business news in context, analysis with attitude

Two weeks ago, MNB posted a story about the “2002 Power Rankings” released by Cannondale Associates, listing Kraft Foods and Wal-Mart at the top of the respective manufacturer and retailer listings. The annual study evaluates how retailers and manufacturers rate each other in area such as strategy, service and profitability that are most important to their ongoing relationships with each other.

Though the strength of Wal-Mart and Kraft in the rankings hardly was a surprise, we were nevertheless intrigued by the rationale behind the Cannondale findings, especially the importance of being consumer-driven.

MNB enlisted the help of John Carlson, a partner with Cannondale, to engage in an exclusive e-interview in which we go beyond the rankings.

The central conclusion of this year's Power Ranking study is that to succeed in the current environment, a company has to be consumer-driven. Can you address how this specifically applies to manufacturers?

John Carlson: There are a few key indicators we would point to that identify manufacturers as more consumer driven. First, their record of new product development and/or acquisition reflects an awareness of key consumer trends. For example, a consumer-driven food company might develop and acquire wellness-oriented products or “solutions-oriented” product lines, whereas a less consumer-driven counterpart would develop low-investment line extensions and acquire businesses that are attractive primarily for their manufacturing synergies and headquarters efficiency opportunities.

Another indicator is the company’s positioning to its (retail) customers. This positioning should go beyond “we have great products” to talk about the company’s benefits to the retailer, and an awareness of the consumer should be evident in each. For example, a consumer-driven manufacturer could address benefits such as the following:

•Consumers’ favorite brands—with reference to how “favorite is measured” and the nature of the consumers’ relationship to the brand
•Consumer insight leadership (see comments below for question 3)
•Support for the in-store stage of the supply chain, reflecting an awareness of and concern for the consumer’s interaction there with both the manufacturer’s brand and the retailer’s brand

Another key way companies show they are consumer driven is by their ability to push consumer insights out from headquarters to the customer (see question 3 below) or to generate consumer insights in a more decentralized way. We see more manufacturers creating consumer insights groups that are distinct from the traditional “market research department,” and may focus more on the retail experience, supply chain, etc.


Wal-Mart is the top ranked retailer on your list...yet, it does not use techniques like frequent shopper programs that you point to as reflective of a consumer-driven organization. Explain how Wal-Mart continues to dominate the list.

John Carlson: Three answers here.

First, we believe that not having a frequent shopper program is a lost opportunity for Wal-Mart. These programs have the potential to generate incredibly powerful consumer insights, and Wal-Mart would no doubt make the most of them. Having said that, Wal-Mart does have the next best thing with Retail Link and is very aggressive about mining that basket level data. That, combined with detailed demographics, and other sources enable them to generate a relatively deep understanding of their consumers. Put another way, Wal-Mart gets most of the value out of a more limited resource, whereas most retailers currently get little of the potential value out of their rich frequent shopper card data.

Second, Wal-Mart is very good at managing the in-store experience, providing “retailtainment” for their shoppers. They make the shopping experience more interesting and even fun for consumers. Considering what a drudgery shopping is in most places, that’s a huge consumer advantage.

Third, and perhaps most important, for all their power over vendors, Wal-Mart is ready to admit they don’t know everything about the consumer, and are always hungry to learn more from their vendors. Their approach consistently seems to be “tell us—we want to know.” This is a major contrast to many retailers who maintain a “we know the consumer better than you ever will” attitude.


Explain in detail what you believe to be the main components of being a consumer-driven organization.

John Carlson:: The report discusses four key “themes” common to consumer-driven companies. Some thoughts regarding these themes:

Consumer Understanding. We often describe “consumer insight leadership” as the combination of four things:

•Unique insights. Leaders go beyond the traditional sources such as syndicated scanning or panel data, or even traditional Attitude & Usage (A&U) studies. These companies are looking at frequent shopper data, channel- or retailer-specific A&Us, retail ethnography, in-home consumption tracking, etc.

•Seamless linkage to action. Leaders have long since given up on “fun facts” that don’t lead to specific actions.

•Effective deployment. More often that not, consumer insights are locked up in “the vault” at headquarters. The flow of information is reduced to a trickle before it reaches decision-makers.

•Continual improvement. Too many companies make one-time investments in consumer insights—a study, a research project, a selling platform—but then sit back and rest on the insights. Leaders engage in a constant state of improvement. We can tell the leaders from the also-rans, because the leaders say “we don’t know enough, but we’re working on it” while the also-rans say “we’ve got a pretty good handle on it.”

Brand Building. The brand represents the essence of the relationship between marketer and consumers. Our view is that among manufacturers, there has long been a desire to build brands, but that desire has too often been thwarted by short-term volume/profit pressure, and by the promotion-driven relationship with their customers (the retailers). On this last point (promotion-driven relationships) we have two particular criticisms: first, that manufacturers complain about trade spending rising at the expense of “equity-building” spending, but they do so little to try to really change that (and we don’t see the plethora of tracking and planning tools as really changing things); and second, despite half their marketing spending being in trade promotion, so few manufacturers have any idea what trade promotion does to consumer behavior. As a result, half their marketing spending is treated as a cost of doing business rather than a strategic initiative.

On the retailer side, our view is that with a few exceptions, retailers have not established brands. Most still advertise on the basis of price, and push their vendors’ brands more than their own. Co-marketing is in theory a great opportunity for manufacturers and retailers to build their brands together, but if the effort starts with the retailer saying that their brand message is “we have the best prices in the market” it’s not going anywhere.

Executional Excellence. Not much to add to this one—suffice it to say that those companies, both retailers and manufacturers, who execute even weak consumer strategies well will win over those whose strategies, regardless of merit, don’t get executed.

“Point of Contact.” The two big areas of intersection between retailers and manufacturers here are assortment and shelf. Truly consumer driven companies will work together to get the assortment right and the section shopable. For those not consumer-driven, there will be the ongoing tug of war between me-too new products and demands for more/better space on one side and slotting fees on the other.


Can you illustrate common ways in which organizations (both retailer and manufacturer) demonstrate that they are not consumer-driven?

John Carlson: On the retailer side, the most common demonstration of a lack of consumer focus is disproportionate financial or operations focus. Typical examples:

ÿ Charging huge slotting fees to stock products in which the consumer has no interest, and which make the shelf more difficult to shop
ÿ Failing to stock products that appeal to small, but highly valuable buyer groups
ÿ “Forcing” private label, rather than responding to a clear consumer need. This is especially problematic in perimeter categories (as seen in MNB commentary earlier this week)

For manufacturers, the clearest sign they are not consumer driven is a failure to innovate, particularly on the new product front, usually driven (as with retailers) by over-emphasis on financial or operations considerations. Examples:

ÿ Reliance on non-value-added line extensions vs. true product innovations
ÿ Waiting too long to convert to new product forms or packaging because of entrenched reliance on production equipment. It’s easy to see products in traditional packages or forms—run on fully depreciated assets—as “icons” rather than relics.
ÿ Failure to invest in the growth phase of a trend, vs. waiting for it to become big. Take ethnic marketing. Too many companies have not put enough effort into Hispanic marketing, for example, despite overwhelming evidence of its importance in the years to come.


For companies that look at this list and want to attain it, what kinds of advice would you give them? (Both manufacturer and retailer?)

John Carlson: For manufacturers, we recommend what we call the “Where’s Waldo” approach. Tear apart your entire go to market approach, identifying who’s involved, how long it takes, what factors are considered. At each point in the process, ask, “Where’s Waldo”, checking to see if there is a sufficient—or in some cases any—focus on the ultimate consumer of the product. Understand how each step affects consumer satisfaction and loyalty. If your process for getting a new innovation to market takes two years, you’re not consumer focused. If you have great ideas, but costs, operational limitations or timing consistently get in the way, you are not consumer driven.

For retailers, two steps are critical. First, they have to have a clear consumer positioning that goes beyond price. This can focus on service, convenience, community involvement, family-friendly stores, health/wellness, or combinations of these and other benefits, but price has to be the cost of entry, not a differentiating factor. Second, retailers need to open the door to the vast resources available to them from their vendors. Retailers that demonstrate a sincere willingness to collaborate with manufacturers get tremendously disproportionate support from vendors. Those whose immediate response to collaboration inquiries is to calculate the potential revenue stream will be ignored, or if they have clout due to scale, appeased.


One of the things you say about retailer criteria in developing the PoweRanking is that the companies mentioned are projected to be power retailers for the next 15 years ago. Yet, I'd suggest that 15 years ago Wal-Mart might not have made such a list. What might be the next great format that isn't on the radar screen yet?

John Carlson: Not sure we have the crystal ball working on this one but a couple of ideas:

First, we believe that within 15 years someone will crack the code on home delivery. Clearly no one is there yet, but consumers’ increasing “time famine,” along with the relative crudeness of the current system indicate there has to be a way to make the economics and the experience work.

Second, we think that there will be an increasingly blurry line between foodservice and grocery. Whether that’s more grocery outlets adding food service, or vice versa, (or both) we’re not sure, but there seems to be an increasing convergence between the two.

We also believe there will be increasingly a need for smaller, more targeted and differentiated retailers. This seems the ultimate extension of smaller independents who realize they can’t compete on price, but provide better service and tailor their stores to the needs of specific shopper groups. We would envision these stores with more products grouped by occasion or “solution” (vs. product type or manufacturer), and these solutions would be oriented toward their shoppers’ needs.