Retailer/CPG loyalty dilemma solved at last
With the constant proliferation and bombardment of retail and brand messages targeted at consumers each and every day, one has to wonder how it is possible to acquire the attention of the embattled consumer. A new report from Bond Brand Loyalty explains how marketers can achieve that goal.
Specifically, the 'New Rules of Engagement' report examines how retailers and brands can connect with consumers and build real loyalty in such a distracted, fragmented and complex marketplace. One would imagine that with this type of business predicament, both retailers and their Consumer Packaged Goods (CPG) business partners would seek ways to address this common problem together, rather than apart.
Welcome to the complex world of retail and CPG. Retailers and CPG manufacturers are both vehemently fighting for the attention and wallet of the same distracted and increasingly apathetic consumer.
Unfortunately, these two business partners don't always play nicely together. To better understand this lack of cooperation, one must understand the complicated nature of the relationship between retailers, CPGs and consumers.
In its simplest terms, retailers and CPGs have a love-hate relationship.
Both retailers and CPGs yearn for the love of the consumer, but they don't always work together to achieve this common pursuit. Large CPG manufacturers carry a lot of marketplace clout and considerable consumer demand for their products, but operate in a very cluttered and competitive product marketplace. They seek preferential status from retailers to better position and promote their products.
Retailers operate in highly competitive marketplaces and are known in the CPG world as 'margin bullies'. CPGs learned early on that retailers will try to, and are usually successful at, extracting every penny available from CPGs to lower their costs of goods, fund circulars, and to pay for premium product placement. Historically, the relationship between these two so-called partners has been at odds when it comes to the consumer.
There are six conflicting positions and priorities:
- Retailers own the consumer relationship, but CPGs want to own, or at least co-own, that relationship too.
- Retailers have full access to consumer and transactional-specific data through their loyalty programmes. CPGs crave access to that data bank, but are only afforded limited visibility at the discretion of the retailer.
- Retailers control communication access to the consumer, but CPGs want to control or, at minimum, gain access to the communication channels, but are confined to playing by the rules set by retailers.
- The retailer's priority is channel-focused, while the CPG's priority is product-centric.
- Retailer success metrics depend on consumer trips, transactions, basket size and margin, while CPGs are focused on unit movement.
- Retailers expect promotional spend from their CPG partners, while CPGs expect data sharing and access to consumers from retailers.
These conflicting positions and priorities have created historical strains on the retailer-CPG relationship. In fact, they have forced many CPGs to experiment with CRM and loyalty initiatives outside of the confines of their retailer relationships in an attempt to take charge of the relationship with consumers.
According to the 2013 Grocery Manufacturers Association report, more than 40% of CPG companies expect to sell products directly to consumers. Though this was from a year ago, the priority for CPG manufacturers to connect directly to consumers is as important as ever, if not more so when taking into account the number of CPG direct-to-consumer loyalty programmes in-market.
Relationship-building activities that CPG manufactures have undertaken with consumers have resulted in mixed reviews. Examples of these loyalty initiatives include Scott Shared Values and the Purell Loyalty programme. These direct-to-consumer programmes offer points, printable coupons, rewards for social sharing and a channel partner cross promotions.
Though this method gives CPGs a direct line to their loyal customers, it lacks the mass audience potential that retailers can offer, along with the importance of in-store promotion strategies. In truth, these CPG loyalty programmes have a much smaller audience, because the responsibility to begin engagement falls to the consumer - with them having to seek out and sign up with these brands online.
Some CPGs, like J&J and its 'Healthy Essentials' programme, are creating value for both consumers and their retailer customers. Programmes like this one have built sizeable databases and social communications with their most-valued consumers, and have deepened their transactional and brand relationship with consumers and retail customers. In fact, this has allowed them to extend the brand further into the lives of consumers in a meaningful and relevant way that begins to resonate on an emotional level, beyond just the transaction.
This is just the beginning, but we are seeing other CPG brands invest in loyalty. Coke, Dove and General Mills all ranked high in the 2014 Loyalty Report because they have each undertaken loyalty initiatives that have a high degree of customer satisfaction. This customer satisfaction is built on many factors, but key call outs include relevant communication, programme alignment to brand's values, and a high degree of trust in a brand.
So what are the key challenges involved in stand-alone CPG loyalty initiatives?
- Entering PIN codes can be a cumbersome process for the consumer that leads to diminished participation.
- Not all customers want a relationship with the brands they use every day. For example, does one really need or want to have a relationship with their manufacturer of toilet paper?
- The time to reward and the size of reward are key considerations when consumers evaluate loyalty or promotional offerings. For instance, how much soda would need to be consumed in order to get a sizeable payout from a soda loyalty programme?
And what is the solution to this retailer-CPG dilemma? Looking ahead to the future, these two constituents are likely to need to take a fresh approach to acquiring the loyalty of their common consumer segments. It will be imperative that both parties engage in a significant shift in thinking about their partnership and muster the will to be less short-sighted, more strategic and long-term focused.
As retailers continue to grow their sophistication in the practice of customer centricity, they need to be more open to sitting down at the strategic table with brands. CPGs are also changing their approach to customer management and must become more trusting of their retail partners. Imagine what could be achieved if these two parties could collectively and openly pool their resources in a common and mutually trusting manner? It suffices to say that one plus one would equal three.
The full US Edition of the report has been made available for free download from Bond Brand Loyalty's web site - click here, and the Canadian Edition can be downloaded here (free registration required).