B ildi t i bl l h iBuilding sustainable value chains: The importance of being … relevant!
Professor Andrew [email protected]
Centre for Value Chain ResearchKent Business School, University of Kent
Outline
The challengeg
Value chain design
Value chain management
The Power of consumer insight
Conclusions
WHAT WILL YOU REMEMBER?REMEMBER?
Remember this...
Assumptions are the mother of all f*** ups!
Looking at the market in aggregate leaves us blind to the realities of ‘people’ and ‘products’
Remember this...
The blind are leading the blind... into the commodity trap!commodity trap!
Organisations must change the way they think the way they take decisions and thethink, the way they take decisions and the way they behave
Consumer insight Consumer insight is the essential missing ingredient
Remember this…
Look more closely, listen harder, speak more clearlyLook more closely, listen harder, speak more clearly
THE CHALLENGE
TodaySustainability• Qualityy
• Size, Colour, Taste, Texture, shelf-life…• Who knows?
• Service• Service• Fullfillment!• How high should I jump?
V l• Value• Cost• To whom?• For what purpose?• How much did I lose?
And tomorrow…?Sustainability
Sustainability
SocialSocial
FOOD
EnvironmentalEconomic EnvironmentalEconomic
Sustainability
Ed tiEd ti
SocialSocialHealthHealthEthical LabourEthical Labour
EducationEducation
C itiC iti
Corporate ValuesCorporate Values
Succession Succession PlanningPlanning
CommunitiesCommunities
LabourLabour
ClimateClimate
FOODTransportTransport
Corporate Corporate Ecological Ecological
Climate Climate ChangeChange SoilSoil
EnvironmentalEconomic EnvironmentalEconomicSupermarketsSupermarkets
EthicsEthics FootprintFootprint
Energy SourcesEnergy SourcesWasteWasteProfitsProfits
ConsumersConsumersM k tM k t
Land UseLand Use
WasteWaste
Market Market AccessAccess WaterWater BiosecurityBiosecurity
Adapt or Die
It is not the strongest of the species that survive, nor the most intelligent
We only have two sources of competitive advantage:• The ability to learn more about ournor the most intelligent,
but the one most responsive to change
• The ability to learn more about our shoppers faster than the competition
• The ability to turn that learning into action faster than the competition
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action faster than the competition
Charles Darwin Jack Welch
Key Shopper TrendsSustainabilityThe Paradox of Choice: Increasing choice wanted but it fosters
confusion and indecision .. Macro desire for simplicity and orientation p ymore important now for shopping than we think
Time Stealers : Breakdown in routines and structures has led toTime Stealers : Breakdown in routines and structures has led to ineffective use of time and increasing demand for ‘more time’. Shopping is under threat as an enjoyable activity
Complex Convenience : Convenience increasingly means different things to different people, increasing desire for personal, bespoke solutions, fuelled by innovative brands & new shopping channelssolutions, fuelled by innovative brands & new shopping channels
The Rise of the Smart Shopper : Knowledge is becoming the new currency and being ‘savvy’ when shopping has become a desirablecurrency and being savvy when shopping has become a desirable trait, price is no longer the easy signal of quality
Source: Dynamic Reasoning
Money is not the only currency... BUT
Empty nesters –self-indulgence
YoungYoung mothers –food safety
Young adults & pensioners – diet
& h lth& health
What is your value proposition?
• The more relevant the product or • The more relevant the product or service the greater the demand
Value Chain DesignValue Chain Design
Segmentation and differentiation
Variation in demand within and between customersand between customers
D i f th ‘ t id i ’Design from the ‘outside in’
Source: Accenture (2009)
Design from the outside in
• Different customers pursue different strategies and p ghave different needs at different times
• Defend/grow market share• Build loyalty• Build loyalty• Extend product range• Reduce risk
Th i i i l h t d• Their consumers are increasingly heterogeneous and unpredictable
• The value chain must be responsive and ‘fit for• The value chain must be responsive and fit for purpose’
• This will not happen without design, commitment, pp gresource allocation, management and control
• Design needs to embrace strategy, structure and process
Value Chain Design (3-10)
Value Chain ManagementValue Chain Management
VCM – Principles
Allocation and utilisation of resources that is hard for others to contest and even harder to replicate
Add more value (effectiveness)( )
At lower cost (efficiency)
Faster (responsiveness)
Sustainably Sustainably
Economic Environmental Environmental Social
Paradigm Shift
Area ‘Conventional’ Approach(I t ti )
Value Chain Approach(O t d l ki )(Introspective) (Outward looking)
Focus Narrow focus on material procurement and logistics
Wider strategic focus linked to future growth
Make‐buy Reactive, cost minimisation Pro‐active, linked to core competence
Design Suppliers ‘build to print’ Key suppliers have major design responsibility
Quality
Business
Inspect quality in
Adversarial short term contracts
Certify supplier processes
Co operative long termBusiness Relationships
Adversarial, short‐term contracts Co‐operative, long‐term partnerships
Supply Chain Paradigm
Value Chain Paradigm
Value Chain Management – Zespri Style
Grower/Supplier Partnerships
Customer Relationships
mer Positioning
mer Positioning
Customer
Customer
Core Competencies Value Design Products Distribution
ChannelsConsumer Segments
e e
Consumer PositioningConsumer Positioning
C t Rngth
enin
g C
ore
ompe
tenc
ies
lue C
reati
on
ngth
enin
g C
ore
ompe
tenc
ies
lue C
reati
on
Costs RevenueSuccess/FailureS
tren Co
Innovation
Valu
Str
en Co
Innovation
Valu
Securing Shareholder & Grower ReturnsSecuring Shareholder & Grower Returns
Adapted from Osterwalder & Pigneur 2005 Adapted from Osterwalder & Pigneur, 2005
Key Enablers
• Strategic Alignment
• Value Chain Visibility
• Collaborative Relationships
• Consumer InsightConsumer Insight
Strategic alignment
Drives resource allocation
Strategic alignment
Tesco Appeal to all customers
Sainsbury’s Appeal to all customers Breadth before depth Stock unique linesq Competitive in the market Simple and logical
f First for customers Relevant for customers
How aligned are you?
• In depth knowledge of your customers • Know your product but not your market• In-depth knowledge of your customers• Product ranges for all store formats• Innovation exclusive to customer
• Know your product but not your market• Duplicate the range• Stifle NPD with process
• Speed to market with new products• Dedicated resource (account manager)• Openness and honesty
• Devote shared resource to the category• Keep information to yourself• See change as more workOpenness and honesty
• Willingness to change• Investment to grow the business
P ti th t th t
See change as more work• View investment as risk• Are unable to segment your market
• Promotions that grow the category• Resources to deliver projects/plans• Market expertise
• Promote for short-term category share• Require customer to deliver your plan• Manufacture product with no real skill
Value Chain Thinking (2-23)
p
Value Chain Visibility
CREDIT CARDCREDIT CARD
RetailerManufacturer DistributionSupplier Consumer
CREDIT CARD
1234 5678 90121234 5678 9012VALID FROM GOOD THRU
XX/XX/XX XX/XX/XXPAUL FISCHER
XX/XX/XX XX/XX/XXPAUL FISCHER
RetailerManufacturer DistributionSupplier Consumer
CREDIT CARD
1234 5678 90121234 5678 9012VALID FROM GOOD THRU
XX/XX/XX XX/XX/XXPAUL FISCHER
XX/XX/XX XX/XX/XXPAUL FISCHER
Dem
and
Dem
and
Dem
and
Dem
and
Dem
and
Dem
and
Dem
and
TimeTime Time TimeTimeTimeTime
R d t i t i j t d d dReduce uncertainty in projected demand
Collaborative Relationships
Commitment
Trust
Co t e t
Inter-dependence
The Power of C I i hConsumer Insight
Consumer Insight
Consumer insight is an essential ingredient for success, no matter how good the product is, g p
Differences in purchasing behaviour between segments may be significant and should not be be significant and should not be assumed
Heterogeneous segments Heterogeneous segmentsrequire differential treatment
The more limited the (marketing) The more limited the (marketing) resources the moreimportant it is to target them
What do we need to understand?
Shopper insight Vs Consumer Insight
Insight = Who + What (shopper behaviour ) + Why (consumer behaviour)
Shopper Consumer In HomePurchaseDriven by Shopper Marketing:Path to Purchase & Point of Purchase activity
Without a link or trigger to drive consumption products can sit in cupboards/ fridges/ on shelvescupboards/ fridges/ on shelves..
dunnhumby Data
Weekly supermarket purchasing behavioury p p g
17 million shoppers (40% of UK households)
Over 30,000 food products
Segmented by: Segmented by:
Geo-demographics (Cameo) LifestageRegion (TV) Retail Channel
Detailed Lifestyle Retail FormatSimple Lifestyle
Who buys avocados?
180
140
160
80
100
120
40
60
80
Older Adults Older Families Young Adults Young Families Pensioners
0
20
Medium Avocado Each Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe
g g
Medium Avocado Each Ps
Tesco Medium Rrte Avocado Each (C)
Tesco Baby Avocados Pack
Tesco Finest Large Avocado 2Pk
Tesco Large Fairtrade Avocado Each
Tesco Perfectly Ripe Avocado Pack
Source: dunnhumby (2010)
Who buys avocados?
450 Convenience Finer Foods Kids Choice Mainstream Price Sensitive Traditional
350
400
200
250
300
100
150
200
0
50
Medium Avocado Each Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly RipeMedium Avocado Each Ps
Tesco Medium Rrte Avocado Each (C)
Tesco Baby Avocados Pack
Tesco Finest Large Avocado 2Pk
Tesco Large Fairtrade Avocado Each
Tesco Perfectly Ripe Avocado Pack
Source: dunnhumby (2010)
Who buys avocados?
450Young and Affluent Singles Wealthy Retired Neighbourhoods
Affluent Home Owners Smaller Private Family Homes
350
400
Affluent Home Owners Smaller Private Family Homes
Comfortable Mixed Neighbourhoods Less Affluent Families
Less Affluent Singles and Students Poorer White and Blue Collar Workers
Poorer Family and Single Parent Households Poorer Council Tenants - Many Single Parents
200
250
300
100
150
200
0
50
Medium Avocado Each Ps Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe Medium Avocado Each Ps Tesco Medium Rrte Avocado Each (C)
Tesco Baby Avocados Pack
Tesco Finest Large Avocado 2Pk
Tesco Large Fairtrade Avocado Each
Tesco Perfectly Ripe Avocado Pack
Source: dunnhumby (2010)
What do they buy?
% Change (Yr on Yr)Sales Distribution Average Price
Market Value Avocado Each 1.2 ‐86 ‐33 ‐16 0.8% 17.2%Baby Avocados Pack 14.4 ‐9 16 ‐8 3.4% 38.9%
% Change (Yr on Yr)Description Share of sales Penetration Repeat rate
Baby Avocados Pack 14.4 9 16 8 3.4% 38.9%Finest Large Avocado 2Pk 2.2 ‐91 ‐15 ‐1 0.6% 18.3%Large Fairtrade Avocado Each 3.7 ‐8 11 3 1.0% 22.9%Medium Avocado Each 16.5 ‐58 ‐4 20 4.6% 36.0%Medium Ripe & Ready Avocado Each (C) 5.2 23 18 4 1.6% 35.8%Perfectly Ripe Avocado Pack 37.7 ‐ ‐ ‐ 5.1% 42.3%Perfectly Ripe Large Avocado Each 15.6 ‐ ‐ ‐ 3.2% 40.8%All Products 100 2 7 0.3 12.8% 55.0%
Annual sales = £13mllnSource: dunnhumby (2010)
Prices range from £0.5 to £1.84Only 12% of shoppers purchased avocados and almost half never came back!
What do they buy?
350,000
250,000
300,000
150,000
200,000
50,000
100,000
0
13-O
ct-0
827
-Oct
-08
10-N
ov-0
824
-Nov
-08
08-D
ec-0
822
-Dec
-08
05-J
an-0
919
-Jan
-09
02-F
eb-0
916
-Feb
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02-M
ar-0
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-Mar
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30-M
ar-0
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27-A
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911
-Ma y
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25-M
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908
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22-J
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906
-Jul
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20-J
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903
-Aug
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17-A
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931
-Au g
-09
14-S
e p-0
928
-Sep
-09
12-O
ct-0
926
-Oct
-09
09-N
ov-0
923
-Nov
-09
07-D
ec-0
921
-Dec
-09
04-J
an-1
018
-Jan
-10
01-F
eb-1
015
-Feb
-10
01-M
ar-1
015
-Mar
-10
29-M
ar-1
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-Apr
-10
26-A
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-Ma y
-10
24-M
a y-1
007
-Jun
-10
21-J
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-Jul
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19-J
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-Au g
-10
16-A
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-10
13-S
e p-1
027
-Sep
-10
Tesco Medium Avocado Each Tesco Perfectly Ripe Avocado Pack Tesco Baby Avocados Pack Tesco Finest Large Avocado 2Pk
Source: dunnhumby (2010)
What else do they buy?
Product Name Number of Baskets SignificanceChef N Vibe Avocado Slicer 1,430 29.1%Ch i t Mild Ch dd Ch 1 720 17 7%Chevington Mild Cheddar Cheese 1,720 17.7%Charedi Whole Milk 1 Litre 910 17.6%Chevington Grated Mild Chedcheese 400G 1,630 17.3%Osem Israeli Toasted Couscous 250G 1,180 17.3%Yutaka Sushi Rice 500G 9,230 16.9%Yutaka Sushi Nori 11G 12,770 16.8%Yarden Houmous & Tahina500G 2,690 16.7%Charedi Semi SkimmedMilk 1 Litre 1,080 16.6%Charedi Semi Skimmed Milk 1 Litre 1,080 16.6%Gefen Classic Marinarapasta Sauce 737G 840 16.4%Telma Chicken Stock Cubes 45G 3,470 16.3%Chevington Light Cheese 950 16.0%Y d H E t 250G 4 340 15 9%Yarden Houmous Extra 250G 4,340 15.9%Yarden Mini Turkey Kabanos 250G 2,060 15.9%Tivall Veg Slce Roast Chicken Style 100G 1,410 15.7%World Harbours Teriyaki Sauce & Marinade 510G 720 15.7%Yarden Red Cabbage Mayonnaise 250G 2,760 15.6%Chevington Grated Light Cheese 400G 1,510 15.4%Chevington Cottage Cheese Low Fat 227G 630 15.4%Prince Tehina Concentrate 500G 810 15.1%Prince Tehina Concentrate 500G 810 15.1%
Source: dunnhumby (2010)
What magazines do avocado shoppers read?
Product Name Customer Count Product PenetrationHello 16,870 0.3%,Closer 16,650 0.3%Grazia 14,770 0.2%Take A Break 11,760 0.2%Heat 14 440 0 2%Heat 14,440 0.2%Ok! 14,220 0.2%Now 13,230 0.2%Womans Weekly 9,420 0.2%W 11 350 0 2%Woman 11,350 0.2%Look 12,250 0.2%Womans Own 10,280 0.2%Best 8,330 0.2%Woman And Home 10,420 0.1%New Magazine 8,540 0.1%Bella 7,610 0.1%Good Housekeeping 9,350 0.1%Reveal 7,990 0.1%Bbc Good Food 7,900 0.1%Ok Bumper 7,900 0.1%Chat Magazine 5,130 0.1%C at aga e 5, 30 0 %Source: dunnhumby (2010)
How can consumer insight help you?
• Input to overall business planning
• Input to the development of new propositions
• Input to the development of a marketing plan
• Catalyst for changing relationships with the buyer y g g p y
Buyers have one common goal: profitable growth
ales
Val
ue s
a
Current category performance
Time
Simple approach to margin growth
M it ld O ti RRPDriving
lMax no. units sold x Optimum RRP value sales
Lowest realistic cost to sell Low costLow cost through supply chain
Different ways drive value sales
Encourage new Create new consumption Encourage
shoppers toEncourage shoppers topeople to shop
the categoryoccasions, new reasons for people to buy
shoppers to buy more/trip, larger packs
shoppers to spend more/ trip, trade up
HH Penetration Frequency of Purchase
Vol Weight of Purchase
£ Weight of Purchase
Who knows what these are?
Ideal scenario for retailers and suppliers
WantWant
BuyEat again
EatEnjoy
And the faster the better!And the faster the better!
ConclusionsConclusions
Conclusions
Assumptions are the mother of all f*** ups!
Looking at the market in aggregate leaves us blind to the realities of ‘people’ and ‘products’
Conclusions
The blind are leading the blind... into the commodity trap!commodity trap!
Organisations must change the way they think the way they take decisions and thethink, the way they take decisions and the way they behave
Consumer insight Consumer insight is the essential missing ingredient
Conclusions
Look more closely, listen harder, speak more clearlyLook more closely, listen harder, speak more clearly
THANK YOU!
Prof. Andrew FEARNE
Centre for Value Chain ResearchCentre for Value Chain ResearchKent Business SchoolUniversity of KentCanterburyCanterburyCT2 7PE
01227 82 48 40 01227 82 48 40 [email protected]
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