The breathtaking pace of change in the packaged goods sector was underlined in Hamburg earlier this month when over 2000 delegates from across Europe gathered for the 3rd European conference on Efficient Consumer Response. Three years after the European ECR bandwagon got rolling, it has led to the biggest grocery industry conference ever and, judging by what was said there, it’s only just getting started.
The launching pad for ECR was the realisation that an enormous amount of marketing effort and spend is currently wasted, and that there is a huge potential for cost savings. Whether we are looking at category management, promotions, assortment or new product introductions, again and again the message from ECR pilot projects is the same: less is more.
In promotions, for example, it is now widely accepted that the total cost of most brand manufacturer promotions amount to more than the extra sales they generate, and retailers are beginning to realise the same thing. Further, those promotions that are worthwhile could be managed a lot better. First results from ECR Europe projects on promotions management suggest that a little process redesign could cut costs by more than eight per cent, funds which should go straight to the bottom line.
In category management as a whole, pilot project have had even more dramatic effects. In one detergent project in Sweden involving Lever, for example, 20 per cent of the category’s stock keeping units (SKUs) were delisted as surplus to consumer requirements, yet the result of this renewed focus was a sales jump of nine per cent (from a long term, slow decline) and a seven per cent category market share jump for the retailer. In an other dental care project involving Colgate
Palmolive, the SKU count went down by 25 per cent, the retailer’s market share rose by 11 per cent, and its profit margins went up by 9 per cent. But, these cost savings represent just the first step towards ECR paradise. The second step, now receiving top priority within the ECR movement, is the development of “best practice” methodologies for planning and conducting promotions, introducing new products, reviewing category ranges, implementing category management, and so on. Soon, it will be very difficult for a brand manager to do his job without using these best practices methodologies as a base.
It’s the third stage, however, where things really get interesting. ECR started out simply enough. The aim was to make the supply chain as lean as possible: to cut out anything that wastes time or money. The search for these savings led those involved to take a total view of the system: to look at brands in the contexts of categories and categories in the context of retailers’ overall marketing strategies, and to judge the effectiveness of each marketing activity not only by its short-term impact on sales but its long-term effects up and down the supply chain.
It was then realised that it’s not possible to take a total system view if manufacturers and retailers fail to share information about shoppers, consumers, sales etc. This in turn led to ECR’s Big Idea. It is impossible to get manufacturers and retailers to share commercially sensitive information unless there is mutual benefit in doing so – unless, that is, their marketing objectives are recast to align with one another. This is where the creative possibilities begin to emerge. How about collaborating to jointly identify the best promotional tactics and to maximise the potential of new sources of consumer information, for example?
In one Spanish pilot, Elida FabergÃ© and Auchan have worked together to interrogate household panel data and used conversion model research techniques (MW June 6 1997) to identify consumers they would both benefit from targeting – those who are both secondary uses of Elida Faberge brands and Auchan stores. In another project, Kraft Jacobs Suchard and Gruppo GS in Italy have worked together to trawl through loyalty card data to jointly identify – and market to – consumers in the attitudinal cluster “seeking healthy relaxation”.
Even more ambitious ECR Europe’s new goal for packaged goods marketers: to grow the market as a whole, reversing packaged goods’ declining share of purse compared with other sectors such as fast food, entertainment, travel and telecoms. Starting point was a massive pan-European research project involving 30,000 consumer interviews. The ultimate aim is to move what Alex Lintner, the Roland Berger consulting partner coordinating the project, calls the shift from consumer satisfaction to “consumer enthusiasm”.
The ECR initiative to recreate consumer enthusiasm is being led by Tesco, Procter & Gamble, Kellogg and Albert Heijn. The challenge, declared Albert Heijn’s Anita de Hart, is to transform routines into events and habits into surprises, and to make marketing which comes across as “for everybody” into marketing which is “for me”.
Compared with the hard-nosed cost-cutting side of ECR, engendering consumer enthusiasm is inspiring. But it doesn’t mean that ECR is getting any easier. On the contrary. According to Coopers & Lybrand research unveiled at the conference, the gap between ECR leaders – those best able to actually implement ECR concepts – and the rest is growing. For example, the average company’s ECR maturity score for efficient promotions is little better than “just starting out”.
It’s also noticeable that in most category management projects the biggest gains go to the retailer. And aligning marketing objectives is much more easily said than done. There are, for example, huge obstacles in the way of genuine information sharing. As Luc Vandervelde, President of the French retailer PromodÃ¨s and new co-chairman of ECR Europe (with Unilever’s Tony Burgmans) commented, “We know that in ten years time our biggest asset will not be our hypermarket walls but our customer data – why should we give it away?”.
There are also all sorts of misconceptions about ECR. Until now, it has been badly marketed. If it had been dubbed The Campaign for Real Brands and Real Marketing it would have been nearer the mark. Now, however, things are finally taking off.
And as Tesco’s supply chain development director Graham Booth told the conference, “we’re only just touching the iceberg”.