Wednesday, November 26, 2014

Distribution: A quand la fin des prospectus?

Une réflexion qui est là depuis aussi longtemps que j'ai commencé à travailler dans la grande distribution. En effet, on prédit depuis l'avénement de l'Internet la fin du prospectus. Notamment, Michel Edouard Leclerc,dès 2010, avait annoncé un plan visant à supprimer totalement le prospectus papier à l'horizon 2020

En effet, les moyens de communiquer avec les consommateurs à l'ère du numérique ne manquent pas. Entre Internet, le mobile, ou encore les PLV dynamiques, il y a beaucoup d'opportunités.

Une autre information intéressante, relayée cette semaine par le blog d'Olivier Dauvers, Amazon a publié pour la première fois un prospectus papier. Quand les rois du web s'intéresse au vieux prospectus... 

1- Quand est-ce que nous allons pouvoir enfin trouver une alternative au prospectus en terme d’outil marketing push? Pour l’instant, je ne vois rien venir. Comment est ce que Leclerc va tenir ses engagements de 0 prospectus.
2-Quel est l’intérêt pour un e-commerçant de faire un prospectus de ce type sans avoir ni d’accroche prix, ni de promotion? Car si l’objectif est de démontrer la profondeur de gamme, avec des millions de références, je ne suis pas sûr qu’un prospectus papier soit opportun.

Pour ma part, je ne suis pas sûr de la fin du prospectus pour l'instant. Surtout que les développements autour des outils marketing du web sont surtout focalisés sur des solutions de pull marketing, avec des systèmes d'applications et de publicité personnalisées. 

Mais il n'en reste pas moins fondamental d'avoir des opportunités de pouvoir envoyer du contenu commercial en push, pour pouvoir générer du traffic en point de vente.

Tuesday, November 25, 2014

Will Mobile Payment Improve Customer & Shopper Experience? #CX

It has been several years now that a lot of companies are looming on the mobile payment business:
- Banks, seeing a new way to purchase
- Credit cards company like Visa or Mastercard, seeing a potential threat to lower the number of card transactions

- Mobile devices companies, who could benefit 
- All kinds of web companies, building apps, like Paypal, to grasp a part of it.
- Retailers, which are the final users, and who wants new way to decrease the cost of payment by making it more efficient (faster, and obviously cheaper).

But the market is yet to spike, as no one seem to agree on the terms. Also, I believe that it has not yet taken off as shoppers have not really seen the interest to switch to the new technology.

I read not so long ago a great article about this topic on the French website Les Echos. Its message is that mobile payment could improve customer relationship as it could provide a new shopper experience by using the data of the past transaction of one shopper. It could hence maybe provide better advices on what to buy, or discounts.

But I believe that actually what will be difficult to achieve:
- First of all, France has clear legislation limiting the use of financial information by financial institutions. Banks have already all the information they need, have the tools to analyse it but can't really do so, as it would cause privacy problem.
- Secondly, I think that entering shopper privacy by pushed marketing messages will be against mobile payment adoption. It is the reason why mobile marketing has not experienced such a high success. Text messages campaigns are intrusive, and difficult to be interesting.
- In terms of security, having no contact may seem not as secure as the credit card. Also, the mobile phone, if stolen, could be devastating: No tool to phone to cancel the card, unlimited access by the stealer of the information...

In order to actually force the market to benefit from mobile payment we need:
- A real captain to take over the investments, the campaign, and a clear approach (far to be won this one...). Too many people trying to win over the market.
- A secured technology (some improvements need to be done)

Thursday, November 20, 2014

Category Management & Direct Profit by Products: When product complexity hurts true profitability

I wanted to share with you an interesting document I found wrote by Accenture. It is directly linked to my previous post about the Direct Profit by Product Analysis. This document is Named "When Product Complexity Hurts True Profitability". 

This concept is very true especially in category management in the FMCG world. As the article points out, the number of Skus in product range is constantly growing. It is actually growing faster than the sales do, which means the sales/product figures are declining fast. That means categories are losing efficiency.

Moreover, the more product you retail the more costs will be implied in your activities. That means more room in your warehouse, more data to analyze and to deal with for accountability and management, more time spent to set up products on shelves. More products mean more sales, but don't mean more profits in the end for sure.

The article emphasizes that there is a need to understand hence this complexity and its impact on the cost of goods sold, and therefore the profitability. Hence you need to track all the costs linked to one product. As the article says:
 These include direct labor and materials costs, administrative and sales expenses, rebates, discounts,
supplier overpayments, an allocated portion of the company’s cost of capital, and whatever other charges and expenditures the company makes related to the product.

Accenture analysis reveals that most blue-chip companies have about 65 percent of their revenues tied up in their cost of goods sold (COGS). Of that, more than 80 percent is for direct material costs. Clearly, if firms hope to improve a product’s profitability, COGS is where to start.

Winners and losers
In the example below, Product A is a typical underperforming product, with high direct costs. Even though the indirect costs are fairly low, Product A would typically be eliminated as both the true margin contribution and the sales volume are low. However, if the product is strategically
important—such as a legacy product—or has development potential, that has to be
taken into consideration.
Product B is a typical high performer. Direct costs are low, and even though indirect
costs are fairly high, the true profit margin is still high. The product’s sales volume
is above average but not as high as you would want with a high true profit product.
This means that Product B is a good candidate for a more focused sales effort.
Product N is a typical representative for true profitability improvement potential;
generally this type of product accounts for a large portion of a company’s product
portfolio. The true profit margin is rather low, but sales volume is high. The product
could benefit from product reengineering and design-for-assembly to minimize
the direct materials and labor costs.

These kind of analysis are I believe very interesting in terms of category management. What is also very interesting with this analysis is that it may evolves not only depending on the negociation of the gross sales price, but could evolve depending on the work ones may do on some part of the costs of good sold.

I believe that these approach will tend to become the norm, sooner or later.

Thoughts On Christmas Season Sales? When Early Is To Early

This article is directly linked to the one I wrote about Alibaba's single day records. Indeed, in the US, Christmas season has started a while ago. 

One of the best techniques to beat your competitors during the season sales is to sell your goods before them. This is the reason why big retailers tend to start the season earlier, with large discounts in order to stock customers which will then avoid to buy other goods at the competition. But as sales are getting tough in this economy, the race to be the first one to open the season has brought them to be out of reason: People are questionning why they should buy Christmas decorations while they have not even finished celebrating halloween and that Thanksgiving is a month after... 

Indeed, even though being the first is great, the time to market is also key to maximize sales. And by being too much in advance, you may not trigger the sales you expect. I believe that the approach of Alibaba to create a new event of singles day could actually be a better technique to generate sales and traffic.

What do you think about it?

Wednesday, November 19, 2014

The 7 trends of Modern Retail

Interesting slideshare presentation I wanted to share with you. It is French, but I thought it would be interesting to post it for all kind of audiences. Indeed, in the presentation, they give a lot of concrete examples on great initiatives of both France and the US. Mostly in France actually. But I believe that shows that France is for sure greatly innovative, and that the retail world is changing fast.

Here are the 7 trends:
- New Imaginaries of commerce: The importance of the local production, ethic and organic.
- Collaborative consumption: Through rental, second hand product or by borrowing and trading items.
- New digital lives: Click & Collect is a big trend
- Sharp retailing: proposing different concepts to different targets. Retail needs to segment.
- Back to the Salesperson: how to emphasize on this human interraction instore.
- Social and sustainable development
- New business models.

Tuesday, November 18, 2014

Category Management and #Retail: Working on the Direct Product Profitability #DPP

I have already discussed not so long a go about a great technique to leverage a category profitability by analyzing the Cost of Goods Sold, I wanted to discuss another key concept on how you should analyse profitability in retail nowadays. Indeed, gross margin is probably the most common KPI of profitability used in retailing, but it does not give you the whole picture. 

In the chart you will find 5 different products, with different features. Depending on the KPIs you will look at, you will have a different prospective of what the performance of the products are.

If you look at Item A, it is the Item with the higher % of gross margin, which you may think is cool. But when you take into account all the direct product costs (DPC), which includes supply chain, wages, among others, you find out that you are loosing money on it.

Same thing about with Item E: You sell it the most, and despite a low % of mergin, it is the product that provides you the most gross margin at the end of the week (isn't it the concept of FMCG?). But at the end of the day, the resources required to retail the products are so big that the direct profit is negative.

In this example, it is the product C that is the most efficient and profitable. It doesn't have the best sales, it doesn't have the best % of gross margin, neither is it the most expensive, but the way its cost of goods sold is designed and how it performs makes it by such an analyzis the perfect deal.

The Direct Product Profitability modell allows you to make such an analysis. Its uses is common in companies like Walmart.

I believe that Direct Product Profitability is obviously by far the best way to analyze one product performance. Obviously, there may be other variables that are not taken into account, as the modell is more used for a purchasing strategy than an actual category management strategy. I believe that you should take into account the penetration rate of the product, or its loyalty rate, in order to understand how strategical the product maybe in your product range.

Here are The Seven Step DPP process

The DPP model is capable of calculating net profitability of individual items of fast moving consumer goods. Working with the DPP model is a seven-step process:
  1. DPP model fine tuning: the classical DPP model is adapted to specific product characteristics of your industry
  2. Input of process characteristics: process characteristics of the logistics chain are entered as activity drivers in the DPP model (examples: delivery frequency, productivity ratios)
  3. Input of general ledger resource costs: resource costs of the central depot, transportation and the store (examples: transportation cost per km, costs per working hour)
  4. Calculation of activity costs: activity costs are calculated in the DPP model
  5. Input of product characteristics: all characteristics of individual products are entered as cost drivers
  6. Calculation of direct product costs: activity costs are allocated to products
  7. Calculation and presentation of direct product profitability ratios

How Did Alibaba Created The Most Successful Shopping Day Ever?

Chinese e-commerce company Alibaba has been the past few days the most discussed issue in the retail business world. Whereas Amazon's quaterly results raises doubts, the Chinese company experienced a tremendous success with its IPO, and has also breaken a sales record:
On November 11th, on a single day, it generated $5,75 billions in sales.
What is very impressive to me, is not that Alibaba is able to beat Amazon or Walmart for a promotion day, but more about its ability to have created this new promotion day.

Indeed, nowadays, it is very rare to see a retailer creating some really new sales event that can skyrocket sales. Most of retailers are actually fighting on the same days: Christmas, Easter, Black Friday, Halloween... And one of the only technique used to beat the competition is to start the season sooner than its competitors, which leads to weird things, like Christmas sales way before Thanksgiving day...

The ability of Alibaba to have created by its own this new day is to me something very relevant, that shows how strong the e-merchant is, how a serious competitor it will be once entering the European and US markets.

The concept of November the 11th, on 11/11, because of all the 1 in the dates, Alibaba celebrates single people , with sales designed for them. The goal is to be an anti St Valentine's day. I don't know if the success is based on the multiplication of single person household, but the sales really works, and I believe, as no other competitors is yet big on it, allowed Alibaba to have a strong communication plan of its own to generate so huge sales.

As the event also is pretty new, what is remarkable is how they are excellent in execution, because trust me, not to be out of stock when you see this success, that means you need to have forecasted well your quantities purchased, the supply chain and warehouse management, and also your online traffic.

Well done, Alibaba.

Monday, November 17, 2014

Category Management : Working On The #COGS Cost of Goods Sold

As a retailer, you are mostly working on thin margins. In the world of fast moving customer goods, you mostly work between 2 and 5 % of EBIT, with gross margin of 25 to 30%. 
While working on a category, and especially working on its profitability, we mostly use the gross margin approach, either in % or in value, to know what is profitable or not. But I believe that it is very short in terms of approach.

Indeed, a lot of aspects may impact your gross margin in several ways, which may change deeply the final profitability of one of your products. For instance, you may have a high margin on a product (let's say 40%), but if it moves slow, it will have a costly impact on your inventory or your cashflow, whereas a fast mover may have a 20% margin but will be far more profitable. Other items have an impact on the margin, for example, the transportation of it.

It is what we call the cost of goods sold. This approach allow you to have a kind of "EBIT" per product, and hence to see the real cost of some products that hide their performance by a high % of margin.

Here are some items that may have a deep impact on your costs:
  • How fast the sales go (for inventory for example)
  • The breaking/ stealing (for high cost goods, or fresh food)
  • When you pay the merchandising (the later the better to have a positive cash flow, depending on how fast you sell the product)
  • The supply chain
The Cost of goods sold approach is very important and should be developped at all time to better understand the impact of your category choices.

Tuesday, November 11, 2014

Some Thoughts About #Amazon 's Strategy

First of all, let's remind ourselves that Amazon is one of the highest success in business the past two decades. But Lately, Amazon's results have not been as promising as it could have been expected to be.

Indeed, Amazon has never really gave dividends to its shareholders as it was focusing on investing its profits in growing faster. A bold move that allowed the company, who by the way is not 20 years old yet (started in 1995) to become one of the top 10 largest retailers, and soon to settle in the top 5.

But E commerce, even though the largest contributor of retail growth, the increase is slowing down. And competition become tougher and tougher, especially by brick & mortar companies like Walmart or Target that are investing strongly in it.

Shareholders hence are getting annoyed by the current strategy, and is eager to find operating income. Obviously, after 20 years of investment, they are expecting a different kind of balance sheet, especially as the investments of Amazon in new businesses are yet to perform.

How long this situtation will last? if Amazon can't convince shareholders to keep on investing, it will be tough for Amazon to go on with its strategy to invest in new business to dominate the E commerce. 

Maybe the time is now to show how the Amazon's business modell can be more oriented on profitability, which is what ultimately will allow Amazon to have a long term investment strategy.