Joint value creation beyond price

Why we have to change

The need for a cultural change to face the challenges of today’s market was emphasised by Gianluca Bolla (Barilla) when he introduced methods of Joint Value Creation Beyond Price.

He said: “We must change the way we do business between manufacturers and retailers, particularly in Europe, where we spend most of our time trying to negotiate and take resources from each other, whereas there is so much we could do together. That is where we need to start focusing more and more our people, our priorities and our resources.

“In the US the environment and the relationship with retailers is very different. We come up with ideas and projects to improve their performance. We discuss with them innovations and projects. I think it is time we brought this here.

“People working in our industries are saying that in the next five or ten years things will be completely different. Co-operation is a very powerful tool with which we can respond to this environment.

One profitable leap

How do you sell a product at more than the market price and still build your business? Impossible? Jon Warset (Edge Consultants) and Birger Stensland (P&G Norway) have the answer: Leap products.

These are new categories of existing products or totally new categories launched at a higher price than market average with an offer of higher value and possibly unique qualities. Warset emphasised that for the launch to be successful it was essential that there was co-operation between supplier and retailer.

The four launch criteria were:

• the retailer’s price
• the market’s price focus
• the supplier’s marketing mix
• the retailer’s willingness and ability to focus on the Leap product.

To succeed, the new product had to be original, unique and worth the extra price. It had to be perceived as better than competitors. And it had to be easy to understand for both the consumer and the retailer. To draw attention to it, it must have above average store presence.

Stensland gave an example of the launch of the Swiffer duster as a new and innovative product. It had an 85 per cent distribution and 25 per cent household penetration. Another example was a shampoo which was selling at 50 per cent more than the market because it was perceived to have higher value. The Gillette M3 Power razor was a unique product which enjoyed 95 per cent distribution and had achieved 30 per cent of razor sales in a year, generating 12 per cent category growth.

Suppliers should be selective in the product launch, which needed real understanding of consumer needs. There was a need to take risks and be bold.

Value: much more than a matter of price

Price is important, but it is not the whole story of good value.

Xavier Hua (Carrefour) pointed out the premium prices which could be obtained by offering superior performance, as in Volvo cars or Dell purpose-made computers. Innovation, too, could add value. The new Fusion razor blade was a true innovation which added more value than price to the shopper’s experience. A good experience might also tempt more money from a shopper’s pocket. Starbucks coffee shops were a good example. A very good shopping experience was important to a shopper.

The theme was taken up by Alaistair Mitchell, Dunnhumby, who pointed out that a third of everyone in Tesco who bought their Tesco Finest range also bought their Value range. Value looked different to every single shopper. Speed of change was increasing and many shoppers were now deal seekers. He said it was essential to learn who buys the product, collaborate round the shopper, launch products fast, and measure, learn and respond.

“Shopper data gives a good understanding of shopper behaviour and why they are shopping. The insight highlights changing behaviour. Some 85 per cent of people in Tesco who buy healthy living products also buy crisps, snacks and pizzas.”

He said collaboration was essential to produce a win-win situation. That was why Tesco made available all the information on its database to all its suppliers. This meant there was a lot of trust. He said that about £2bn was spent on promotions in the UK alone each year. Yet 20 per cent of people who bought a promotion would have bought it anyway. Of the 67 per cent who tried the new brand, only a fifth would make a repeat purchase.

The shop on your screen

There is something different about Le Shop. It exists only on your computer screen. But Le Shop could be a future major player in grocery retailing if today’s success story is anything to go by. The tale of the on-screen phenomenon was spelt out by Christian Wanner as he highlighted European e-grocery sales of €2.2m last year and expanding at an annual rate of 18 per cent.

He contrasted the e-grocery store with the traditional supermarket, whose customers annually:

• Lug three tons of groceries home
• Spend one week standing in a queue
• Stroll 45km through crowded aisles
• Manipulate and pack 10,000 items
• Burn 260 litres of fuel in traffic jams
• Look for a parking space 120 times.

In contrast, e-grocery offered convenience, quality and value plus the benefits of mass customisation.

Le Shop now had 80 per cent coverage of the Swiss population with 66 per cent market share, he said. It had enjoyed a 50 per cent sales growth for the third year in a row with 80 per cent of sales to repeat customers. Quality was assured by insisting on only the best quality fresh produce and meat and a focus on tasty seasonal products. It offered the widest assortment of organic and fair trade products, with an unconditional money back guarantee on all sales.

The result had been 90 per cent penetration of the fresh food market with twice as much organic food sold as in a regular supermarket. Delivering a high value-added service at competitive supermarket rates was achieved by cross-subsidising of logistics costs, a focus on big sizes and family formats, and the right mix of premium products and “price fights”. The result had been a price index of 105 against the traditional supermarket 100 and an average basket worth 133.

“Once you are successfully dealing with grocery you can move up the value chain,” he said. “We are now starting to sell perfumes and cosmetics and electronics. Then we will move into services. We are still in our infancy of understanding the consumer and translating that into real action.”

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