired
empty-nesters, to cite one clear-cut example. No amount of
price cutting will motivate Golden Oldies to purchase more baby
formula. That’s easy to guess even without optimization tools.
But hundreds of more subtle, yet enduring, purchase preferences
that de?ne customer segments may be very dif?cult to identify
without next generation tools that automatically sift the data
for actionable differences. “Broadcast” merchandising methods
overlook these differences, spreading ?nite resources too thinly,
leading to results that may be good, but could be better.
If Golden Oldies are a strategically important segment in our
stores, we need to identify and pursue merchandising and
marketing programs that will be meaningful to them and elicit
desired purchase behaviors.
Combining merchandising optimization technology with
the discipline of customer segmentation lets us identify and
incorporate a host of segment behavioral differences into our
merchandising and marketing decisions. To operationalize our
customer segment strategy, we need:
? Merchandising technology for assortment, pricing and promotion
? Optimization and segmentation combined and actionable for
planners at the point of decision
? Active collaboration with CP partners
This integrated approach to merchandising activities de?nes next
generation retailing.
Combining merchandising optimization
with customer segmentation lets us identify
and incorporate segment diferences into
our decisions.
nextGEN OF MERCHANDISING & MARKETING
Plan Assortment and Understand Image Items by
Customer Segment
The evolution of retail technology has led naturally to the
application of optimization science to assortment planning
decisions.
Of particular value are concepts of transferable demand and
incrementality. An understanding of these two principles
will help you understand how substitutable products are, and
ultimately if you delist a product, how much of that product’s
demand will shift to other products in your assortment, and how
much will disappear from your store.
Next generation retailing takes these concepts a step further,
applying them at the customer level to understand how each
segment behaves with respect to transferability and incrementality.
The implications may not be obvious.
Optimization science reveals that some strong-moving items add
relatively little to category performance if the customer can easily
replace them with other items if they were to be delisted. Other,
slower moving items may be highly incremental – representing
“plus” business that will be lost for good if the item is delisted.
Te key opportunity here is to apply the transferability and
incrementality analyses within each category by customer
segment. We can then roll this up to an assortment plan that
weighs the relative importance and contribution of each segment
and the cumulative results of diferent assortment decisions.
Page 8
incrementality
If you delist a product, how much of that product’s demand will shif to other
products in your assortment, and how much will disappear fom your store?
nextGEN OF MERCHANDISING & MARKETING
TOP IMAGE ITEMS IN CEREAL FOR GOLDEN OLDIES SEGMENT
? Not surprisingly, Golden Oldies buy mostly Adult and Family cereal.
? We can identify which of these are their top Image Items.
I
t
e
m
“
S
t
r
e
n
g
t
h
”
I
t
e
m
“
S
t
r
e
n
g
t
h
”
TOP IMAGE ITEMS IN CEREAL ACROSS ALL SEGMENTS
? Top cereal image items across segments dominated by Kids and Family SKUs.
? We can quantify which are most valued overall.
5.23 4.26 3.82 3.65 3.30 3.29 3.04 2.92 2.84 2.80 2.78 2.71 2.67
4.69 4.60 3.52 3.36 3.32 3.28 3.26 3.07 3.01 2.81 2.72 2.66 2.39
Page 9
It’s no longer suf?cient to optimize assortment only for a category.
We need to understand the impact on speci?c segments, and
protect or add items of particular importance to key segments.
This discipline applies equally well to gain an understanding of
which items are image items for which segment. While some
image items largely cut across the board, others are image items
only for speci?c customer groups.
Our Golden Oldies segment, for example, may skew more strongly
toward the purchase of certain unsweetened cereal brands, while
the category overall may show much greater movement on kid-
oriented pre-sweetened varieties. Here again, if we deem Golden
Oldies to be an important strategic segment, our overall category
assortment plan and pricing of key image items may require a
degree of accommodation to their preferences that might not be
revealed if the cereals were studied only at the category level.
But knowing isn’t enough. Merchants need these insights
embedded in the technology they use to help make decisions
about assortment, price and promotion. In other words, if I’m
using technology to help me make better decisions about what
promotions to run, I want insight about how these promotions
will impact various customer segments right on the same screen.
nextGEN OF MERCHANDISING & MARKETING
Tailor Promotions to the Right Customers
Next generation retailing applies segmentation and targeting
principles throughout the promotion process. It adds value across
the entire sequence of actions, from: managing deals; to optimizing
promotion plans; to advertising execution; and measurement.
At each stage, the game changes when we consistently ask the
question: “for which segments…?”
The next generation customer focus leads retailers to:
? Target promotions for speci?c segments
? Vary ad versions by segment
? Track and understand response by segment
Page 10
Along the way we conserve ?nite promotional resources, and
apply the effort and dollars where they will be most effective –
toward the customer segments that care most about the category
or the brand or are most valuable to the business. This capability
naturally leads retailers to work more collaboratively with vendors
on trade promotions.
promotions
tailored
nextGEN OF MERCHANDISING & MARKETING
Who’s in the “bump” and to what merchandising levers
do they respond?
Differentiating between customer segments reveals and
makes actionable very profound and valuable insights about
promotional performance.
Different segments respond differently to different promotions.
While this may seem intuitive, until the arrival of next generation
retailing solutions we had very limited capability to act on this
understanding. Promotion lift was calculated across the entire store
and customer base, without understanding its behavioral elements.
But when you see a bump in sales the obvious question is
“who’s in the bump?” And who’s not. Very often, 80% of
the impact is accounted for by 20% of your customers.
Page 11
$
Time
“Who’s in the Bump?”
? Budget Families or Foodies?
? New Category Buyers or Existing?
? Pantry Loaders or Expanders?
performance
nextGEN OF MERCHANDISING & MARKETING
Moreover, it is important to understand which promotional levers
work for which customer segments and in which categories.
Page 12
In the example on this page, Golden Oldies show a strong
promotional response when coffee is on display. In contrast,
Budget Families are unmoved. But looking across the row, it’s
clear that Budget Families are generally more responsive to
multiple pricing, although this leaves Golden Oldies generally
cold. Next time around, if the goal is to grow coffee sales to
Budget Families, we might try the “two-fer” lever, but we
shouldn’t expect much bump from the Golden Oldies.
Targeting promotions to speci?c customer segments will
inevitably lead to an increase in versions of your ?yers and other
marketing deliverables. Would your system be able to handle a
doubling or tripling of versions? Retailers need a buttoned-down
system to keep a lid on this added complexity. Automating those
capabilities with next generation solutions lets them support and
execute promotional strategies by customer segment, category
and geography.
COFFEE DIAPERS CEREAL
YOUNG
FAMILIES
TPR
Feature
Display
Multiple
BUDGET
FAMILIES
TPR
Feature
Display
Multiple
GOLDEN
OLDIES
TPR
Feature
Display
Multiple
Young Families
very sensitive to
most promotion
levers for most
categories
Budget
Families not
as responsive
to coffee
promotions
Golden Oldies
sensitive to
display
response
nextGEN OF MERCHANDISING & MARKETING
Set Competitive, Effective Prices
Leading retailers have been bene?ting from price optimization tools
for a decade. Adding segmentation improves targeting and offers
a substantial opportunity to improve decision-making accuracy
throughout the pricing lifecycle – from base or everyday prices, to
promotion prices, markdowns, pricing rules and price maintenance.
It begins with customer focus made possible by the application of
next generation retail solutions:
? Identify price sensitive SKUs by segment across store
? Identify storewide image items by segment
? Identify price points that drive sales by segment
When we optimize pricing for target segments, we also seek an
understanding of the unavoidable tradeoffs. What happens to other
segments and the total business when you implement those prices?
So for example, if I decide to optimize prices for my most important
segment—say Foodies—what happens to my overall forecast? It
is quite possible that I can raise the price of an item for Foodies
and improve performance for that group, but at the cost of a lower
overall forecast. Depending on my goals, it may still be the right
decision, but it is crucial that I have a detailed understanding of
the impact of my decisions.
Needless to say, you can’t do this forecasting in your head –
you need next generation technology.
Page 13
efective prices
When we optimize pricing to target
segments, we also anticipate the impact
on other segments.
nextGEN OF MERCHANDISING & MARKETING
Page 14
Collaborate with your Consumer Products Partners
Trading partner collaboration is another area that is evolving rapidly.
In next generation retailing, it goes well beyond after-the-fact
reporting and data sharing to incorporate real-time collaboration on
a common online platform.
Access to segment level performance data permits your CP
partners to visualize what items should be put on deal, and
which deals and promotions drive impact on the category.
From a customer standpoint, your CP partners can see and predict
which promotions actually drive certain customer segments and
who is responding to speci?c promotions. When CP partners work
closely with retail category managers they’ll have the insight to what
the strategy is and which shopper segment is being moved by that
merchandising or promotional action.
By sharing data on a common platform, both parties can use the
same online reporting capability to track and understand the impact
on category growth, new customer attraction, or any meaningful
behavioral impact on key customer segments.
By sharing data on a common platform, both parties can use the same online
reporting capability to track and understand the impact on category growth, new
customer attraction, or any meaningful behavioral impact on key customer segments.
collaborate
nextGEN OF MERCHANDISING & MARKETING
nextGEN: PUTTING IT ALL TOGETHER
In a varied and differentiated marketplace, where different
customer segments display enduring behavioral differences,
merchandising to an average shopper can no longer be expected
to deliver superior performance.
Breakthrough results require new thinking and new approaches
that recognize and re?ect the differences that de?ne customers.
nextGEN solutions from DemandTec let you operationalize
your customer segmentation in these crucial areas:
? Optimize merchandising and marketing together – Tune
the planning and execution process to be more responsive to
the differences between customer segments.
? Plan assortments and image items – Optimize assortments
for category growth, while keeping in mind speci?c needs of
speci?c customer segments.
? Tailor promotions – Manage the end-to-end promotion process
from collaborating with vendors through planning promotional
activities, forecasting outcome, and executing on highly targeted
and versioned campaigns.
? Set competitive and efective prices – Optimize prices across
the product lifecycle with an eye on the impact of pricing
decisions on various segments.
? Collaborate with CP partners – Share planning with CP
partners across our collaborative DemandTec TradePoint Network
™
,
using a common online platform that is secure and dependable
and delivers access to powerful insights and forecasts.
At DemandTec, that’s what we call nextGEN.
Page 15
For more info on how you can get to the
nextGEN, contact us at call 888.676.3626
or visit www.demandtec.com.
nextGEN OF MERCHANDISING & MARKETING
ABOUT DEMANDTEC
DemandTec (NASDAQ: DMAN) enables retailers and
consumer products companies to optimize merchandising
and marketing decisions, individually or collaboratively, to
achieve their sales volume, revenue, and pro?tability objectives.
DemandTec software services utilize DemandTec’s science-based
software platform to model and understand consumer behavior.
DemandTec customers include more than 195 leading retailers
and consumer products manufacturers such as Ahold USA, Best
Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B
Grocery Co., Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee,
The Home Depot, Walmart and WH Smith. Connected via the
DemandTec TradePoint Network™, DemandTec customers have
collaborated online with over 2.3 million trade deals. For more
information, please visit www.demandtec.com.
DMAN
Page 16
CONTACT US
DemandTec
1 Circle Star Way
San Carlos, CA 94070
USA
Inquiries:
Phone: +1.650.226.4600
Please visit www.demandtec.com
doc_308952729.pdf
The “good old days” of mom and pop retailing have faded to a pleasant, sepia-toned reminiscence. In that magical time, early in the last century, understanding customers’ needs seemed easy. Shop owner-operators knew their customers by name and their preferences by heart.
OF MERCHANDISING & MARKETING
Customer Insights at the Point of Decision
A DEMANDTEC eBOOK:
nextGEN OF MERCHANDISING & MARKETING
TABLE OF CONTENTS
Introduction: Retail Evolution and Customer Intimacy 2
The Mythical Average Customer Meets Shopper Marketing 4
Operationalize Your Customer Segments: 6
Optimize Merchandising and Marketing Together 6
Plan Assortments and Understand Image Items
by Customer Segment 8
Tailor Promotions to the Right Customers 10
Set Competitive, Effective Prices 13
Collaborate With Consumer Products Partners 14
nextGEN: Putting It All Together 15
About DemandTec 16
OF MERCHANDISING & MARKETING
Customer Insights at the Point of Decision
Page 1
nextGEN OF MERCHANDISING & MARKETING
RETAIL EVOLUTION AND CUSTOMER INTIMACY
The “good old days” of mom and pop retailing have faded to a
pleasant, sepia-toned reminiscence.
In that magical time, early in the last century, understanding
customers’ needs seemed easy. Shop owner-operators knew their
customers by name and their preferences by heart.
Merchandising wasn’t very scienti?c, but it was personal and, in
its way, intimate.
With the explosion of mass media and the economic expansion of
the 1950s, mass retailing boomed also, to feed the surging demand
of a culture oriented around consumption. Manufacturers could
reach customers with a 30-second spot on three TV networks and
a coupon in the Sunday paper. Retailers rolled larger and larger
stores out across the landscape, pacing the expansion of suburbia
and serving the hegemony of the national brands.
In the mass-market era the customer became an abstraction –
a mass market responding to mass methods. For a brief, golden
period, merchants could stack ‘em high and watch ‘em ?y.
In the mass-market era, the customer
became an abstraction – a mass
market responding to mass methods.
Page 2
nextGEN OF MERCHANDISING & MARKETING
The growth of mass markets led over time to industry consolidation
and the emergence of truly national and global retailers. By the
1980s and 1990s we were experiencing an explosion of consumer
product choices and media outlets. Retail chains grew larger and
more operationally intricate, even as cable television and the
Internet caused audiences to splinter.
Retailers and manufacturers adapted by adding technologies to
their arsenal. By the 1990s, retailers were hiring consultants to
build econometric models representing consumer demand and
provide advice on pricing, promotion and assortment to optimize
their categories. By the turn of the century, these techniques
were packaged into software tools designed to enable demand
modeling, forecasting and optimization on a repeatable and
scalable basis. Retailers reaped signi?cant rewards from category-
centric merchandising optimization, with the ability to better meet
consumer demand and achieve their business objectives.
But, along the way, true intimacy with the customer had been lost.
Even sophisticated demand analytics could only reveal a story
about the average customer.
Today mass is past as are one-size-?ts-all analytic models. The new
era is all about segmentation.
In the next generation of retail, demand analytics and
optimization intersect with customer segmentation in brave new
ways. And retailers are prepared with next generation tools built
to let them operationalize their segment strategies in both
merchandising and marketing.
At DemandTec, we call that nextGEN retailing.
segmentation
Operationalize segment strategies in
both merchandising and marketing.
Page 3
nextGEN OF MERCHANDISING & MARKETING
The opportunity to regain customer intimacy has always been with
us. We just needed to ?nd the right ways to marry the merchandising
optimization techniques with customer segment strategies.
THE MYTHICAL AVERAGE CUSTOMER MEETS
SHOPPER MARKETING
Despite years of entrenched mass merchandising practices, all
retail professionals know instinctively there’s no such thing as the
average customer. Each individual differs in his or her desires and
preferences. In fact, they vary with every trip to the store.
Even in today’s complex store environments, customers leave
hints about themselves with every transaction. For decades, retail
marketers have taken advantage of this data with customer
segmentation programs that uncover behavioral traits of different
groups of customers. These investments have resulted in better
performance across their marketing programs. However, the
category-centric optimization tools used by the merchants did not
support insights and decisions at a segment level.
The Death of “Average” – What’s Driving Retail Evolution?
nextGEN retail
? Mass markets ? Segmented markets
? Mass media ? Targeted media
? Prototype store ? Clustered stores
? Uniform assortments ? Cluster-level assortments
? Treat all customers the same ? Focus on key customer segments
? Share of market ? Share of wallet
? One optimized price ? Segment-targeted prices
NEXT GENERATION RETAIL MASS ERA RETAIL
Page 4
nextGEN OF MERCHANDISING & MARKETING
As retailers and manufacturers adopt new tools for understanding
and managing customer data, we confront promising new
opportunities. We can put individual faces back on our customers.
We can get to know them personally again. We can learn to see
what makes them different.
We can meet their needs and exceed their expectations.
In the next generation of retail, we understand which customers
are most valuable to our long term success and what they
?nd important.
This means we merchandise and go to market based on customer
and segment insights as well as category and brand objectives.
Just knowing isn’t enough. We need to take effective action on
this new and improved understanding. Routinely. By embedding
highly responsive practices into our operations every day.
nextGEN technology is ready to help us renew our intimacy with
the customer, target our plans, and deliver competitive advantage.
competitive advantage
We can put individual faces back on our customers. We can get to know them
personally again. We can learn to see what makes them diferent.
Page 5
nextGEN OF MERCHANDISING & MARKETING
OPERATIONALIZE YOUR CUSTOMER SEGMENTS
For retailers, merging advanced customer segmentation with
merchandising optimization capabilities can have a huge impact
on the business. The shift from mass and average to targeted and
differentiated has a profound effect in how retailers:
? Optimize merchandising and marketing together
? Plan assortments and understand image items by
customer segment
? Tailor promotions to the right customers
? Set competitive, effective prices
? Collaborate with consumer products (CP) partners
In the next generation, all of these transition from an
optimization process based on averages to a more ?nely-tuned
process that detects and leverages the variability in demand
among customer groups.
Retail strategy de?nes various goals in key areas: ?nancial,
customer and category. Plans ?ow from these objectives, informed
by customer insights and our best understanding of demand.
To be effective, we must tune our planning and execution process
to address both category objectives like sales and pro?t, as well
as customer objectives like trips or loyalty.
Optimize Merchandising and Marketing Together
Strategy Measurement
Planning
& Execution
Customer
Customer Segment:
? Trips
? Total Spend
? Category Conversion
Category:
? Sales
? Pro?t
? Volume
Financial
Customer
Category
Category
Collaboration and Master Calendar
Page 6
nextGEN OF MERCHANDISING & MARKETING
Page 7
The new breed of retail applications extends optimization science
in exciting new ways:
? Customer segmentation becomes integral to the merchandising
optimization process
? Customer insights are embedded at the point of decision
? Superior planning and collaboration are enabled with consumer
products suppliers
In next generation retailing we combine segmentation and
merchandising optimization and can act on subtle yet important
segment differences. We know intuitively that young families
with children have different purchase priorities than retired
empty-nesters, to cite one clear-cut example. No amount of
price cutting will motivate Golden Oldies to purchase more baby
formula. That’s easy to guess even without optimization tools.
But hundreds of more subtle, yet enduring, purchase preferences
that de?ne customer segments may be very dif?cult to identify
without next generation tools that automatically sift the data
for actionable differences. “Broadcast” merchandising methods
overlook these differences, spreading ?nite resources too thinly,
leading to results that may be good, but could be better.
If Golden Oldies are a strategically important segment in our
stores, we need to identify and pursue merchandising and
marketing programs that will be meaningful to them and elicit
desired purchase behaviors.
Combining merchandising optimization technology with
the discipline of customer segmentation lets us identify and
incorporate a host of segment behavioral differences into our
merchandising and marketing decisions. To operationalize our
customer segment strategy, we need:
? Merchandising technology for assortment, pricing and promotion
? Optimization and segmentation combined and actionable for
planners at the point of decision
? Active collaboration with CP partners
This integrated approach to merchandising activities de?nes next
generation retailing.
Combining merchandising optimization
with customer segmentation lets us identify
and incorporate segment diferences into
our decisions.
nextGEN OF MERCHANDISING & MARKETING
Plan Assortment and Understand Image Items by
Customer Segment
The evolution of retail technology has led naturally to the
application of optimization science to assortment planning
decisions.
Of particular value are concepts of transferable demand and
incrementality. An understanding of these two principles
will help you understand how substitutable products are, and
ultimately if you delist a product, how much of that product’s
demand will shift to other products in your assortment, and how
much will disappear from your store.
Next generation retailing takes these concepts a step further,
applying them at the customer level to understand how each
segment behaves with respect to transferability and incrementality.
The implications may not be obvious.
Optimization science reveals that some strong-moving items add
relatively little to category performance if the customer can easily
replace them with other items if they were to be delisted. Other,
slower moving items may be highly incremental – representing
“plus” business that will be lost for good if the item is delisted.
Te key opportunity here is to apply the transferability and
incrementality analyses within each category by customer
segment. We can then roll this up to an assortment plan that
weighs the relative importance and contribution of each segment
and the cumulative results of diferent assortment decisions.
Page 8
incrementality
If you delist a product, how much of that product’s demand will shif to other
products in your assortment, and how much will disappear fom your store?
nextGEN OF MERCHANDISING & MARKETING
TOP IMAGE ITEMS IN CEREAL FOR GOLDEN OLDIES SEGMENT
? Not surprisingly, Golden Oldies buy mostly Adult and Family cereal.
? We can identify which of these are their top Image Items.
I
t
e
m
“
S
t
r
e
n
g
t
h
”
I
t
e
m
“
S
t
r
e
n
g
t
h
”
TOP IMAGE ITEMS IN CEREAL ACROSS ALL SEGMENTS
? Top cereal image items across segments dominated by Kids and Family SKUs.
? We can quantify which are most valued overall.
5.23 4.26 3.82 3.65 3.30 3.29 3.04 2.92 2.84 2.80 2.78 2.71 2.67
4.69 4.60 3.52 3.36 3.32 3.28 3.26 3.07 3.01 2.81 2.72 2.66 2.39
Page 9
It’s no longer suf?cient to optimize assortment only for a category.
We need to understand the impact on speci?c segments, and
protect or add items of particular importance to key segments.
This discipline applies equally well to gain an understanding of
which items are image items for which segment. While some
image items largely cut across the board, others are image items
only for speci?c customer groups.
Our Golden Oldies segment, for example, may skew more strongly
toward the purchase of certain unsweetened cereal brands, while
the category overall may show much greater movement on kid-
oriented pre-sweetened varieties. Here again, if we deem Golden
Oldies to be an important strategic segment, our overall category
assortment plan and pricing of key image items may require a
degree of accommodation to their preferences that might not be
revealed if the cereals were studied only at the category level.
But knowing isn’t enough. Merchants need these insights
embedded in the technology they use to help make decisions
about assortment, price and promotion. In other words, if I’m
using technology to help me make better decisions about what
promotions to run, I want insight about how these promotions
will impact various customer segments right on the same screen.
nextGEN OF MERCHANDISING & MARKETING
Tailor Promotions to the Right Customers
Next generation retailing applies segmentation and targeting
principles throughout the promotion process. It adds value across
the entire sequence of actions, from: managing deals; to optimizing
promotion plans; to advertising execution; and measurement.
At each stage, the game changes when we consistently ask the
question: “for which segments…?”
The next generation customer focus leads retailers to:
? Target promotions for speci?c segments
? Vary ad versions by segment
? Track and understand response by segment
Page 10
Along the way we conserve ?nite promotional resources, and
apply the effort and dollars where they will be most effective –
toward the customer segments that care most about the category
or the brand or are most valuable to the business. This capability
naturally leads retailers to work more collaboratively with vendors
on trade promotions.
promotions
tailored
nextGEN OF MERCHANDISING & MARKETING
Who’s in the “bump” and to what merchandising levers
do they respond?
Differentiating between customer segments reveals and
makes actionable very profound and valuable insights about
promotional performance.
Different segments respond differently to different promotions.
While this may seem intuitive, until the arrival of next generation
retailing solutions we had very limited capability to act on this
understanding. Promotion lift was calculated across the entire store
and customer base, without understanding its behavioral elements.
But when you see a bump in sales the obvious question is
“who’s in the bump?” And who’s not. Very often, 80% of
the impact is accounted for by 20% of your customers.
Page 11
$
Time
“Who’s in the Bump?”
? Budget Families or Foodies?
? New Category Buyers or Existing?
? Pantry Loaders or Expanders?
performance
nextGEN OF MERCHANDISING & MARKETING
Moreover, it is important to understand which promotional levers
work for which customer segments and in which categories.
Page 12
In the example on this page, Golden Oldies show a strong
promotional response when coffee is on display. In contrast,
Budget Families are unmoved. But looking across the row, it’s
clear that Budget Families are generally more responsive to
multiple pricing, although this leaves Golden Oldies generally
cold. Next time around, if the goal is to grow coffee sales to
Budget Families, we might try the “two-fer” lever, but we
shouldn’t expect much bump from the Golden Oldies.
Targeting promotions to speci?c customer segments will
inevitably lead to an increase in versions of your ?yers and other
marketing deliverables. Would your system be able to handle a
doubling or tripling of versions? Retailers need a buttoned-down
system to keep a lid on this added complexity. Automating those
capabilities with next generation solutions lets them support and
execute promotional strategies by customer segment, category
and geography.
COFFEE DIAPERS CEREAL
YOUNG
FAMILIES
TPR
Feature
Display
Multiple
BUDGET
FAMILIES
TPR
Feature
Display
Multiple
GOLDEN
OLDIES
TPR
Feature
Display
Multiple
Young Families
very sensitive to
most promotion
levers for most
categories
Budget
Families not
as responsive
to coffee
promotions
Golden Oldies
sensitive to
display
response
nextGEN OF MERCHANDISING & MARKETING
Set Competitive, Effective Prices
Leading retailers have been bene?ting from price optimization tools
for a decade. Adding segmentation improves targeting and offers
a substantial opportunity to improve decision-making accuracy
throughout the pricing lifecycle – from base or everyday prices, to
promotion prices, markdowns, pricing rules and price maintenance.
It begins with customer focus made possible by the application of
next generation retail solutions:
? Identify price sensitive SKUs by segment across store
? Identify storewide image items by segment
? Identify price points that drive sales by segment
When we optimize pricing for target segments, we also seek an
understanding of the unavoidable tradeoffs. What happens to other
segments and the total business when you implement those prices?
So for example, if I decide to optimize prices for my most important
segment—say Foodies—what happens to my overall forecast? It
is quite possible that I can raise the price of an item for Foodies
and improve performance for that group, but at the cost of a lower
overall forecast. Depending on my goals, it may still be the right
decision, but it is crucial that I have a detailed understanding of
the impact of my decisions.
Needless to say, you can’t do this forecasting in your head –
you need next generation technology.
Page 13
efective prices
When we optimize pricing to target
segments, we also anticipate the impact
on other segments.
nextGEN OF MERCHANDISING & MARKETING
Page 14
Collaborate with your Consumer Products Partners
Trading partner collaboration is another area that is evolving rapidly.
In next generation retailing, it goes well beyond after-the-fact
reporting and data sharing to incorporate real-time collaboration on
a common online platform.
Access to segment level performance data permits your CP
partners to visualize what items should be put on deal, and
which deals and promotions drive impact on the category.
From a customer standpoint, your CP partners can see and predict
which promotions actually drive certain customer segments and
who is responding to speci?c promotions. When CP partners work
closely with retail category managers they’ll have the insight to what
the strategy is and which shopper segment is being moved by that
merchandising or promotional action.
By sharing data on a common platform, both parties can use the
same online reporting capability to track and understand the impact
on category growth, new customer attraction, or any meaningful
behavioral impact on key customer segments.
By sharing data on a common platform, both parties can use the same online
reporting capability to track and understand the impact on category growth, new
customer attraction, or any meaningful behavioral impact on key customer segments.
collaborate
nextGEN OF MERCHANDISING & MARKETING
nextGEN: PUTTING IT ALL TOGETHER
In a varied and differentiated marketplace, where different
customer segments display enduring behavioral differences,
merchandising to an average shopper can no longer be expected
to deliver superior performance.
Breakthrough results require new thinking and new approaches
that recognize and re?ect the differences that de?ne customers.
nextGEN solutions from DemandTec let you operationalize
your customer segmentation in these crucial areas:
? Optimize merchandising and marketing together – Tune
the planning and execution process to be more responsive to
the differences between customer segments.
? Plan assortments and image items – Optimize assortments
for category growth, while keeping in mind speci?c needs of
speci?c customer segments.
? Tailor promotions – Manage the end-to-end promotion process
from collaborating with vendors through planning promotional
activities, forecasting outcome, and executing on highly targeted
and versioned campaigns.
? Set competitive and efective prices – Optimize prices across
the product lifecycle with an eye on the impact of pricing
decisions on various segments.
? Collaborate with CP partners – Share planning with CP
partners across our collaborative DemandTec TradePoint Network
™
,
using a common online platform that is secure and dependable
and delivers access to powerful insights and forecasts.
At DemandTec, that’s what we call nextGEN.
Page 15
For more info on how you can get to the
nextGEN, contact us at call 888.676.3626
or visit www.demandtec.com.
nextGEN OF MERCHANDISING & MARKETING
ABOUT DEMANDTEC
DemandTec (NASDAQ: DMAN) enables retailers and
consumer products companies to optimize merchandising
and marketing decisions, individually or collaboratively, to
achieve their sales volume, revenue, and pro?tability objectives.
DemandTec software services utilize DemandTec’s science-based
software platform to model and understand consumer behavior.
DemandTec customers include more than 195 leading retailers
and consumer products manufacturers such as Ahold USA, Best
Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B
Grocery Co., Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee,
The Home Depot, Walmart and WH Smith. Connected via the
DemandTec TradePoint Network™, DemandTec customers have
collaborated online with over 2.3 million trade deals. For more
information, please visit www.demandtec.com.
DMAN
Page 16
CONTACT US
DemandTec
1 Circle Star Way
San Carlos, CA 94070
USA
Inquiries:
Phone: +1.650.226.4600
Please visit www.demandtec.com
doc_308952729.pdf