IBM Survey Findings Serve as "Wake-Up" Call to Consumer Products Companies

Disconnect in Relations Between Retailers and Suppliers Threatens Productivity of Industry

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ARMONK, NY - 17 Feb 2005: A new global survey of over 100 retailers and consumer products companies released today by IBM Business Consulting Services reveals a major disconnect between the views of retailers and the priorities of consumer products companies, one that threatens the productivity of the industry.
Consumer products companies are facing a dramatic shift, moving from the consumer as the primary focus to an expanded view that elevates their retail customers to a place of equal importance. IBM's findings, from surveys conducted by IBM Business Consulting Services and the Economist Intelligence Unit, reveal that retailers view their suppliers as falling short in key areas.

Only nine percent of retailers surveyed by IBM felt their suppliers had a good understanding of their business objectives. In fact, retailers expressed low satisfaction with suppliers across many key areas of their relationships, especially those that help retailers differentiate themselves, such as consumer insight development and promotional design and execution.

Retailers themselves say they are asking suppliers for insightful shopper viewpoints and merchandising assistance, all with the ultimate goal of helping them build their business. Retailers are looking to their suppliers to leverage consumer and shopper insights into improved product innovation, shopper-targeted promotions and recommendations on merchandising and new store formats. For example, the survey revealed that retailers with over US$1 B in sales viewed store-level customer insights and merchandising and category management services as their top two requirements from suppliers over the next five years.

"Having historically focused on the consumer as their only 'customer,' consumer product companies must now seek ways to better understand and provide added value to their retail trade customers as well," said John Breuer, Consumer Products Industry Partner, IBM BCS. "They have to balance the rapidly evolving needs of savvy consumers with powerful retail customers who are demanding exclusive services, pricing and products. To do that effectively, CP companies must redefine the way they do business."

While the findings show that 95 percent of retailers and a comparable number of consumer products firms believe that it is important to jointly develop consumer and shopper insights, the scarcity of successful models for collaborative insight development has led some leading retailers to develop shopper insights on their own.

"If consumer products companies cede this capability to retailers, they risk losing even more leverage," said Breuer. "Consumer product companies are dealing with a host of demand-side pressures that are forcing them to take a hard look at their sales and marketing organizations, the roles and skills of their key account managers, and their capacity to develop deeper consumer and shopper insights."

The IBM report finds that in order for consumer product companies to be successful with retailers, they need to both drive account profitability and help their customers achieve their own business objectives.

The survey revealed that a barrier to this success is that account managers often lack the strategic management and analytical skills required to achieve these two key elements of success. Consumer products companies have clearly recognized this as an issue. Among the companies interviewed, account team skills development and joint planning and goal setting with retailers were mentioned most frequently as the customer management capabilities needed to improve profitability.

The IBM report reveals that to improve performance in this area, account managers and selling teams at consumer products firms must shift from a focus on "selling products" to one that addresses the customers' business needs -- which will require them to develop new skills to address retailers' shifting objectives with greater agility and impact.

While the breadth of available consumer and shopper data is exploding, it is clear that consumer products companies and retailers often lack the technological capabilities to effectively manage and analyze that data, either independently or together.

In order to take advantage of this information, consumer products companies will need to develop the technical capabilities and infrastructure to help them quickly integrate specific, relevant data to be analyzed in response to particular needs or questions. Today, many companies are analyzing different data sets separately. In the future, these companies will require large-scale data integration in order to provide the company with a holistic view of an issue or question and enabling it to formulate a more comprehensive and effective response.

Survey Methodology
IBM Business Consulting Services engaged the Economist Intelligence Unit in August 2004 to conduct a global survey of over 100 retailers across all lines of trade on the topics of retail merchandising and supplier management. Respondents were screened to ensure that they were in a role where they managed or helped to manage supplier relationships. The survey was supplemented by in-depth interviews with senior sales, marketing and merchandising executives at over 20 consumer products and retail companies in the U.S. and Europe between May and September 2004.