The role of technology in the retail industry
Some of the greatest changes in e-commerce have taken place within the field of retailing. This has major implications for the way in which business is conducted between suppliers and retailers,
The following paragraphs offer a brief insight into other applications used in the retail industry by both suppliers and retailers.
Much of the drive for investment being made by retailers is to increase the efficacy of data relating to stock to allow efficiencies to be made in supply chain management.
Supply chain management is the concept of the provision of products from suppliers’ production lines to their sale at the retailers’ tills. Supply chain management drives profitability as it ensures retailers and suppliers are focused on ensuring the right products are available in the right quantities at the right times to meet their individual customers’ requirements. Accurate and real-time data are the enablers for this.
Retailers are increasingly aware of the benefit of having collaborative relationships with their suppliers and are now making these data available to their suppliers, usually through web-based technology such as secure intranets and extranets.
This allows the supplier to see the same data as their customers at the same time.
Production and supply are harmonized to in-store demand, facilitating the concept of demand management. This can have the mutual benefits of increased sales, fewer stock-outs and lower levels of stock required across the entire supply chain.
Retailers have taken the lead in this investment and thus now hold the balance of power in dealings with suppliers as they now possess more up-to-date and relevant real-time data than their suppliers. This obviously gives retailers a commercial advantage when negotiating with suppliers.
Electronic point of sale (EPOS) and electronic funds transfer at point of sale (EFTPOS)
Data are captured at the moment a product’s unique barcode is scanned at the till.
Advances in technology have significantly aided the scope for data analysis. In addition to the original scanner-related data on sales rate, stock levels, stock turn, price and margin, retailers now have information about the demographics, socio-economic and lifestyle characteristics of consumers. They can also assess the impact of a whole host of variables, e.g. price, promotions, advertising, position in store, shelf position and number of facings. This information drives their choice of product mix, allocation of shelf space and promotional tactics. Some retailers also use customer loyalty cards as a means to capture data which can be analysed, allowing the retailer to engage in one-to-one marketing initiatives, e.g. information on new products and offers of discounts to retain customers.
EPOS has certainly changed the relationship between buyer and seller. Before the availability of scanner data, the trading relationship depended on information provided by manufacturers from retail audits, information that was at least several weeks old. Access to more detailed, accurate and timely data from scanner systems gives the retailer significant bargaining power. Not surprisingly, information finds itself on the negotiating agenda. Manufacturers do buy EPOS data from their customers, but they can also trade the information and capabilities they have in exchange for it. Market knowledge is still the manufacturer’s forte and this national market picture is of great use to the retailer. Additionally, armed with the retailer’s EPOS data, the manufacturer could deliver well-targeted trade marketing programmes beneficial to both sides. In true trade marketing spirit, co-operation is the overall preferred approach.
EPOS depends on the inclusion of barcodes on all products to be scanned. This impacts directly on the manufacturer/supplier who should ensure that all packs carry a barcode and that the barcodes for any new line listings or promotional packs are entered into the customer’s system before any goods are shipped.
Space management systems
Maximizing the sales and profitability of selling space is critical. One of the reasons for retailers investing in supply chain management is to reduce the amount of storage space required in store, allowing sales areas to be increased. To ensure the right amount of product is kept in store and featured on the shelf, retailers use space management systems to construct virtual plannograms, which should maximize sales that can be achieved from each meter of selling space. To better understand the implications of these software packages on their products, suppliers have not only bought packages but also set up departments that specialize in space management. Opportunities exist for their proactive use by manufacturers, particularly in situations where the retailer is short of resources; importantly, manufacturers can put themselves forward as produce category specialists. In the soft drinks sector, Coca-Cola Schweppes Beverages (CCSB) acts as the category specialist. A key function of the trade marketing role at CCSB is to advise the retail trade on the allocation of space to the soft drinks category in totality. An example of a software package that can accomplish this is Nielsen’s Spaceman. Recently, however, retailers have become concerned that some suppliers may use this technology to favour their products at the expense of competitors at the key point of purchase.
Maximizing the profitability of every product is critical in many areas of retailing where price figures highly in the marketing mix.
The output from direct product profitability (DPP) systems can affect retailer decisions on product stocking, store position, pricing and even trading terms demanded.
Internet and IT applications in selling and sales management
It is vital, therefore, that the manufacturer understands DPP and the extent to, and manner in which, individual retailers use it.
DPP replaces gross margin as a much more accurate measure of a product’s contribution to total company overhead costs and profit. It takes account of the fact that products differ with respect to the amount of resource they use; such as the amount of transport costs, warehouse and back-of-store space, staff handling time, share of shelf space, even head office costs. As a minimum, the manufacturer needs to be aware of how the retailer is using DPP and have sufficient expertise to question the results of the retailer’s analysis. For example, a product with low DPP may still be essential to a retailer’s success if it generates in-store customer flow, and if deleting it would lead to a loss of customers.
It can be used by manufacturers and retailers to examine the costs at their individual ends of the distribution chain, and by both to estimate the costs and profits in the other’s field for use in negotiation. In some instances, manufacturers have taken the lead in introducing
DPP and in doing so have capitalized on the potential gains for both sides.
Procter & Gamble claims it would modify its packaging, trading terms and other variables on the basis of DPP analysis. Proactive use of DPP by manufacturers works best with actual cost data from the retailer; without this only standard retail industry data can be used. In fact, to continue a theme already begun, manufacturer–retailer co-operation in the sharing of data is the preferred strategy in order to maximize gains for both parties.
Technology also enables category management. Scanning technology delivers information
at a level of detail that allows customized merchandising strategies (tailored product assortments, space allocations, pricing, promotions, etc.) to be devised for categories or types of store. Furthermore, sophisticated computer modeling programs allow such marketing programmes to be pre-tested before they are implemented.
Retailers will best respond to those manufacturers who establish themselves as experts in the category and share their data on product sales, consumer behavior and competitor activity with them. Manufacturers can add these data to their knowledge analyze and identify significant consumer and category trends and use this to make strategic recommendations to the retailer on ranging, merchandising, products and promotions that will increase the overall profitability of the category. This, of course, presumes the adoption by the manufacturer of the relevant technology and applications, but the gains to the proactive manufacturer are substantial.