strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: August 29, 2007

 
 

Partners at the Point of Sale

Cultivating Moments of Truth
The purpose of shelf-centered collaboration is not just to increase near-term sales, but to build consumer loy­alty over time to both manufacturers’ and retailers’ brands. To understand this, consider the “moment of truth” mantra championed by Procter & Gamble, one of the world’s great brand-building manufacturers. As the CEO of P&G, A.G. Lafley, has described it, success depends on two moments of truth: when consumers choose products at the shelf, and when they use them. The consumer’s choice at the first moment of truth, from among the thousands of products the retailer offers, is affected by myriad factors, including product availability, brand appeal, consumer needs, package attractiveness, and the product’s essential value. There is also its fit with other products or services around it, the way it is promoted, and the experience of buying it. The second moment of truth occurs when a consumer uses the product and decides whether he or she is satisfied. As Lafley put it in his 2002 address to P&G shareholders, “Leading brands, billion-dollar brands are built on the trust and loyalty we earn when we win both moments of truth.”

SCC provides capabilities aimed at winning the first moment of truth — the moment at the shelf. It provides the category or retail store manager with an unprecedented number of tools for efficiently and effectively connecting with the consumer at that moment.

The impact is easiest to see in a single product — say, a bottle of over-the-counter major-brand allergy medicine. In today’s fragmented value chain, operating without shelf-centered capabilities, a retail store or category manager might order a display of that brand based on historical sales patterns for a group of stores in that region, specifying a date for future delivery. The size of the order would be based on historical sales patterns.

Under shelf-centered collaboration, by contrast, the delivery dates and the amount sent to each store would be influenced by more timely sources of information. If the pollen count is rising quickly or if a nearby store has been closed for remodeling, the order would be increased to compensate for the additional demand, with deliveries the next day. The network would deploy the right amount of allergy medicine to the right stores at the right time, rather than stocking excessive inventories to hedge against seasonal variability.

Admittedly, it’s rare to see such capabilities deployed by most consumer packaged goods companies today. But they are evident in businesses with shorter product life cycles, such as prerecorded entertainment media and fashion apparel. One well-known example is Zara, a fashion retail division of Spain’s Inditex Group. Zara divides its clothing into three categories. “Classic” garments change infrequently, with manufacturing outsourced to low-cost producers in countries like Sri Lanka and Malaysia; “fashion” clothes change season­ally, produced by Zara’s own factories and suppliers in Europe; and “trend” clothes change rapidly in response to the latest styles. This last apparel group, produced in Zara’s high-speed factories or by vendor partners, accounts for about half of Zara’s volume. Trend apparel may stay in the retail stores for only a few weeks.

For the fashion and trend categories, the production cycle is kept short and intensely responsive to information gathered from retail stores — about which products shoppers buy, what they try on, whether they have problems with zippers or fit, and what they ask for. Zara’s rapid-fire designers can produce a new garment in response to consumer demand within a few weeks, put it out in the “trend” line, and then — if consumer interest so dictates — move it to one of the other, slowermoving product lines. Because its clothes match consumer tastes so closely, Zara can sell some 80 percent of its products at full price — about twice the industry average. (See Exhibit 2.) That ability to avoid markdowns more than compensates for any added manufacturing and distribution costs, and the company benefits from the way that consumer-responsive attentiveness allows it to continuously improve its processes.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

Resources

  1. Gerry Greenleaf, Dennis Donelon, and John Jensen, “Supply Chain Management: An Investigation of Collaboration in the Grocery Industry,” Grocery Manufacturers Association, 2003: Survey of retailers and manufacturers in the food industry reveals extent of and roadblocks to collaboration. Click here.
  2. Doug Hardman, David Messinger, and Sara Bergson, “Virtual Scale: Alliances for Leverage,” s+b, Fall 2005: How companies can use strategic alliances to build long-term capabilities in areas including manufacturing, logistics, procurement, research and development, marketing, and promotion. Click here.
  3. Maarten Jager and Steven Wheeler, “Building a Better Matchmaker,” s+b, Winter 2005: The “shelf” of an automobile dealership can sometimes be the Web site — through which carmakers, dealers, and car buyers can learn a great deal more about one another. Click here
  4. Richard Kauffeld, Matthew Egol, and Elisabeth Hartley, “Creating Value through Customization: Winning through Shelf-Centered Collaboration,” GMA Forum, September 2006: The potential of SCC as revealed through existing retailer and manufacturer customization initiatives, especially in consumer packaged goods companies. Click here.
  5. Edward Landry and Jaya Pandrangi, “Getting the Most from the ‘Feet on the Street,’” s+b, Fall 2005 : Describes how manufacturers can configure an optimal sales force mix for their particular retail channels. Click here.
  6. Melissa Master Cavanaugh and Catharine P. Taylor, eds., Moments of Choice: Collaborating at the Shelf for Profitable Growth (strategy+business Books, 2007): Lays out the components and relationships of a shelf-centered collaboration extended enterprise. To preorder copies Click here.
  7. For more articles on supply chains, sign up for s+b’s RSS feed. Click here.
 
Close
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.

Close