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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee

Volume 4, Issue 4, Year 2011

Content Theodor Valentin Purcărea - Editorial: The Challenge of the Invisible Revolution, Right Thinking about People

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Bernd Hallier

- Global Innovation Cycles by Retail

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John L. Stanton James B. Wiley Ferdinand Wirth

- Marketing Contra to the Trend: Back to basics

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Virgil Popa Leonardo Badea, Mădălina Barna

- Aligning Balanced Scorecard to Collaborative Management in Consumer Goods Supply Chain

George Cosmin Tănase Victor Greu

40 - The Retailers’ Merchandise Mix Planning and the Process of Category Management - The Network Centric and Cloud - A New Paradigm for the 44 Optimization of the Technical and Human Information Systems

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

EDITORIAL BOARD Editorial Board

Ion Ababii, Chişinău Nicolae Albu, Brasov Levent Altinay, Oxford UK Kathleen Andrews, Colorado Springs Dan Barbilian, Bucharest Riccardo Beltramo, Turin Richard Beresford, Oxford Uk Dumitru Borţun, Bucharest Leonardo Borsacchi, Turin Mihail Cernavca, Chişinău Ioana Chiţu, Brasov Doiniţa Ciocîrlan, Bucharest Tudorel Ciurea, Craiova Alexandru Vlad Ciurea, Bucharest Maria Negreponti-Delivanis, Thessaloniki Jean-Sébastien Desjonqueres, Colmar Aurel Dobre, Călăraşi Mariana Drăguşin, Bucharest Ovidiu Folcuţ, Bucharest Luigi Frati, Roma, Italy Victor Greu, Bucharest Bernd Hallier, Köln Sang-Lin Han, Seoul Aurel Iancu, Bucharest Mitsuhiko Iyoda, Osaka Mohamed Latib, Gwynedd Dong II Lee, Seoul Min-Sang Lee, Gyeonggi-Do Claude Magnan, Paris Radu Titus Marinescu, Bucharest James K. McCollum, Huntsville Nicolae Mihăiescu, Bucharest Dumitru Miron, Bucharest Dan Mischianu, Bucharest John Murray, Dublin Hélène Nikolopoulou, Lille Gheorghe Orzan, Bucharest Rodica Pamfilie, Bucharest Iulian Patriche, Bucharest Carmen Păunescu, Bucharest Mircea Penescu, Bucharest Virgil Popa, Targoviste Ana-Maria Preda, Bucharest Cristinel Radu, Călăraşi Florinel Radu, Fribourg Gabriela Radulian, Bucharest Constantin Roşca, Craiova Analisa Romani,Turin James Rowell, Buckingham

John Saee, Virginia Beach VA Cătălin Sfrija, Bucharest Adrian Socol, Strasbourg Eliot Sorel, Washington D.C. Mihaela-Luminița Staicu, Bucharest John L. Stanton, Jr., Philadelphia Peter Starchon, Bratislava Felicia Stăncioiu, Bucharest Marcin Waldemar Staniewski, Warsaw Vasile Stănescu, Bucharest Filimon Stremţan, Alba-Iulia David Stucki, Fribourg Kamil Pícha, Ceske Budejovice Laurenţiu Tăchiciu, Bucharest Emil Toescu, Birmingham Eva Waginger, Wien Léon F. Wegnez, Brussels Răzvan Zaharia, Bucharest Gheorghe Zaman, Bucharest Dana Zadrazilova, Prague Sinisa Zaric, Belgrade

Young Editorial Board members Adalbert Lucian Banyai, Bucharest George Bobîrnac, Bucharest Stefano Duglio, Turin Marinela Hostiuc, Bucharest Darius Ilincaş, London Adrian Lală, Bucharest Irina Purcărea, Bucharest Dan Smedescu, Bucharest Constantin C. Stanciu, New York Radu Pătru Stanciu, Bucharest George Cosmin Tănase, Bucharest Oana Patricia Zaharia, Bucharest

Reviewers

Alexandru Ionescu, Romanian-American University Adriana Bîrcă, “George Bariţiu” University Brasov Nelu Florea, “Alexandru Ioan Cuza” University Iasi Alexandru Ilie, Romanian American University Ana Ispas, Transilvania University Brasov Irena Jindrichowska, University of Economics and Management in Prague Costel Iliuţă Negricea, Romanian-American University Adina Negruşa, “Babes-Boyay” University Cluj-Napoca Anca Purcărea, Academy of Economic Studies in Bucharest Monica Paula Raţiu, Romanian-American University Gabriela L. Sabau, Memorial University, Sir Wilfred Grenfell College Andreea Săseanu, Academy of Economic Studies in Bucharest

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Scientific Council Vlad Barbu, Bucharest Gabriel Brătucu, Brasov Ion Bulborea, Bucharest Mircea Buruian, Targu Mures Iacob Cătoiu, Bucharest Jean Constantinescu, Bucharest Beniamin Cotigaru, Bucharest Radu Diaconescu, Iasi Valeriu Dulgheru, Chişinău Constantin Floricel, Bucharest Valeriu Ioan-Franc, Bucharest Gheorghe Ionescu, Timisoara Christophe Magnan, Montréal Pompiliu Manea, Cluj Andrei Moldovan, Bucharest Dafin Fior Muresan, Cluj Neculae Năbârjoiu, Bucharest Constantin Oprean, Sibiu Dumitru Patriche, Bucharest Florian Popa, Bucharest Dumitru Tudorache, Bucharest Ion Smedescu, Bucharest Victor Părăuşanu, Bucharest

Editor-in-Chief

Theodor Valentin Purcărea

Executive Editor Victor Lorin Purcărea Assistant Editors Dodu Gheorghe Petrescu Cătălina Poiană Raluca Gheorghe Mihaela Luminița Staicu

Publishing Editors Petruţ Radu Ovidiu Călin

Art Designer Director: Alexandru Andrei Bejan Editorial Office P.O. Box 35-59, 35 Bucharest, România E-mail: office@crd-aida.ro, crd.rcdaida@yahoo.com Website: www.distribution-magazine.ro/, www.distribution-magazine.eu/ Copyright © 2010 Romanian Distribution Committee, Bucharest, Romania Printed at “Carol Davila” University Press, 8 Eroilor Sanitari Blvd., 050474 Bucharest, Romania Tel/Fax: +40 21 318 07 59

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

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The Challenge of the Invisible Revolution, Right Thinking about People Editorial

Thinking about people means the real way to understand what will work in transforming the „customer experience”, and not just improving (a better one meaning higher retention and lifetime revenue). As we all know, final purchase decisions are being made „in-store”, literally and figuratively. That is why it is important to seek and promote the capacity to realize what is of value in our life, and to share, along with measurement and true strategy, so as to create a better „in-store” world. Could we use the civilization’s achievments in empowering us to be smarter in our interaction and action? According to Thomas S. Kuhn : the result of successful creative work is progress; normal science consists in the actualisation of the promise of success, discovery begining with the awareness of anomaly and its exploration, the paradigm change (being really hard to make nature fit a paradigm) being complete when the anomalous become the expected; crises - the essential tension implicit in scientific research - provide the opportunity to retool, all crises begining with the blurring of a paradigm; a scientific revolution seems invisible because paradigm shifts are generally viewed as additions to scientific knowledge. As we highlighted on other occasions, it is crucial to harmonize in what concerns the identification of good measures of welfare research, understanding what must be ad-

justed and what mustn’t, the confidence crisis inviting to increase the emphasis on social responsibility as a corporate marketing strategy, adopted by management which cannot choose ethical indifference. We need better rules and people, the virtue that follows science heading us down the right path towards overcoming the paralyzing insecurity of economic blood flow and shaping the complexity of current affairs drastically but correctly, in order to develop social virtues and responsibilities. On the other side, we have to take into account the wisdom resulting from providing customer service in social spaces, and in this respect what recently David Armano argued, that because human business is naturally a social business (which means doing business in a more connected, participatory and socially responsible fashion), changes can only be met by a business which is able to embrace and scale it’s „human side”, in beginning to address these challenges (a long way to go) considering the fact that all signs point to connecting vs. disconnecting as the way business will be done in the not so distant future. A month before, Armano showed that people don’t naturally share with other people what they know, and the social media programs are less likely to be successful if we cannot even share our ideas and knowledge internally. Therefore, success could come from the busi-

Thomas S. Kuhn - The Structure of Scientific Revolutions, A Synopsis from the original by Professor Frank Pajares, Philosophers Web Magazine, www.des.emory.edu/mfp/kuhnsyn.html David Armano - Human Business Is Social Business, http://darmano.typepad.com/logic_emotion/2011/05/human_biz.html David Armano - Social Business Planning: Aligning Internal With External, http://darmano.typepad.com/logic_emotion/2010/04/socialbusiness_planning.html

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ness culture, the fact that the actual challenges (of measuring the business performance of marketing initiatives which are individualized to each customer’s circumstances, of being relevant and creating dialogue that matters, of taking action through persona-based recommendations, and turning customer dialogue into ROI) involves a careful thinking and planning is well known. Travelling through this time of paradigm change (we are witnessing that economics itself contributes to this change) to the destination where our judges are the future generations, we owe it to them to find the appropriate answers in relation to the necessary result of successful creative work which is reflected in progress in transforming „customer experience”, and not just improving. And that means right thinking about people. That is why we are continuing to pledge for this kind of new conversation approach as part of a revised and re-innovated conversation’s architecture in order to speed-up the imperative adaptation to the shifting perspectives on knowledge itself, by working in concert to sharing, applying and even creating knowledge, and contributing to influence the change processes. Theodor Valentin Purcărea


Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Global Innovation Cycles by Retail Consumer Innovation Retail by : Prof. Dr. Bernd Hallier EHI Retail Institute/European Retail Academy , Cologne, Germany hallier@ehi.org

Abstract: The retail-sector is for academia in the beginning of this century “a hidden player” – most probably as academia prefers deductive research, while retail is processoriented/applied science: it is an inductive approach. A second reason for the lack of presence in literature is that people in the retail-process do not have time to write and the retail companies do not like staff on the pay-roll which is not operatively busy. The third reason might be that retail contrary to the consumer goods industry cannot create value by production but only by know-how of the distribution channels. His know-how is his competitive advantage – why should a retailer hand out his potential chance of profit by his unique sales position (USP)? On the other hand for example the annual turnover of the US retailer WalMart is of the same size like the gross national product of all Switzerland; WalMart invests per year about 3 billion US Dollar in its IT-network. By this WalMart and other big retailers become technical drivers for global innovations Retailers together with their supplypartners and NGOs create worldwide standards. The impact is dramatic – and gives scope for a lot of interdisciplinary research. Keywords: consumer, innovation, retail JEL classification: D11, D12, L 81, M21, Q5

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1.0 Introduction The Russian Nikolai Kontratjeff described “innovation” as an industrial phenomena (Kontratieff, N. 1926: Die langen Wellen der Konjunktur, in: Archiv für Sozialwissenschaft und Sozialpolitik . 56, p. 573-609) from 1800 onwards by innovative cycles pushed by the steam engine and cotton, later steel and railways, next electrical engineering and chemistry. Every 50 years there was another push since 1800. At the micro-level of individual business units Alois Schumpeter discovered the pendulum of “innovation” and “imitation” – the life-cycle of business (Schumpeter, J. (1961): Konjunkturzyklen. Eine Theoretische, historische und statistische Analyse des kapitalistischen Prozesses, Göttingen).

Firstly described as sector-cycles are innovations by merchants (wholesale/ retail) by Hallier (Bauer, H.-J. and Hallier, B. (1999): Kultur und Geschichte des Handels, Cologne, p.260-263). Taken merchants and retail the segment systematic sees here innovation cycles of 25 years since 1800. In 1800 colonial trade and sea-ports like London, Amsterdam or Hamburg gained from im -and export from the colonies. 25 years later due to the Vienna Conference and the reconstruction of Europe there were economic problems and unemployment. One of the reactions was the establishment of local workers/ trade-cooperatives in 1850 to fight the hunger of industrial workers. 25 years later at about 1875 the positive result (growth driven by the bigger units) created big departmentstores in Paris, London, Berlin. 25 years later in 1900 the small retailers formed their cooperations (like EDEKA

Figure 1: Innovation waves

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in Germany) to fight against the big department-houses. In 1925 in the turmoil after World War I mail-order-houses became the innovation to decrease costs of the penetration of products. After World War II in the 50ies self-service in Western Europe became the innovator for supermarkets and hypermarkets. In 1975 Shopping Centers replaced department stores with the same motto “all assortments under one roof” like in 1875 – and in the year 2000 the internet and B2C is replacing the printed catalogues of the traditional mail-order houses! Some authors speak of the Wheel of Retailing. In 2025 probably consumers will buy via mobile phones being guided by Apps (advertising) on mobiles and GPSguiding systems on mobiles. Business will be driven by an Evolution Tornado of Retail – new social media including.


Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011 2.0

Innovation Waves after World War II

The growing impact of the sector wholesale/retail starts after World War II in Western Europe. It not only shaped/ reflected the changing life-style compared with the pre-war-period, but plays also an important role since 1990 within the re-integration of Central and Eastern Europe into modern Western Life Style … and even in a penetration of the far cultures in Russia, China and India in this new century. 2.1 The Mum and Papa Service Stores For Western Europe a new Chapter of Innovation in retail started after World War II. (ISB, 1988; Hallier, 2001; Hallier, 2004). The 50ies of the 20th century in Germany for example the characteristics of the food sector had been: - stores belonging mainly to consumer’s cooperatives - with very atomistic influence onto the suppliers mostly in walking distances of some minutes for the consumers - organized instore in service concentrating to pack sugar, beans, butter, margarine from bulk-delivery into the quantities demanded by consumers - with a limited assortment of roughly 200 products - offered by stores of about 30 to 40 square meters - in towns quite often split into specialist-shops like milk-shops, fruit and vegetable shops … As the products were not “pre-packed” of course no real branding could happen for most of the products. Branded goods of big manufactures like “Oetker”, “Bahlsen” were in the minority. The consumer were guided by the oral advice of the shop-owner/-manager. Due also to small flats and without cooling-opportunities for butter, milk etc. consumers visited daily their neighbourhood-store. The outlet was not only supplying the consumers with products – but was within a limited radius a social communication centre. 2.2. The introduction of self-service. In the 50ies and 60ies the traditional service-stores were challenged by the concept of “supermarkets” from America (ISB, 1988; Hallier, 2001). The characteristics of those markets is “self-service” which implies: - products have to be pre-packed either in a depot of the retailer or directly from the supplier. - The oral “recommendation” of the retailer has to be substituted by design and descriptions on the packed product or by in-store advertising either at shelf or special presentation zones. - In consequence the shelves within the stores had to be accessible - The selection of products and the action of payment in the cash-zone were split - In general the cash-register was technically organized into “product-groups” with the result that payment was quick on the one hand side but also with the bad effect for the store not to have product-data. - Generally the costs for personnel for the retailers decreased due to less man-power - Self-service became more competitive in comparison to service-stores According to statistics from the original roots of the EHI Retail Institute the first 80 self-service stores in the Federal Republic of Germany had a size in-between 35 and 330 square meters in 1952; for 1958 the data of a panel for the size of the assortment shows about 1000 articles – 100 of them in non-food-segment. 2.3. On the way to mass-distribution The phenomenon of the late 60ies and the 70ies is mass-distribution like characterized by Andy Warhol in his Coca Cola - picture (Hallier, 2004). Mass-production and mass-distribution are the symbols of democratic consumption: “the president of the USA is drinking Coca Cola – you can drink Coca Cola – Coca Cola is on the shelves of your supermarket!” Due to the macro-economic recovery of Western Europe and prosperity within the Western World the personal income of consumers increased - followed by more demand – which was reflected by a growth of retail-space and a segmented product-assortment. EHI registered in 1966 still 0.25 million square meters sales-space growing in 1976 to 4.6 million and reaching 1986 about 6,7 million square meters. The potential size of the individual stores seemed never ending: a hypermarket near Cologne/Germany opened with about 35,000 square meters (25 years after the stores-size average of 35 square meters) The store-size of course also reflected the explosion of the assortment: contrary to 200 articles at the Mum and Papa-store and 1000 articles at the first self-service store now hypermarkets offer on average 40,000 articles. The effect in the relationship between product-range and the consumer as a human being is characterized in the “99 cent” picture of A. Gurski, where within a nearly unlimited assortment only the discount price can be seen- and the consumer only plays the role of an “underdog” in the picture (Hallier, 2009).

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Nevertheless was and is the consumer not only the target, but he is also the driver of the development. - Due to an increasing mobility of consumers those big-size-markets and Shopping-Centers could be established at the suburbs. - As consumers live in bigger flats than in the 50ies they can store more products - Also their technical equipment at home (refrigerator) enables them to buy bigger units for longer consumption-periods - Last but not least they changed their consumer-habits with the trend for more convenience. While in the 50ies they bought for example milk to keep it for three days in a bowl to produce their own yoghurt - now they select between low or high calories, between different fruit-tastes, between other ingredients. Another trend of modern consumption is to have seasonal fruit available all over the year as global supply offers “spring” also when he/she at the consumers’s home is experiencing just “autumn”. Additionally the consumer stopped since the 70ies his habit to be loyal like at the Mum and Papa-time: he is using multi-choices! Self-services allowed him to become anonym. Also his opposite – the retailers – became anonymous. Due to self-service the store-owner could multiply his stores. From atomistic local retailers regional spider-networks/chain stores derived and in the 70ies names of cities/areas became synonyms of the retailer-network: Würzburg-Kupsch, Frankfurt-Latscha, Cologne/Köln – Stüssgen. Those chain-store-operations generated a certain win-win-situation between retail and suppliers: large scale economics. In hot-pursuit of retail expansion and to care for the danger of out-of-stock situation suppliers together with specialized agencies created in the 70ies POS-display-promotions. In the marketing-terminology this period remains as the “push-strategy”. Buying much from the supplier created rebates for the retailers which again could be passed on to the consumers to decrease prices and thereby again stimulated increasing demand and growth for those retailers with the lower price.

Figure 2: Picture of Andy Warhol “Coca Cola”

Figure 3: A.Gurski “99

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

2.4. From POS to Point of Purchase (POP) The permanent increasing speed of new articles from the producers, from new stores from retailers, also from storesegmentation and store-diversification on retail-level, created the need for data-management not to run out of control of the situation. Consultants and technical suppliers like IBM, Nixdorf started in the beginning of the 70ies to provide information-systems by electronic data-machines; retail got into a strong correlation with the technical development of hardware and software industry. In 1974 for example in Germany EHI and the Branded Goods Association (Markenverband) created as a joint-venture the German Accreditation for bar-coding (European Article Number) which had quickly cross-border-partner organizations. The name “Coorganization” in Germany reflects the willingness of suppliers and retailers to work together. The scanner at the cash-zone of the retailer-outlet brought back to the retailer information about the sales of individual products on store-level. Next steps in the 80ies referred to the optimization of the shelf-space via international work-groups concerned with projects like “Direct Product Profitability (DPP/DPR)” and in the 90ies “Efficient Consumer Response (ECR)” (ISB, 1980; Hallier, 1987; ISB 1989; Heidel, 1990; DHI, 1992; EHI, 1994; Behrends, 2001). Especially the ECR shows that in the center of the total supply chain the consumer’s shopping basket was placed again: this meant a swing from the “push-action” to a “pull-strategy”! Strategically retail got empowerment by those marketing-tools and gained the dominance over the suppliers (Hallier, 1995). The ultimate focus to the purchasing consumer of course is the link between product-data from the scanners in combination with loyalty-cards which provide individual consumer-data; this is a development starting in the USAmarket at the 80ies and in Europe with a time-lag of twenty years in the beginning of this century. Also politically the 80ies saw more influence of the consumer towards the total supply chain. One symptom was in Germany the “Green Party” demonstrating against Coca Cola-tins in nature, the waste in general , the burning of garbage in densely populated areas. The German Federal Government reacted by the appointment of a Minister of Environment. He established regulations downsizing one-way-package and to promote multi-trip; he started to add to the term “distribution” the term “redistribution”; he redefined “waste” into “reusable resource”. He – Prof. Dr. Klaus Toepfer – initiated the Kyoto-Protocol for sustainability and decrease of CO2-emissions. For his packaging regulations in Germany Toepfer discovered the market-power of the retailers; he threatened to punish them – and forced the retailers by this action to influence the suppliers. DHI/EHI supported the initiative to create more awareness and helped to bridge the political vision and the applicability at retail and suppliers by workshops and the publication of five monographs dealing with this topic (DHI, 1991; EHI, 1993). In the 90ies another factor of change were several food-scandals like the British Cow Disease. Consumers in Germany were afraid that the meat at the stores came from the UK! Beef at that time (first BSE-crisis in 1994; second crisis in 1996) was an anonymous product – sometimes passing up to 10 different stages of farmers, animal wholesalers, slaughter houses, cutting houses, meat wholesalers, retailers. Again in Germany retailers became pro-actively the drivers for innovation for the Total Supply Chain before national/regional governments reacted. Organized by EHI in 1994 meat-experts met suppliers and defined a system of tracking and tracing of meat and organized the control in a joint-venture of EHI and the farmers’ CMA (Central Marketing Agency) called Orgainvent. Parallel government introduced ear-marking of cows. In 2002 the EU took over this facultative system as a mandatory EU-regulation (EU 178/2002) (EHI, 1997; EHI, 2001; EHI, 2005). That tracing and tracking activity demonstrates an important shift for the academic discussions defining “retail as institutionalized” or “process-oriented”: the EHI-retailers acted also on behalf of their wholesalers (or their own wholesale-activity) and the suppliers: modern retailers are part of a supply chain. This special role of a driver for innovation for new thinking on behalf of consumers’ interests also is reflected by the EHI initiative to stimulate “good agricultural practice” first by “EUREPGAP” and later by the enlarged “GLOBALGAP” as well as lately also by the initiative “Environmental Retail Management” (EHI, 1999; EHI, 2000; 2008; www.european-retail-academy.org/ERM )

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Figure 4: The Empowerment of Retail by Marketing-Tools

Figure 5: Round Table for Demand and Supply 13

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Summarizing those trends and initiatives it can be stated that the Point of Purchase (POP) – thinking gives more weight to the consumers than the POS-thinking, but it also shows the gaining influence of Non Government Organizations (NGO) like the EHI Retail Institute, Orgainvent or GlobalGap onto the Total Supply Chain and legislation. Taking over responsibility not only for the retail-level but for all the Total Supply Chain the backstage becomes involved into business of wholesale, packaging, processing, agriculture, watering and pesticides etc. Retail is drifting strongly away from its definition as “institutionalized retail” towards a definition of “process-oriented retail”. Due to the company size of the top-players and the global activities of the retailers the consumers keep the retailers much more reliable than in the past. Responsibility becomes also part of the competitiveness and communication. EHI Retail Institute created for the communication with third partners in July 2008 in the internet the environmental platform: www.european-retail-academy.org/ERM and introduced a three years research-program with the title “Environmental Retail Management “(News of August 15th 2008 at www.european-retail-academy.org/ERM). One of the first steps was a theoretical benchmark-project with the title Environmental Retail Flow Chart (News December 19th 2008). Taken all environmental oriented efforts concerning the buying, distributing, marketing of products along the Total Supply Chain as 100 percent – the retailers could judge themselves how much of their efforts in percentage of that total would concern each of the individual steps within the Total Supply Chain. A comparison of that self-check by several retailers shows that the emphasis by the individual players is in 2009 still very different. Table 1: Environmental Flow Chart

Level Agriculture Processing/packaging Building (depots/outlets) Shopfitting/processing POS/Advertising Consumer Lifestyle Total

% 30 20 10

% 25 -

% 25 10 15

% 5 15 35

% 17 13 20

% 50

20 10 10 100

25 50 100

15 20 15 100

5 5 35 100

21 16 13 100

40 5 5 100

Even if on the horizontal level there is the same percentage with two companies the action behind can be very different. For example might on the agricultural level Retailer 1 claim that he is acting environmentally because he is pushing the GlobalGAP-standard, Retailer 2 is promoting integrated production, Retailer 3 organics, Retailer 4 helps Fair Trade, and Retailer 5 is sourcing locally. The conclusion from that Environmental Flow Chart in 2011 is that there is a big need to work out methodologies to compare and evaluate the activities of the competitors. And by this claim retailer becomes partner of scientific research. 2.5. The Point of Differentiation (POD) Due to the change of the atomistic retail structures to oligopolies on the national or even to a certain degree European level retailers are more and more competitors in one region, in one city. When in Germany in 1980 the first 5 top-ranking food retailers together had a market-share of about 26 percent – now in 2010 their share of the total distribution is together at about 80 percent. The market power has shifted within the Total Supply Chain from the production towards retail- and most probably will give the consumers more and more influence in the future. It has to be kept in mind that at the moment the annual turnover of the US-retailer WalMart has the equivalent size of the GNP of Switzerland! Under the hypothesis of EHI (based by annual discussions with retailers) that retailers invest about 1 percent of this turnover into the IT-sector of their company, this means an annual investment of WalMart of 3 bln. Euro to follow-up its daily transactions.

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Figure 5: Concentration in German Food Retail

Figure 7: Potential IT-budget of Retail Players

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

The problem of oligopolies is to find ways for differentiation in the eyes of the consumers! The ECR-models of the 90ies and the beginning of this century are quite often based on industry-data linked to socio-demographic data of regions. (Hallier, 1997; Hallier, 1999). If assortments are optimized in that way it has the following effects: - the assortments of the retailers in one area get all the same profile; the customer in the end does not see any differences of the stores of the retail competitors - according to a standard rule of experience 80 percent of the turnover is covered by 20 percent of the articles. In consequence this means for higher profits on retail-level assortments should be cut down to discounter-sizes. - If the assortment is the same - then the prices are in the focus; again a factor of discount. As in the globalizing world with theoretically unlimited free trade there is an over-supply of products the powerswing enables retailers to put pressure onto the suppliers to decrease the production-prices or to increase margins – but the retailer is “mis-using the low price for discounting himself – eroding his profits too! Such a “downswing tsunami” can be watched at the agricultural level in Germany in 2009 – which ended in October 2009 by a subsidy of 280 million Euros from the EU-Commission alone for the milk-farming to give farmers a chance for survival of their production line! Consumers who perhaps had been happy at first about low milk-prices will be confronted later to pay higher taxes to fill that deficit in the EU-budget in the end. To get out of the downswing of low prices there could be three tactical tools: - more exclusive promotions with suppliers with an increase of value - more private labels - more branding of retail with soft-factors At least it can be stated that the situation is not the same everywhere in Europe: for example concerning the margins/profits the UK is much better off than Germany in food-retail; in Croatia the national coop is still market-leader, while in Poland among the top-ten food retailers there is no original Polish company any more since 10 years after the lift of the borders; a company like IKEA created an own life-style-concept and split by this in the awareness of the consumers from its former competitors and is able to establish its own incomparable pricing-strategy 2.6.

Status Quo of Power

Retailers take over in the last decades the innovative leadership instead of governments! While in 1800 governments pushed globalization by colonial occupation today globalization is pushed by big retail players and world-wide standardization. - One example is GS1 (Global Standard 1). One of the EHI-roots discovered in the beginning of the 70ies the bar-coding for retail. Next step was to form with other international partners the European Article Number (EAN) as a standardized European bar-coding system. Since 2005 EAN and the American UPC (Universal Product Code) merged to form the world-wide GS1-Group - Another example is Orgainvent. In 1994 the German consumers were frightened by the British Mad Cow disease (BSE). Six German retail-chains under the leadership of EHI created a label for tracking and tracing of cows and beef – today the EU-regulations (EU 178/2002) - Third example: European Retailers Produce Good Agricultural Practice (EUREPAGAP) created in 1997 was penetrated to over 100 countries worldwide and therefore relabelled to GlobalGAP in 2007 All three institutions show how retailers acted via EHI or connected Non Government Organizations (NGOs)as pioneers and technical drivers for world-trade. This might be an indicator that the balance of power is with big retail experts and no longer fixed to official representatives of “country-borders” (WTO).To a certain extend national borders are no longer in existence.

2.7 Future Power Shift Schumpeter’s pendulum of “innovation” and “imitation” has resulted in retail in the terminus “Wheel of Retailing” (Savitt, R. (1984). The “Wheel of Retailing” and Retail Product Management, in: European Journal of Marketing, Volume 18, issue 6/7). The basic philosophy is a historic repetition: if the mainstream is to go from service retail to self-service, suddenly people discover the “good old days” and start to buy again in new established service-stores! Examples for the “wheel” are: 16


- department stores of 1874 and shopping centers of 1975 do have the same motto “all offers under one roof” – but while in 1875 the roof belonged to one owner company with different departments the 1975 shopping center unites individual companies which follow own independent trends - the mail-order house Quelle in 1925 based its success on a printed catalogue – the relaunch of the Quelle-catalogue in 2011 by Otto-Versand is an internet catalogue! (Nicolai, B., Otto belebt noch diesen Sommer Quelle wieder, in: Die Welt, June 23rd , 2011) What has been not described yet in literature is that the wheel of retail is not mere repetition but the technical level /its offers to the consumers increase to a higher level! In the supermarket-business the personal dialogue of the Mum and Papa store in 1950 now in 2010 is enabled by facebook, Twitter, YouTube etc. After China and India in 2010 Facebook is ranking as the third-biggest community in the world – even in front of the USA.

The Evolution Spiral/Evolution Tornado of food retail started at the level of Mum and Papa; lost the direct dialogue with the consumer due to the mass-distribution of stores and the anonymous self-service atmosphere ; by scanning of product-data- and shelf-optimization retailers got back transparency about own stocks and direct product profitability; loyalty-cards helped to identify the consumers again as well as the dialogue versus the internet; but now consumers start to voice their demands again directly to retailers (and suppliers) as well as even among each others.

Figure 7 : Evolution Tornado Retail

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

While in the past the Total Supply Chain was actually only a B2B connection now the future will be trilateral including the consumer.

Past and Present: bilateral

Supplier

Future: trilateral

Consumer

Retailer Supplier

Retailer

Figure 8: From bilateral to trilateral dialogue But the dialogue will not only be with the retail-headquarter but outlets of chain-stores will be much more locally “tailored� to its actual customers. The store becomes a Point of Communication (POC ) again.

marketing POC POD POP POS

sales

t

Figure 9: From Sales to Marketing and finally consumer communication

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3.0 Conclusions Starting on store-level it will be a very interesting challenge to balance the nucleus of a store-brand and local wishes of customers – especially in a globalizing world which nevertheless is a conglomerate of different cultures.. Lots of research can follow the shopping-basket, the sociology of customer-clusters etc. On the level of regional/central headquarters data-collections and data-mining are fields for the future! A big question of survival for SMEs will be the price of hardware and software and the accessibility for human resources being qualified to do the job – or to cooperate with Competence Centers which might be linked to universities. On the level of relations between suppliers and retailers the topic of “market power” (without the question of concentration ) could be smoothed by the newly discovered “third column” – the consumer! He will most probably use his influence starting with the capital of good agricultural practice uptil Corporate Social Responsibility within all the supply chains. Lust but not least the big impact of change will have dramatic impacts onto the countries of the former “Eastern Bloc” due to the first 50 years after the World War II. While in the beginning of the fall of the Wall the West could carry-on with its experience, international product source – the East started at Point Zero! - Taken the top ten food retailers in Poland in the year 2000 – that means ten years after the fall of the division between East and West there was no Polish retailers any more among them – the only (P) stands for Portugal!

Figure 10 : Poland – Top 10 retailers /2010

- if there are no local retailers the local suppliers quickly have to get the know how of the international supply chain! Otherwise they will get out of business – which means losses of employment, of local/national taxes! - While in the West not only retailers did have 50 years to learn step by step new technical innovations and store formats all innovations of 50 years of the last century and the add-on of the new century have to be learned at one (as a crash-course) in Central and Eastern Europe - The same is true for the consumer – which is not trained and accustomed especially within the older generation to pay by cards or by mobile phones at the cashier in the supermarket. Learning cycles of human beings might be challenged in quite a lot of population-sectors.

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

References: Edited books: [1] Behrends, Ch. (2001): An der Schnittstelle zwischen Theorie und Praxis, in : Hallier, B., Praxisorientierte Handelsforschung. Cologne . p. 72 ff [2] Hallier, B. (2010): Systemkonkurrenz zwischen stationären Handel und Versandhandel, in : Mattmüller, R., Versand-Handels-Marketing, Frankfurt, p.37 ff Monographs: [1] Bauer, H-J. und Hallier, B. (1999): Kultur und Geschichte des Handels. Cologne [2] DHI (1991): Verpackungsverordnung und Entsorgung im Handel. Cologne [3] DHI (1991): Anforderungen des Handels an Verpackungen. Cologne [4] DHI (1991): Verpackung und Umwelt im Handel. Cologne [5] DHI (1992): Auf dem Weg zur „Direkten Produkt-Rentabilität“. Cologne [6] EHI (1993): Mehrwegverpackungen. Cologne [7] EHI (1994): Scannersysteme- Neue Impulse für Organisation und Marketing, Cologne [8] EHI (1997): Elektronische Identifikation und Rückverfolgbarkeit von Tieren, Cologne [9] EHI (1999): Eurep GAP, Verification 2000, Cologne [10] EHI (2000): Eurep Gap, Implementation, Cologne [11] EHI (2001): Transparenz in der Wertschöpfungskette „Fleisch“, Cologne [12] EHI (2005): Tracing and Tracking, Cologne [13] Hallier, B. (2001): Praxisorientierte Handelsforschung. Cologne [14] Hallier, B. (2004): EuroShop. Cologne [15] Hallier, B . (2009): Modern Stores, Moscow [16] Heidel, B. (1990): Scannerdaten im Einzelhandelsmarketing, Wiesbaden [17] ISB (1980): „Physischer Warenfluss“. Cologne [18] ISB (1988): 50 Jahre Selbstbedienung, Sonderausgabe, Cologne [19] ISB (1989): Logistikgerechte Versandverpackungen und Ladungsträger. Cologne [20] Mattmüller, R. (2010): Versand-Handels-Marketing, Frankfurt [21] Schumpeter, J, (1961):Konjunkturzyklen. Eine theoretische, historische und statistische Analyse des kapitalistischen Prozesses, Göttingen Journals: [1] Hallier, B. (1987): Sich ins Regal hineinrechnen, in: absatzwirtschaft 10/1987 20


[2] Hallier, B. (1995): Der Handel auf dem Weg zur Marketingführerschaft, in: absatzwirtschaft, 3/1995 [3] Hallier, B.: (1997): Wal Mart-Mythos führt zur falschen ECR-Positionierung, in: Dynamik im Handel 4/1997 [4] Hallier, B.: (1999): Wird ECR zum Club der Großen?, in: von der Heydt, A. (Hrsg.), Handbuch Efficient Consumer Response, Munich [5] Kondratjew, N. (1926): Die langen Wellen der Konjunktur, in: Archiv für Sozialwissenschaft und Sozialpolitik. 56, p. 573–609. [6] Savitt, R., (1984): The „Wheel of Retailing“ and Retail Product Management, in: European Journal of Marketing, Volume 18, issue 6/7, p 43 ff Newspapers: [1] Nicolai, B., Otto belebt noch diesen Sommer Quelle wieder, in: Die Welt, June 23rd , 2011

Internet: www.european-retail-academy.org/ERM www.globalgap.org www.orgainvent.de

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Marketing Contra to the Trend: Back to basics Attributes Consumers, Food, Locavores, Marketing John L. Stanton, St. Joseph University, Philadelphia, USA James B. Wiley, Temple University, USA Dr. Ferdinand Wirth, Associate Professor, St. Joseph University, USA

Abstract A trend that is capturing the attention of consumers around the world is buying local food. “Locavores” are defined as people who prefer to purchase their food from local sources, typically defined as 50, 100, or 200 kilometers from home. It is not clear from any research the distance that consumers are willing to consider “local.” In this paper, the authors consider the case of suppliers that know they are disadvantaged with respect to the prospective, developing segment, local. This paper will focus on the attributes that the non-locavore value in selecting apples. Since producers and suppliers cannot change their “product location” they cannot therefore compete in the local or for the locavore market, they can however take advantage of all the other controllable product and marketing variables that will make their “non-local” product more attractive to the consumers segments who do not value or value to a lesser extent local production. The first step in the process is to identify who are the locavores and disaggregate their perceptions and preferences for the group who do not have a high value on local production. Key words: attributes, consumers, food, locavores, marketing JEL classification: E21, E23, M31

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Introduction A trend that is capturing the attention of consumers around the world is buying local food. “Locavores” are defined as people who prefer to purchase their food from local sources, typically defined as 50, 100, or 200 kilometers from home. It is not clear from any research the distance that consumers are willing to consider “ local.” There is no single definition of “’local’ or ‘local food systems’ in terms of the geographic distance between production and consumption. But defining ‘local’ based on marketing arrangements, such as farmers selling directly to consumers at regional farmers’ markets or to schools, is well recognized. (Martinez, 2010) In qualitative studies, conducted by the authors, it was discovered that proponents of “local food” consider that the term “local” has little to do with distance or with the size of a “local” area. For example, some see the American state of Pennsylvania as being “local”, although it is much larger than some European countries. In this case, transporting a food product across Pennsylvania could involve a longer distance than that between northern and southern European countries. It is also argued that national borders should not be used to define what is local. For example, a cheese produced in the Netherlands is likely to be more “local” to German people in Essen, than to French people in Marseille. In another example, a Russian corresponded tried to eat only food made in Russia. His task was daunting as the correspondent reported, “ My favorite lemon juice turned out to be made in Israel that I used for salad dressing instead of vinegar. And speaking of salads, my tomatoes were from Turkey, onions from Crimea, peppers from Bulgaria, and I had no idea where my cucumbers were from… I ended up giving a whole basket of fruit to the neighbor’s kids, as well as my Swiss candy and chocolate.” and even the Russian bread was not all Russian. ‘The flour is Russian,’ said Yury Katsnelson, the [Russian Bakers and Confectioners Guild] president. ‘So is the sugar and salt. But part of the sugar is made from sugarcane imported from Brazil and Cuba. It is, however, manufactured in Russia. Half the yeast is Russian, and the other half is Turkish or French. Almost all the oil is Russian. The cream and milk are rarely imported. But the raisins are all from Central Asia, Turkey or Iran.’ (Norton 2008). While not quite at the level of the USA, the EU is making more of the local food issue. According to a BBC new story, European consumers will have to be told where most of their meat comes from under new EU food labeling rules set to become law soon. Euro-MPs backed the wide-ranging rules in a vote on Wednesday. Beef currently has country-of-origin labeling, but the plan is to extend that to poultry, pork and lamb too. A standard label including information about energy content, fats, sugar and salt is set to become mandatory for pre-packed food sold across the EU. (BBC, 2011) BEUC director general Monique Goyens said “consumers will be able to make more informed choices on food products, …at a glance”. The concept is relatively new and undoubtedly will attract attention in coming years as a potential segment to be targeted for assorted food products. It seems a new trend gets more attention than it is worth financially (at least in the short run). For example hundreds of farmers’ markets are springing up all around the USA. The U.S. Agriculture Dept. says the number of such markets reached 4,692 in 2006, its most recent year of data, up 50% from five years earlier. Sales from those markets reached $1 billion. ( Googol, 2010) Not everyone agrees that the “eat local” trend is a global positive. One critic claims, “The food system is globalized and interconnected. This has both advantages and disadvantages. For example, economic disruptions in one geographical region can quickly be transmitted to others, but supply shocks in one region can be compensated for by producers elsewhere. A globalized food system also improves the global efficiency of food production by allowing bread-basket regions to export food to less favoured regions.” (Evans, 2011) However, for food exporting countries, growth of “buy local” sentiments in importing countries disadvantages products with high “food miles,” especially if they also have a relatively large “carbon footprint,” e.g., because they must be air freighted. While the segment of people demanding “local” is growing, it is still small. This paper suggests counter-segmenting in these cases; that is, focusing on segments where suppliers are not disadvantaged. Illustrative research is reported showing differing wants of Locavore and non-Locavore segments. A core tenet of segmentation strategy is that resources should be marshaled to focus on segments where the firm has competitive advantage. This tenet is commonly ignored in marketing practice, where it is common practice to pour resources into attracting customers from recently recognized market segments long before the actual attractiveness of the segments are determined, let alone whether the firm has competitive advantage. An example of this behavior is organic foods. This has recently been a major marketing point for food processors and suppliers. For example there have been almost 6, 000 new organic food products introduced between 2002 and 2007 (Mintel, Organic Food report, 2007). Yet the segment has garnered only about 1% of total US supermarket sales and only 6% in fresh produce which is often considered the vanguard of organic foods ( AC Nielsen, 2008). Organic dairy has decreased 1% in 2009 for the first time (Organic Trade Association, 2009). Yet the industry is still devoting significant resources to this small segment. Now the move is to local, yet an unproven but qualitatively attractive market.

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011 In this paper, the authors consider the case of suppliers that know they are disadvantaged with respect to the prospective, developing segment, local. For example Romania selling its food products to Western European countries (even though they are part of the EU), or the Netherlands selling it colored peppers to the USA. This paper will focus on the attributes that the non-locavore value in selecting apples. Since producers and suppliers cannot change their “product location” they cannot therefore compete in the local or for the locavore market, they can however take advantage of all the other controllable product and marketing variables that will make their “non-local” product more attractive to the consumers segments who do not value or value to a lesser extent local production. The first step in the process is to identify who are the locavores and disaggregate their perceptions and preferences for the group who do not have a high value on local production. Methodology The Product The category of fresh produce was chosen. Previous focus groups with consumers indicated that when considering buying local one of the first categories to consider is fresh produce. Additionally most locals have access to some form of fresh produce. However when doing research on attributes of “fresh produce” it can only be meaningful to have consumers evaluate or consider a specific product and not “in general” or “all produce”. In this study we choose apples. Apples are one of the most frequently purchased produce items in the supermarket and very often have local production. Apples are grown in every state in the continental United States, and all over the EU and Asia. They are grown commercially in 36 states (US Apple Association, 2006). Using Bananas, another very commonly purchased produce item would have greater frequency but there is virtually no local production outside the tropics. The Survey Data was collected using online survey of residents of the US and eastern state in the USA. The state is recognized as having a good representation of urban, suburban and rural settings and of industrial and agricultural commerce (US Census, 1995). The state also is a major producer and consumer of apples and ranks 4th among all US states in Apple production (PA. Apple Board 2009) ). The survey was developed and administered to a commercial panel of 1,218 residents who satisfied the screening criteria described below. Fifteen thousand nine hundred and ninety-one (15,991) invitations were sent to panel members. The overall response rate for the survey was 7.6%, which is typical for Internet surveys. The average time for completing the survey was 26.5 minutes. The Questionnaire The survey instrument was comprised of three primary aspects: 1. Traditional attribute, trial and usage (AT&U) data as well as demographics were collected and analyzed using traditional methods and/or replicating the work of other studies. 2. The survey also included a conjoint or trade-off analytic experiment where respondents were asked to rate their preference for various apple products consisting of different levels of key apple characteristics. The data was used to quantify how much consumers are willing to give up in terms of product appearance, price, value of locally produced or other variables obtained from demographic and AT&U variables. 3. The final part of the quantitative survey research collected two types of data describing respondents’ wants for a apple attributes. The first data consists of consumers’ rank order preference for twelve attributes of apples: Color, Flavor, Nutritional Value, Organically Grown, Price, Quality, Ripeness, Size, Texture, Variety, Country of Origin, and Grown in-State. The second type of data consists of respondents characterizing their “ideal” apple in terms of these twelve attributes. This paper reports results based on the third category of data, demographic data, and shopping data. The latter is used to create Locavore/Non-Locavore segments. The Locavore category was created using 2-step clustering of five questions shown in Table 1. Three hundred and eighty-eight respondents (32%) fall into the Locavore segment and 836 (68%) fall into the non-Locavore segment.

Marketing to Non Locavores To determine how to best market to the non-locavores one can rely on the four P’s. For each of the four P’s we examined how the two market segments (locavores and non-locavores) behaved. Place: Beginning with Place, as shown in Table 1 the non-locavores do not shop at the variety of venues as locavores. They are supermarket shoppers. Clearly a focused program to supermarkets and to a lesser extent to Superstores (for the price conscious segment to be shown later) is the place to find the non-locavores. Additionally analysis has shown this to be statistically significant. Table 1 In the past year, in which stores shown below have you made any food purchases?

24


Non-

Chi-

Locavore

Locavore

square

Q19d. Health food store

31%

16%

37

Q19c. Small grocery store or neighborhood market

67%

52%

26

Q19a. Super Center (Wal-Mart, Target, etc.

77%

70%

6

Q.19b. Supermarket

96%

96%

0

(95% confidence level with 1 d.f. = 3.8)

Product/Price: The analysis of product attributes requires the use of product specific apple data. The results shown in Table 2 below shows three market segments which may well be representative of other food commodities. Besides Locavores there was a segment of people who just wanted low price and another segment that valued the quality of the product. The one segment was named Price Conscious and the other was About the Apple. . Below is an analysis attributes of segments including locavores as well as two other identified segment. A key finding of this research shows that regardless of the segment taste is king. Note that in this analysis more than half of the sample most valued a delicious tasty apple. Attributes such as flavor and quality are highly ranked in the non-locavore segments (as well as locavore. Targeting non-locavores in this segment requires a great quality product. Trading off flavor for attributes to make the apple ship better or last longer may be detrimental to sales. The Price Conscious segment is the second largest segment with 27% of the sample. For this segment adding taste etc does not make the product more attractive IF it increases the price. Finally the Locavore segment is the smallest segment with 19% of the sample. why the excitement over the smallest segment, it is the fastest growing segment albeit small. Locavores want great taste but will trade almost everything else to be local production. If a company is going to export and unable to be the “local alternative” that it should clearly be either the best tasting highest quality product or the lowest priced. The Price segment ranked “local production” the 9th highest attribute our of 12, and the quality/taste segment ranked it 10th out of 12 attributes. Whereas the locavores ranked it 2nd out of the 12 attributes. Table 2. Cluster Analysis of Attribute Importance Rankings

Mean Rank Cluster size 27% Attributes

19%

Price

53%

Locavores

Quality/Taste

Total

Conscious Flavor (sweet v. tart)

3.21 (1)

4.68 (1)

4.04 (3)

3.94

Quality (blemish-free)

4.98 (4)

5.44 (4)

3.71 (1)

4.39

Ripeness

5.79 (6)

6.71 (8)

4.36 (5)

5.21

Texture (crisp v. mealy)

7.58 (8)

5.71 (5)

4.21 (4)

5.42

Price

4.54 (3)

6.83 (9)

5.55 (6)

5.53

Variety

9.14 (12)

5.32 (3)

3.95 (2)

5.62

Color

4.13 (2)

9.27 (12)

7.04 (8)

6.69

Size

7.23 (7)

9.02 (11)

6.26 (7)

7.07

Nutritional Value

5.73 (5)

7.57 (10)

8.69 (9)

7.67

Pennsylvania Grown

8.25 (9)

4.77 (2)

9.26 (10)

8.1

Organic

8.36 (10)

6.35 (7)

10.25 (11)

8.97

Country of Origin

9.07 (11)

6.33 (6)

10.67 (12)

9.38

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Promotion: One can see from Table 3 below that the non-locavores are much less likely to use television/radio/newspaper advertising for information on the foods products than the locavores. Table 4 indicates that the non-locavores have no difference in use of newspapers when deciding on what to buy. When targeting the non-locavores it appears that in-store advertising and store circulars would be a more effective us of promotional dollars than mass media. Table 3 How often articles /television/radio reports help food items to purchase?

(b) How often articles /television/radio reports help food items to purchase? NonLocavor Locavor Never 5.70% 11.40% Occasionally 71.60% 68.40% Usually 20.60% 16.70% Always 2.10% 3.50% χ2 = 13.3, d.f. = 3, p = .004

Table 4 How useful would you say advertisements in newspapers are helping you decide which food items to purchase?

Locavor Very Useful 16.50% Somewhat Useful 56.40% Not Very Useful 27.10% χ2 = 3.3, d.f. = 2, p = .195

NonLocavor 16.10% 51.80% 32.10%

Result and Summary While it is important for food marketers to keep current and responsive to trends, it is also prudent not to over react to fads. Marketers often see emerging segments as a new source of sales growth while ignoring the base business. In the case of the trend or fad of “ local production”, the bulk of the market for fresh produce is likely to value both taste,/flavor and Price over local production. This means that imported or product with more “miles traveled” must cater to the audience that really values attributes other than local. While it may seem obvious that to market food that competes with locally food you must be great on at least one of the two attributes. The first choice would be the best tasting, best quality products. Food products are still most valued for its taste. This opens up whole avenues of marketing opportunity into heritage varieties or special varieties that deliver the best taste. An example in the USA is the British Colombia (Canada) cherries are consider the best tasting cherries by many. They are NOT local, but are in high demand and at a high price. The “non-local” marketers should be looking for the highest prices If you can’t’ be the tastiest or local than you must be the cheapest choice. For both the non-local segment focus on basics. Be in supermarkets (low price in supercenters) and stick to basic in-store marketing. This paper shows that there is a market for “non-local” foods and shows what the non local segment of consumers value and are willing to buy and pay for. They want their product in Supermarkets, good quality, where they are less influenced by advertisement s and more by in-store information. And of course price must be fair and represent a good value. Following a trend is usually good advice but giving up the base business for a market that some companies can’t conquer is often the beginning of the end. 26


References: [1] Evans Alex, Chew on that, locavores, http://www.globaldashboard.org/2011/03/14/chew-on-that-locavores, March 14, 2011 [2] Gogoi, Pallavi The Rise of the ‘Locavore’ Bloomberg Business week, May 20, 2008 [3] The Nielsen Company, 2008, Organic Trends Report, Food, Drug, Mass Merchandisers, excluding Wal-Mart. [4] Martinez, S, M Hand, M Da Pra, SPollack, K Ralston, T Smith, SVogel, S Clark, L Lohr, S Low, and C Newman. “Local Food Systems Concepts, Impacts, and Issues”. Economic Research 97, 2010 [5] Mintel Reports, New food and beverage products making a claim of organic or all natural, 2002-07 [6] Norton, James, Chow website, http://www.chow.com/food-news/5446/pity-the-russian-locavore/ [7] Pennsylvania Apple Board, 2009, http://www.pennsylvaniaapples.org/Home/Facts.aspx [8] Peter, Laurence BBC News EU targets meat origins with new food labeling. July 6, 2011 [9] US Apple Association, 2006, ttpwww.usapple.org/consumers/applebits/core.cfm [10] US Census Bureau, 1995, Released: Oct. 1995, Urban and Rural Population: 1900 to 1990 [11] USDA World Markets and Trade Report, Fresh Deciduous Fruit (Apples, Pears, and Grapes), 2009

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Aligning Balanced Scorecard to Collaborative Management in Consumer Goods Supply Chain Collaborative management Supply Chain Performance Management Professor VIRGIL POPA PhD Associate professor LEONARDO BADEA PhD Masters graduate MĂDĂLINA BARNA Economic Sciences Faculty, Valahia University of Târgovişte, 2nd, Carol I Blvd, 130024, Dâmboviţa County, Târgovişte, ROMANIA virgilp51@yahoo.com, leobadea@yahoo.com, mada_barna@yahoo.com www.valahia.ro, www.ecouvt.ro, http://ecr.valahia.ro

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Abstract: Organizational performance is those step and state of the whole organization in which, as a result of congruent decisions and actions, are reached those targets and elements of strategic vision which satisfy all interested parts. To consumer good manufactures, satisfying the needs of “new world thinking”, mandatory today in industry, implies collaborative relationships which allow the companies to grow with small costs and to supply products having improved technology. Using key performance indicators (KPI) it’s possible to measure the global performance of alliance relationships in terms of inventories, satisfaction and delivery terms. The building process of collaborative control panel of ECR alliance between two organizations always begins with establishing of a clear strategy. This strategy has to be an inter-organizational project and, as every effective implementation project of control panel, has to offer the opportunity of cooperation between processes and organizations in order to establish common objectives. Measuring is the only way to verify the process performance and the need for eventual further actions. After the performance evaluation for the organizations using the Balanced Scorecard, the information and data will be transferred to inter-organizational project team which will incorporate it into the chain control panel. The turnover – a strategic map, a control panel for measuring, targets and initiatives commonly accepted - offers to the management of alliance project the way to follow and an excellent foundation for governing the joint-venture project. Keywords: Collaborative management, supply chain, performance management, strategic objectives, key performance indicators (KPI), Jointly Agreed Growth, aligning balanced scorecard, alliance scorecard. JEL Classification: L14, L15, L24, L81, M21 1 Introduction 1.1 Organizational performance Nowadays, complexity of organization managing forces the managers to look at organization performance through different points of view: • Profitableness; • Productivity; • Customers and employees satisfaction. To pass from a measurement system centered on financial parameters (efficiency) to another (customer satisfaction) is just a simple changing aspect. It has to make the switch to a participatory management, being underlined change target for every member of the team. Organizational performance is those action and state of organization in which, following congruent decisions and actions, are met those targets and elements of strategic vision which satisfy everybody.

1.2

Performance management

It is generally accepted the fact that performance management is a permanent and evolving process, in which personal abilities and organizational parameters are constantly improving having the goal to increase individual and organizational efficiency. A performance management system represents a philosophy which connects all the activities inside an organization having as criteria human resources politics, organizational culture, style and communication systems. Aligning all these elements will be accomplished by mission, vision and strategic targets. The mission takes form of a summary of “what represents and what organization has in purpose to accomplish on long term (10-15 years)” and whereby the organization clarifies fundamental identity aspects. To improve departments and individual’s performance, understanding organization mission is essential. However, besides improving and sharing of a common vision of organization, it’s essential that every employee or group of employees understand what have to do to make vision come true. This implies establishing strategic performance targets and spreading out through strategic objectives as far as individual objectives which reflect the targets. At the same time, these have to be defined in terms of common efforts so that overall contribution of employees to represent more than the sum of individual contribution.

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011 1.3

Strategic performance management

Strategic performance management represents a process through which the company manages its performance, an aligned process to organizational and functional strategies and objectives. There are a lot of instruments and activities within the organization which contributes to that goal. These may include: defining of organizational objectives, priorities and values. In the process of defining of a balanced scorecard, the steps to be followed in order to achieve the strategy explain the organization’s strategic step to create new value. In other words, balanced scorecard has to be seen as a navigating instrument which helps to draw the way the organization will sale in order to achieve the strategy. Figure 1: Mission of organization and strategic planning

Mission/Vision Strategic Objectives

Mission/Vision Strategic Objectives Strategies

Strategies

COST, QUALITY, DEADLINE Outlooks

Clients

COST, QUALITY, DEADLINE

Learning & development

Processes

Outlooks

Financial

Source: Kaplan & Norton, 2001 [1] Starting from Norton and Kaplan’s balanced scorecard model [1], compound of four axes, for each axis we’l use the followiLearning ng indicators: & Clients Processes Financial axis: represents the goal of measurement of all organizational performance indicators. There are many ways for improving financial status, among development we take as example market share and productivity rising. Clients’ axis: Always there has to be found new ways to raise market share, newses methods for differencing the company from other companies. Three generic values are most considered by the companies: operational excellence; command level for an excellent response; customer devotion. Internal processes axis: We may give four examples of big processes in a organization: innovation process; clients relationship management process; arranging product traceability for adding value; relationship process with society. Learning and growing axis: Learning and growing perspective could be exemplified by three domains: employees competencies and abilities; new technologies; organizational culture. THE BALANCED SCORECARD Financial perspective “What should we offer to our stackeholders?”

Customer perspective “What Objectives should we Matrics offer to our Achivements customers?”Initiatives

Objectives Matrics Achivements Initiatives

Vision and strategic objectives

Internal perspective

Which are the key procesess for stackeholders and customer statisfaction

Objectives Matrics Achivements Initiatives

Learning and growing perspective “How should we manage change and inprovement?”

Objectives Metrics Achivements Initiatives

THE KAPLAN - NORTON MODEL

Figure 2: The balanced scorecard (the Kaplan-Norton Model) 30

Financ


1.4

Collaborative management

Consumer goods producers passed, in general, through three fundamental phases of collaboration development and, adding each phase, there is a new potential regarding news value creating and profitability growing. [2] Phase 1 – Spreading of transactional relationships This phase focuses on cost efficiency obtaining when consumer goods producers enter short term contracts, including transactional agreements. The main goal is cost cutting and efficiency improvement. During this phase, business processes are distinct, having a limited integration between involved companies; there is a partial segregation of data. The growing trend of outsourcing for business function, as IT, production and storage allows the companies to focus on their core business, obtain benefits from costs, and transform fix costs into variable costs in order to have greater control and flexibility for financial structure. There is a limited opportunity for adding value beyond price in transactional phase and having decreasing margins, reaching a profitable grows being a difficult process. This leads organizations beyond transactional relationships, in order to develop collaborative relationships to reaching mutual gain, productivity and extended capabilities.

Figure 3 – Collaborative relationships-partnerships Profitable growth CA -Contractual -Short term market transactions -Different processes -Limited integration -Some data apportion

Innovation and value creation -Trans-partner solutions/products definition -Dedicated campaigns -Functions and processes integration -Partners’ integration -Partners’ value and performance -Long term vision

Productivity Extended efficiency

Costs efficiency

Transactional

-Co-marketing and segmented and focused selling -Planning in collaboration -Training -Orders management

Collaborative partnerships

Time Transformational collaboration

The source: Thomson, Jennifer & Co., 2006 [2] Phase 2 – Collaborative relationships – partnerships This phase is characterized by co-existence of transactional and collaborative relationships which focus on further improving of productivity and utilization of extended capabilities of knowledge, assets and resources. Relationships from this phase focus on common promoting, marketing and selling activities. This is the point where we could start to identify suppliers and customers as strategic partners. To consumer goods producers satisfying the demands of “new world thinking” needs developing of collaborative relationships which allow companies to grow with reduced costs, supplying in the same time a increasing value for customers. The relationships from value chain which evolved in time either based on short term market transactions, or developed in long term proprietorship solutions.

Figure 4: Partnerships classification in the chain of consumer goods Contractual (un-based on ownership)

Short term Events based Data market sharing transactions

Processes

harmoni- Strategic Strategic Strategic zation suppliers distributors client Strategic TransJoint investmentshareholdersVenture

Ownership based 31 Jennifer & Co., 2006 Source: Thomson,

Long term ownership solutions


Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011 Phase 3 – Transformational collaboration vs. other business models Fig. 3 shows the relationships characterized as un-proprietorship contractual relations – as those based on events (management of selling promotion or new products launching), data sharing or processes harmonizing. Although there are some advantages connected to costs, those types of relations don’t offer enough flexibility for a competitive environment of today. In an effort of transformation of adversity relationships into collaboration relationships, sharing knowledge, mutual assistance and business growing, consumer goods producers focus more and more on identifying and developing of strategic relations with suppliers, distributors and customers. Such of relationships tend to rely on smaller number of key partners which benefit from longer term contracts. Nevertheless, there are limitations of those types of relationships: • Bargaining power of key partners could be difficult to administrate, and the prices and costs may constitute the core of negotiation; • In some cases, those relations are seen as individualist and opportunist. In these cases, there won’t be full benefits from sharing information, neither a fair, win-win situation for all parts. Fig. 4 shows too industrial relationships based on property – these may take the form of strategic investments or joint ventures, although it may exist many aspects which have to be surpassed; • The participant organizations could be trapped into structural and political aspects instead of focusing on the key goal of partnerships. That deviation from the initial goal is usual; • The companies may discover that they have to evaluate the external value to validity of entity. Advanced consumer goods producers recognized the limitations existent in typical partnership agreements and look to establishing new types of relationships which allow benefits and value resulting from collaboration. Ten years ago, collaboration agreements were based on buying and selling and the relationships were very transactional. Nevertheless, transformational relationships (and property ones) tended to limit the growth and reduce the field of agreement. Nowadays, the companies focus on developing of collaborative transformational innovating relationships in order to obtain long term growth and profitability for everybody involved. These collaborative partnerships are based on the following ideals: 1. collaborative decision process and generation of new ideas; 2. bi-directional data, knowledge and experience exchange; 3. engagement in sharing the knowledge database and extension of thinking beyond organizational limits to accomplish a win-win scenario, which offers more value adding than every single partner may obtain separately; 4. development of long term strategic plans (the collaboration is switching from operational level to strategic level). Need to switch from the easy of “price advantage” to the hard way of “value for customer” and seeing businesses combined from client perspective. 1.5 The collaboration benefits In the chain of consumer goods value there could be identified three benefits or key motivations to forming collaborative relationships: 1. Increased productivity and cost cutting; 2. Innovation (for products and client information); 3. Growth. 2 ECR Europe studies regarding alliance performances ECR Europe performed several studies regarding performance. 2.1 The evaluation of improvements impact over profit A first ECR Europe study which approaches the alliance performance is “Assessing the profit impact on ECR”, through measuring the costs and profit over ECR. “Profit impact on ECR Task Force (PIETF)” created and tested the evaluation methodology of ABD costs, a 6 steps approach to evaluate the impact on profit using a software application, an activity guide, to realize an activity map. These tools are used for establishing costs on activities and also to calculate the impact of improvements on profit. A detail description of methodology and tools is realized in ECR – Europe Guide, The Evaluation of improvements impact on profit. [3] Based on PIETF outputs, the companies are encouraged to implement a tool which alleges the organizations in aligning different activity costs and assessing cost and profit when different improving concepts are chosen. 2.2 Integrated suppliers Another study, named “Integrated suppliers of ingredients, raw materials and packaging”, realized by Frannhoffer – Apllication Center Transport, Logistics and Communication Technology, [4] treats measuring of alliance performance from the perspective of relationship between supplier and manufacturer. Supplier integration represents a concept for improving the distribution chain between manufacturers and their ingredients, raw materials and packaging suppliers. Sharing information, both sides may try to optimize others’ costs, quantities and delivery or production times in order to simplify production flow and to advance towards a collaborative relationship. The scorecard for integrated organizations The scorecard for integrated organizations is structured according to the six key concepts of integrated organizations and is applicable to sides, manufacturer and supplier. The scorecard may be used to self-assessment and to a jointevaluation with partners. If the partners agreed, in trans-functional terms, with the key concepts, it means that they 32


2.3 JAG (Jointly Agreed Growth) model of collaborative growth JAG is a more rational framework for negotiation which permits a bigger growth on the market (ECR Europe Report, 2008). [5] The current approach, common from collaborative management point of view is: • Less time for agreeing about growing actions; • Growing actions less efficient; • Narrowed growth; • Bigger financing need; • More time spent with bargaining; • Less time for gathering data; • Focus on finance problems. Jointly Agreed Growth approach generates a considerable leap forward through: • Common development of market context and trends’ understanding; • Growth strategies commonly developed; • Implementing of a business plan focused on demand stimulation and growth engendering; • Offers a negotiation frame. What is new at JAG? 1) A customer centric approach, regarding at business planning and negotiation; 2) A data based approach which allows the exact quantification of opportunities and selecting the objectives for growth targets; 3) A co-generated growing plan in order to stimulate the demand by increased satisfaction for customers; 4) A three years business plan with annual reviewing. The success depends upon focusing on customer, common entrepreneurship and continuity. The steps of the process in order to obtain a successful collaboration: • A three years JAG plan; • Annual established objectives; • A program reviewed during the year; • A good relation seller-buyer for functional relations, planning coordination, agreement and follow-up after the execution; • Mix teams for analyzing and planning in order to sustain the buyer and the seller.

Figure 5: JAG Model – The steps for a common growth plan First step Re-analyzing the economic and buyer’s environment

Fifth step Monitoring & adaptation

Second step Re-analyzing sales and agreeing about the chosen ways of growing

JAG

Fourth step Performing JAG plan

Third step Defining and agreeing about the three years

Source: JAG – New ways of working together in Europe, ECR Europe Report

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Table 1: Growth on domains Operational

Financial Value Value iin n€ € Investment Investment return return:: * *sales sales on on location; location; * *sales sales on on square square meter meter GRP GRP (ROI (ROI of of marketing) marketing) Market Market share share

Consumer/ Buyer

Shelves Shelves availability availability iin n% % Shelf Shelf days days (% (% ACV ACV xx days days))

Test Test & & penetra penetration tion % % from from the the target target customers customers

Inventory Inventory days days ((rotation rotation index index))

enter enter in in shops shops Satisfac Satisfaction tion

The The quality quality of of execution execution:: * *aligning aligning with with sales sales visibility visibility

Multiple Multiple buying buying Loyalty Loyalty

point point from from Plano Plano gram gram * *aligning aligning with with the the marketing marketing

The The evolution evolution of of shopping shopping basket basket

support support

Image Image improving improving (retail (retail // brand, for different brand, for different customers customers segments segments

3. The collaborative management of ECR Alliance

Our proposal is the collaborative balanced scorecard between manufacturer and a retailer The building process of the collaborative scorecard for ECR alliance between two organizations (a local dairy manufacturer and a global retailer) always begins with establishing of a clear strategy. This strategy has to be a inter-organizational project and has to offer the opportunity, for the player from different processes and organizations to cooperate in order to establish common objectives. Once that the team members established the common strategy, they can move forward to build the collaborative scorecard aligned to this strategy. We can understand the collaborative management compared to the commune flight of two jets (Figure 5). Each pilot has his own control panel in the cockpit used to manage his own flight (with his own objectives about altitude, speed, number of loops, optimal use of the airplane), but as a participant to the “aviatic show” he has to follow some commune objectives of the team show. (to make a fabulous program for the public entertainment)

Figure 6: The collaboration between two pilots for an aviatic show

3.1. The control panel The former researches refer to the management and performance measuring of alliance using indicators which shows that working together is a consistent thing. This consistency may be introduced into an ax of working processes together. David Norton and Robert Kaplan describe in Alignment the control panel of the scorecard of Brewer and Speh. According to these, a certain type of control panel for scorecard doesn’t apply for every scorecard. The control panel created to reduce the production, delivery and merchandising costs for common products with predictable demand has other objectives than the control panel for special products. Some control panels need reduced costs and a high speed of inventories, while others need flexibility, short response time, accuracy in prevision and innovation. The customers’ perspective The companies have to emphasize both the clients inside the control panel, and the final customers. The benefits for these customers have to include improving of the quality of products and services, short delivery terms, high availability and high over-value. These benefits are measured along the whole chain using some indicators, as: delivery on term, the duration of production cycle, customers’ satisfaction rate and very well satisfied orders. The internal processes’ perspective 34


As a result of improving the processes, we me have some benefits as: • Reducing waste – duplicate processes’ elimination, harmonizing processes and systems, reducing the faults of fabrication, wastes and rejected products, obtain low levels of inventories, reducing the duration of order-delivery and cash to cash cycles. • Flexible response – ability to fulfill the unique demands of every customer regarding product variety, volumes, packing, loading, arraying and delivery. • Reduced unit costs towards customization and flexibility level expected by the client – The suppliers want the elimination of some costs by erasing inventory duplicates, multiple handling of products, un-coordinated promotions and businesses. • Innovation – the participants monitor new discovers in technology, competition or in customers’ preferences in order to create and develop new offer which may earn customers’ loyalty. As in customers’ perspective, improving of internal processes are measured with a lot of indicators as: the accuracy of anticipation, the quality of production, the production’s flexibility and the duration of production cycles. The learning and growing perspective The objectives regarding the human capital contain human resources need, operations, marketing, sales, logistics and finance, proving of abilities and knowledge in order to collaborate intra and inter-organizational to obtain performance and delivery more value to the customers and final users. The objectives of informational capital are tied by harmonizing and connecting systems along the partner organizations, the standardization of information protocols, analyzing and sharing of information about suppliers and clients and supplying of relevant, real, actual and accessible information. The organization culture should sustain sharing of best practices, permanent improving, transparency along the whole chain and commitment to eliminating waste and delays in the system. In the same time it is necessary to offer maximum value to the final users. The financial perspective The financial indicators for the control panel of a scorecard are traditional and generic. A functional scorecard has to lead to a higher profit margins, lower production unit costs, growing cash flow, growing turnover and higher ROE. The control panel contains indicators as transportation cost, the level of processing orders, taking deliveries, depositing, merchandising, depreciation and cost reductions, profitableness. The emphasis on certain indicators is determined by the used strategy. For the production and distribution of mature products, the main indicators will be those related to cash flow, unit costs and ROA. For differentiated strategies, indicators having a bigger role are growing of turnover, market share increases and decreases in the level of the prices. 3.2 The collaborative balanced scorecard between a producer and a retailer The building process of the collaborative scorecard for ECR alliance between two organizations (a local dairy producer and a global retailer) always begins with establishing of a clear strategy. This strategy has to be a inter-organizational project and has to offer the opportunity, for the player from different processes and organizations to cooperate in order to establish common objectives. Once that the team members established the common strategy, they can move forward to build the collaborative scorecard aligned to this strategy. A tool capable to operate both into different structures / substructures of the alliance and to integrate each of these structures’ efforts in order to be aligned to the objectives of the purchasing-distribution chain is the version of the balanced scorecard presented in fig. 5. The balanced scorecard formally connects the alliance’s global objectives with the chosen strategies for achieving these objectives using some general indicators of performance measuring. Those objectives, strategies and measuring indicators at alliance level could be aligned at organizational level. Here, the organizations develop objectives, strategies to fulfill these objectives and alliance’s performance measuring indicators. This process is repeated at the level of the axes of interest from the organizations members of the alliance. The using of SCOR (Supply Chain Operations Reference) model as a performance measuring instrument [7]

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Figure 7: The collaborative scorecard of ECR alliance Balanced scorecard second organization Financial results “What has to be offered to shareholders? ”

Objectives Indicators Values Initiatives

Balanced scorecard first organization Financial results “What has to be offered to shareholders? ”

Clients “What has to be offered to shareholders?”

Vision and strategic objectives

Objectives Indicators Values Initiatives

Vision and strategic objectives

Objectives Indicators Values Initiatives

Internal results “Which are the key processes to satisfying both customers and shareholders?”

Objectives Indicators Values Initiatives

Internal results “Which are the key processes to satisfying both customers and shareholders?”

Objectives Indicators Values Initiatives

Organizational learning “How to be managed the changing and improvement?”

Objectives Indicators Values Initiatives

Source: The Norton-Kaplan model, adjusted for two strategic aligned organizations The instruments of performance measuring are difficult to define and, especially, to measure. A few among these instruments offers a clear image about the global performance, underlying the performance problems or identifying the improvement opportunities. Among all the strategic objectives of alliance performance, the most efficient due to system understanding, which influence behaviors along the system and offers information about the efforts of alliance members, could be found in Table 2

Table 2: Strategic objectives and measurement indicators of a logistic chain Strategic Objectives Alliance’s deliver disponibility

Alliance’s responding speed Alliance’s eligibility Alliance’s costs

Criteria definition Alliance’s performance in delivering: the correct product at the correct place, at the optimum moment, with optimal packing and delivery conditions, with correct quantity and with corresponding documentation The speed at an alliance delivers a product to a client Alliance’s agility to respond at market request to may win or maintain competitive advantage The costs associated to the alliance

Measurement indicators Performance in delivering Perfect answer to requests

The best term to answer Alliance’s responding time Production eligibility

The costs of goods sold Alliance’s total costs Warranty and return costs Alliance’s efficiency. Organization efficiency to Cash flow Goods sustain demand satisfaction. Inventory for both This includes the management organizations of all goods: fixed and mobile Value of goods Source: Supply Chain Council – Supply Chain Operations Reference Model, Pittsburgh, 36 2003 [7]


These strategic objectives for measuring the ECR alliance’s performance may be thought as the essence of the alliance. We may represent it graphic as two circles which contain the vision and strategic objectives. These are the management of organizations which form the alliance. In order to implement a scorecard for the alliance, as a leading tool of the alliance chain performance, we’ll start from the vision defining, major objectives and their targets at which they’ll align the own strategies, targets and strategic objectives following that each company to develop measurements and indicators for their own scorecard. Every organization’s target, objective and action are created to support the common strategy, and KPI derive from the strategic objectives. Each scorecard is integrated and aligned to the common scorecard. There are a lot of people which believe that “if you cannot measure a phenomenon, then you can’t control it“. At this moment of time, some measurement systems provide a clear image of the global performance, underlying the causes of performance problems or the improvement opportunities. The reason is simple: it is difficult to realize a robust and useful measuring program. Establishing of an agreement between the companies regarding what has to be measured, about defining the chosen measurement system and how often the measurement should be made may imply a very big effort. Also, the manager commitment on the fundamental proposal of measuring program could be the most controversial activity of all. At the highest level, alliance’s operations are expected to contribute at the company’s financial performance. For that, the performance’s measuring tools has to accomplish three major objectives: first, it has to transform financial objectives and target into efficient measurements of operational activity. Second, it has to transform the operational performance into exact future previsions of incomes or sales. And, third, it has to lead behaviors into the allied organizations which sustain the global strategy of the common business. Measurement is the only way to verify if the performance of the processes increases or decreases and if is necessary to take supplementary actions. Much too often, the companies find out about the problems regarding the success or failure in achieving the objectives after these are happening, in the moment when the income decreases, the customers run to the competition or when the result decrease under the expectations. For an easy collaboration in alliance performance management through the balanced scorecard with dual commitment we propose The Strategic Alliance’s Balanced Scorecard (Table 1). Table 1 shows some of the key objectives which may be included into such a alliance scorecard. Also, a list of measurement indicators is projected leading, by aggregation, to a correct measurement of the strategic step.

Table 1: The Alliance’s Balanced Scorecard

175 1. Stock management

Total 1

Financial

Learning

Processes

2. Delivery quality 3. Days for provisioning 4. Returned materials

75

100

500

100 200 400 300 400 200 200 200

• % EDI Integration

400

• % ECR trained persons • Standardization level / optimum practices • Costs of goods sold • % Personnel costs • Working productivity • ROA

200 400 350 250 200 200

15

95

14.25

30 60 45

95 90 80

28.50 54 36

70 35 35

95 90 95

66.50 31.50 33.25

35

98

34.30

1. % Volume of EDI treated information 2. % trained persons

30

90

27

15

100

15

3. % personnel respecting best practices 1. Product costs

30

85

25.50

35

88

30.80

2. % Personnel costs 3. Turnover / No. workers 4. Net profit / Assets

35 30

96 94

24 28.20

20

97

19.40

500

-

468.3

37

Effective moment

1. Days between order and re-order 2. Days of out-of-stock 3. Competition prices 4. Position in classification 1. Average inventory 2. % on-time delivery 3. Number of days for provisioning 4. Value of returned materials

Measurements /Indicators

Target

Balanced score (%)

Clients

duration • Out-of-stock • Price benchmark • Brand image

Values Spread analysis (%)

150 • Order cycle

Analytical hierarchy

Strategic objectives

Objectives hierarchy

Importance

Manufacturer


Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

Learning

75

Total 1

Financial

100

100

• Price benchmark

400

• Brand image

300

1. Stock management 1 Delivery quality

400

2 Days for provisioning 3 Returned materials • %EDI Integration

200

• %ECR trained persons 6. Standardization level / optimum practices • Costs of goods sold • %Personnel costs • Working productivity • ROA

200

200

200

200 400

400 350 250 200 200

1. Days between order and re-order 2. Days of out-ofstock 3. Competition prices 4. Position in classification 1. Average inventory 2. % on-time delivery 3. Number of days for provisioning 4. Value of returned materials 1. % Volume of EDI treated information 2. % trained persons 3. % personnel respecting best practices 1. Product costs 2. % Personnel costs 3. Turnover / No. workers 4. Net profit / Assets

500

38

Analytical hierarchy

Values

95

14.25

30

95

28.50

60

90

54

45

80

36

70

95

66.5

35

90

31.50

35

95

33.25

35

98

34.3

30

90

27

15

100

15

30

85

25.50

35 35

88 96

30.80 24

30

94

28.20

20

97

19.40

500

-

468.3

Effective moment

15

Target

Balanced score (%)

Processes

175

• Order cycle duration • Out-of-stock

Measurements /Indicators

Spread analysis (%)

Clients

150

Strategic objectives

Objectives hierarchy

Importance

Retailer


4. Conclusions After analyzing the results of performance assessment for the two organizations with the scorecard, the information and data will be transferred to inter-organizational project team which will incorporate it into the chain scorecard. Thus, the team will meet monthly to analyze the general scorecards for the two organizations and, based on this analyze, they’ll upgrade the level of indicators from the scorecard and will study the differences between the goals of these indicators and the realized level. Then the tem will propose solution in order to achieve the goals which haven’t been yet achieved. The development of an alliance’s scorecard may lead to the decreasing of conflict between the partners. The process of strategic map and scorecard building puts face to face the top management of the two sides to establish clearly the alliance’s objectives as well the strategy for achieving those objectives. A selling and marketing alliance could underline the low cost of acquiring new clients, the minimum term for launching new products on the market and sales increasing as a result of acquiring new clients and improving the relationships with the existent clients. An alliance based on development and innovation is focused on the quantity and level of innovation of the new products, and the impact of technology transfer over the mother companies. A production alliance could have as purpose decreasing the production costs, improving the quality, reducing the period between ordering and delivering. The output – a strategic map, a control panel for measuring, targets, fundamental and commonly accepted initiativesoffers to the alliance’s project management the way to follow and an excellent base for governing the joint-venture project. More and more the companies use the alliances to compensate lack of their own abilities and to enter new markets and regions. Aligning with these partners isn’t an easy process. Many alliances end up in disappointments and failures. Having a common set of indicators isn’t an easy thing. Each side has its own process of reporting and measuring and every company has its own perspective regarding their own contribution to the alliance and the profit from that alliance. To overpass these informational and motivational asymmetries, they need a transparent process in which every side articulates sound and clear the expected contributions and outputs, from which to result a summarizing document with the strategic situation of the alliance. References: [1] Kaplan, S. Robert, Norton, P. David – Le Tableau de Bord Prospectif, Editions d’Organisation, Paris,2001 [2] Thomson, Jennifer, Ivano, Ortis & Giorgio, Micheletti - Achieving collaborative excellence in the Consumer Value Chain, IDC & Atos Origin, 2006. [3] ECR Europe - Assessing the Profit Impact of ECR, ATKearney & PAP Consulting, 1999 [4] Fraunhofer Applications Centre for Transport Logistics and Communications Technology Integrated Suppliers – ECR is also for suppliers of ingredients, raw materials & packaging, 2000 [5] ECR Europe - Jointly Agreed Growth. New ways of working Together in Europe, Report, 2008 [6] Kaplan, S. Robert; Norton, P. David - Alignment, Harvard Business School, Publishing Corporation, USA, 2006 [7]Supply Chain Council – Supply Chain Operations Reference Model, Pittsburgh, 2003

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

THE NETWORK CENTRIC AND CLOUD - A NEW PARADIGM FOR THE OPTIMIZATION OF THE TECHNICAL AND HUMAN INFORMATION SYSTEMS Network Centric, Cloud Computing, Knowledge Based Society Prof. Eng. Victor GREU, PhD Abstract The paper presents an analyze of the complex factors that influence the development of both the communications and information systems and the knowledge based society, in order to optimize this complicate process. After the analyze of specific “loop” links between the two technical and human information systems, from an step by step quality optimization algorithm, a new paradigm for approaching the process optimization has been identified. The base of this new proposed paradigm consist of the” Network Centric and Cloud” generalized concepts, extracted from the recent evolutions of the communications and information systems, but with a crucial importance in the future of both analyzed systems. Keywords: network centric, cloud computing, knowledge based society, communications and information systems, green technology, biotechnology, synchronized processes. JEL classification: D81, D82, D83, D85

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1. Why technical and human? The development of Information Society towards Knowledge Based Society (KBS) is a complex and complicate process, because of the large diversity of factors that are driving this development and in the same time are linking the technical and the human parts of the process. Most of these factors could be seen as parts of the inherent closed loop-links between the human creation (as part of the “human information system”) and the Communications and Information Systems (CIS) – as “technical” infrastructures, products and services. As a consequence, if we want to optimize any of the two “systems” (technical/human) it is necessary for the analysis to include the other too, but the most important is that we have first to identify the mentioned links and then to determine their specific influence. Probably the analysis would not be so complicated if these factors were independent, but unfortunately that is not the case. As a first approximation, we assume the factors to be independent because the “loop” could compensate the possible errors, as this is the positive role of the loop. The next step is then to determine and evaluate the “weight” or the level of influence of the main (relevant) factors, but we have again to face a difficult problem: how to measure the levels? This way we just arrived to the core of the analysis and we have to decide (as the human kind did many times), if we reached an end or we have to find a new beginning. Many times, when it appeared to be no solution, the solution was inside us, but we could not see it because of our old way to see things. So, this could be again the case and this philosophy will probably be more and more useful, as the humanity will have to face a growing wave of new, complicate and difficult crucial problems. The solution is thus to change the way of thinking, in our case to try not to measure (what it seems to be more and more “unmeasurable”), but to find a new vision that could bring us not the exact but the best estimate of the result we aim (the optimization), by improving the whole without measuring the parts. This kind of vision could be a new paradigm about the (part) of the factors of the process. In order to get the answer, first we must have a short overview of the most important factors that influence the development of the KBS and CIS. 2. What moves ahead the KBS and CIS? Of course it is very difficult to get an exhaustive answer and we hardly can approach a part of this complicate picture, taking into account that the humankind is asking nearly every day “where is ahead?” [3]. So (again) lets rethink our goal: which are, in the “picture”, the most prominent moves (waves), their causes and (if it is possible) their sequential (long term) effects. Without even knowing, with precision, for some cases, which are causes and which are effects (because of the “loop”), we see the next waves in the present picture of CIS and KBS. The market of course is, in the appearance, the main driving factor of CIS, but the diversity and dynamic of products and services rise some questions around the components of the core that lies behind the market: - human needs; - financial interests; - political goals; - social evolutions etc. It is obvious that the list could be longer, but in the same time we have the evidence that these (inside) factors are not (each other) independent (as we have mentioned above) and more, they could be listed besides the market, as main factors. It could be a surprise that an exit from this situation could be to add, above these factors, one that influences them all (without being independent of them!): the education or the “knowledge”. Anyway, the knowledge, as a very dynamic factor (changing everyday), is driving all the evolutions, either in the CIS or the KBS. As a matter of fact, the knowledge covers all technical fields (including CIS) and all other non-technical human activities, but the point of this paper is that we must consider that the information and eventually the associated knowledge has, through CIS, the most important impact on KBS, due to the diversity and the penetration force of the CIS products and services (the Internet and the WEB being the best examples). Thus we have just identified the main link, among those we mentioned above, that are linking the technical and the human parts of the process. The next step is to analyze the concrete technical and human trends that could leverage, on medium and long term, the information and knowledge impact in order to optimize the two systems (CIS and KBS). A short list of the main technologies and trends should include: a. Network Centric; b. Cloud Computing (infrastructure, hardware and software as a service); c. Green technology; d. Biotechnology; e. Smartphones; f. Virtualization; g. Superconductors; h. Cognitive and context aware systems; i. Man-machine direct communications;

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011 j. Home working; k. eHealth; l. eLearning; m. eGovernment; n. Social networking etc. If one should dare to speak “a little” about each issue from the list, it will take hours or tens of pages, because they contain in fact most of the human creation, with the common feature, given by CIS, to be very “small” or to concentrate “a lot”. But the point is to observe that they are not independent (or complete different) and on the other hand all have in common (still to a different extent) the power to disseminate knowledge and finally to improve human efficiency (life), with the condition to be developed in harmony! What could mean harmony? Perhaps harmonised development is what the humankind needs most, now after we have already conquered the Earth and the Moon. Why do we need harmony? First because harmony in this context means optimization, that is exactly what our paper is pointing, but generally is what the actual state of science ask for any process. And what a process is KBS! Before going further with optimization, it is very important to mention (as an essential starting point for optimization) that we have “conquered” the Earth and the Moon in a similar way the conquistadors have conquered new territories, without deeply understanding their habitants and their history, but on the other hand without knowing how much remained to be conquered! Just imagine how much could be beyond the Moon! What about the Earth? We have to imagine that it is still a long way till we will understand all the “history” of millions of years created on Earth, so we need to optimize our “remained” way to the complete knowledge. On the other hand, there is also another important reason for harmony, as we have to agree that what we have reached (conquered) is not little thing. The humankind achieved very much (with an increasing speed every century and decade!) and it is essential to keep it, that is to develop surely and long lasting – but we hardly observe the dangers that our prior “development” brought to the Earth! More than this, our future development must “repair”, at least partial, the damage we have done to the Earth. That is why “green technology” is in top 3! All these pertinent observations reveal the necessity and the complexity of the process optimization we are discussing of. So we can now analyze the above list, from a holistic point of view, without entering in details of each issue. That is way we have chosen to group them in 3 classes. Mainly the last class (j-n) are the consequences (human) part, while the first 2 are the causes (technological) part (again, we had to consider the lack of independence, by “mainly”). The first class is differing from the next by the systemic power, versus the specific (for each technology) power. In other words, in the second class we can easily add other prominent or new technology, while in the first the issues are stronger (and rarer!). As a systemic approach, the first class is the most important for development, while the others could be further discussed. After we have mentioned (even very shortly) the importance of “green technology”, about “biotechnology” must be noticed that the expectations from it are linked with crucial problems of the mankind as health, food and Earth ecosystem. But it is also important that “biotechnology” and all this expectations are depending on other state-of-the-art CIS technologies (and they provide, in turn, results that are learned from nature, useful for new CIS expectations, as bio-computing). Step by step we have just arrived to the “main ingredients”: the “Network Centric” approach and the “Cloud” concept. It is important to mention, from the beginning, that both issue are generally considered (as main features), not only as specific technologies with a recent and huge impact on CIS. What could be the new paradigm that links these two concepts of the CIS and the KBS (seen as a human information system)? 3. How come “Network Centric” and “Cloud” paradigm Our step by step analyze (as an optimization algorithm) led us to these 2 factors of development, but their importance (top 1-2) and especially their impact on KBS and CIS as a new paradigm, must be explained. First and shortly, the “Network Centric” (NC) concept evolved in CIS from the physical communications network to the integrated communications and information technology (CIT) network (CITN), where Internet became the best example (but not the only one, as its support could be any IP network, either fixed as ATM or mobile as IMT 2000) [1]. Then, due to the huge proven advantages of such network, the idea was generalized, first (as often happened) in the defence field, as network centric warfare (NCW) [2]. With NCW, the NC got the content the new paradigm will also rely on: to use the features of CITN (logic, functionality, synchronization and finally the power) in order to leverage the potential of an organization (as group of individuals). How about that? From where could this multiplication come? Perhaps the best and shortest explanation starts from the well known axiom: “an informed man acts as two” and could completed by the fact that two well connected and synchronized men act as 4! So, both CIS and KBS will use the physical CITN, but the point is to use, in the same time, all the features and advantages of CITN in the similar organization, management and development of those complex systems! Among the most important included features of CITN, an essential role in NC will have the synchronization, as CIS and then KBS will face the complicate problem of (maybe too) fast development and operation! Without entering technological details, we must notice that the faster is the process, the more difficult is to synchronize its components and the more important the consequences of non-synchronism. Another specific aspect is that for processes involving many people (and KBS is a “very” large set!), generally it is very difficult to “synchronize” (to harmonize) individuals.

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So, the most important impact of NC in developing KBS is the unbeatable power to disseminate (refined) knowledge and leverage the potential of humankind to use it in a positive general evolution [4]. A second important feature of using NC principles in KBS is that the organization (the world leadership) will be able to better exploit the huge creativity resources of the billions of individuals, so the world will be more and more “network centric” and democratic. A good example is the “explosive” evolution of the social networking “phenomena” (Facebook, Twitter etc.). What about “Cloud”? As a technical approach, the “Cloud” concept and “technology” appears to be only a considerable trend to increase the efficiency of CIS services, for the user, as a natural evolution of CIS. That is to concentrate the hard and soft resources in remote centres, as the users (including organizations and individuals) to “buy” exactly the amount of services (not exclusive computing!) they need (services on demand), with crucial advantages as reduce cost (with investment and maintenance – total cost of ownership/TCO), keep the pace with state-of-the-art technologies and generally complying with the “green” trend. It must be noticed that although “Cloud Computing” seems to be an extensive use of the Internet, it would be a big mistake to consider so only because Internet is (usually, but not always!) the way to access services. “Cloud” is more, not only by the generalization (in KBS), but even as a technical concept it consist of a huge amount of remote “things” (infrastructure, hardware and software as a service – and services could exceed CIS sphere) and all the possible links between them and people (as knowledge, ideas, money, laws, security etc.). One of the sensible points of the Cloud trend is its increasing dependence of performance (speed and latency) and security on the Internet (“Achile’s heel”). Here comes one of the essential feature of the new paradigm: the link between NC and Cloud provide the necessary support Cloud needs for a secure and reliable development of CIS or KBS (notice that NC does not necessary means the Internet, but any physical or formal link between people and “services”). The importance of Cloud for KBS is more that the technical approach, above mentioned, shows. For the KBS, the “Cloud” concept will extrapolate the principle of using remote services, but the range of services and the benefits will extend from news to refined knowledge, including home working, e-health, e-learning, e-government, security and also social networking (sharing of experience, expertise or ideas). As in the NC case, the new paradigm will transfer to CIS and especially to KBS, among other, the efficiency given by the fact that high level services (including all the Information Society services and the refined knowledge resources) will become available with low cost and fast delivery, for any type of user, in any location, any time [5]. An essential advantage of the new paradigm consist of the fact that the generalized NC and Cloud concepts have complementary mechanisms, as NC provide for organizations a higher use of the individuals potential and on the other hand Cloud provide a more efficient access of the individuals to the services/resources. Conclusion “Network Centric and Cloud” have the premises to become the new paradigm which will provide the main driving factor for the optimal development of the Communications and Information Systems and then of the Knowledge Based Society. So it deserves to be further analyzed and watched! REFERENCES [1] Sam Samra, CDMA 2000 path to LTE, ATIS 3GPPLTE Conference Dallas, January, 2009 [2] David S. Alberts, John J. Garstka, Frederick P. Stein, Network centric warfare : developing and leveraging information superiority, CCRP publication series, 2nd Edition (Revised) CIP, August 1999/Second printing February 2000. [3] Abdulaziz S. Almazyad and Farooqui N.K., Towards Knowledge Based Society, Proceedings of the World Congress on Engineering and Computer Science 2009 Vol II, WCECS 2009, October 20-22, 2009, San Francisco, USA [4] Pete Swabey Collective intelligence, July 2010, http://www.information-age.com [5] Sudeepa Nair, Problems and challenges of the information age, http://www.helium.com

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

The Retailers' Merchandise Mix Planning and the Process of Category Management Merchandise Mix, Category Management, Branding Strategy George Cosmin Tănase

Abstract Retail merchandising is the process used in order to conduct retail sales. As part of the process, the merchandiser pays close attention to the types of products offered for sale, how to best present those products to consumers, and determining what is a reasonable retail price for each unit sold. The product assortment is the core of the retailing service. A retailer’s total product offering is called a merchandise mix or product range. At a strategic level, merchandise management includes the process of selecting the right items for a store and, at an operational level, ensuring that they are available when customers want to purchase them. Items in the assortment are organised into groups, the so called categories. Merchandise planning encompasses selecting the right categories and the items within them. The selection of the appropriate items for a store refers to the breadth and depth of the assortment, quality levels and the brand portfolio. Keywords: Merchandise Mix, Category Management, Branding Strategy, Consumer Behaviour JEL Classification: D22, L81, M31

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e

Introduction The lowest level of detail identifying a product in the retailer’s assortment is the stock keeping unit (SKU), which identifies a particular item. For example, a pair of pants of a certain brand, in a particular style, colour, and size, is one SKU. The number of SKUs at various retailers varies tremendously. While hard discounters often carry less than 1,000 SKUs, a typical hypermarket assortment accumulates to around 100,000 SKUs. Items in the assortment can be grouped in terms of many different criteria. The product life cycle is one important classification criterion: - Staple merchandise consists of those products that are carried permanently by the retailer and that have relatively stable sales over time. A hammer or a paint brush at a DIY retailer or jeans and white T shirts at a department store would be examples of staple goods. - Fashion merchandise refers to products that have cyclical sales due to changing tastes and lifestyles. Colours and cuts of clothing change and merchandise offered this year is usually out of date next year. - Seasonal merchandise consists of products that do not sell equally well over consecutive time periods. Barbecue grills, skiing equipment, short pants and similar products have very high sales during one season of the year, but are not sold at all in other seasons. - Fad merchandise generates very high sales for a short time period. Often, toys and games, certain clothing accessories, or certain music CDs are fads. Tamagochis and Pokémons, for instance, were classic fads. Movie merchandise (e.g. Batman accessories) also constitutes typical fads. Price sensitivity is often very low and ensuring supply, while demand is high, is crucial for success. The product life cycle of merchandise is also important, because it emphasises that all products in the assortment need to be replaced after a (varying) period of time. Another merchandise categorization is the quality level, which is closely related to the price positioning. Should the retailer focus on premium products and target high income customers, offer standard products or focus on lower quality, less expensive items to target mainly (but not only) low income customers? Another strategic option is to cover different quality segments and thereby approach a broader target group. For example, while discount apparel stores (e.g. KIK in Germany or the Dutch Zeeman) focus on the low quality segment, clothing boutiques focus on the high quality segment and department stores usually cover different quality levels. For the assortment decision, demand interrelationships have to be considered in merchandise planning. The consumer usually buys a shopping basket. The demand for certain items is interrelated. This can be the case simply because it is more convenient to do all the food shopping for the week in one store. However, complementary effects within the assortment can also arise, because products are consumed together and it has advantages to purchase them together because they can be matched. One major challenge for retailers is that many stores have to accommodate the preferences of different consumer segments. Since the stores usually have only a limited geographic catchment area and the population in this catchment area is usually heterogeneous, many retailers cannot afford not to appeal to certain customer groups. This is especially the case for food retailers. General merchandise retailers, where consumers often travel further to the store of their choice (due to less frequent shopping trips) and stores in large city centers where customer frequency is generally high, can focus more easily on certain specific customer groups. An increasing number of retailers use a combination of specialist and generalist approaches within their product offer. They are specialist in one or a few categories, but add other categories, in which they only offer a shallow assortment. Temporarily or permanently, retailers diversify by adding new products to their assortment, which do not belong to their traditional merchandise. Supermarkets sell non food products, DIY stores offer furniture, sports stores offer travel packages and food, to list just a few examples. This development results in a blurring of retail sector boundaries. There are a number of reasons for this trend. The average store size has increased continuously over the last decades, giving retailers more space to enter new categories. Many product categories have stagnated, making a move into new fields attractive. And some retailers wish to exploit their high customer frequency by selling new product ranges. The brand extension strategy is sometimes called product scrambling, because it bears the risk of diluting the retailer’s image. The concept of category migration can be compared to brand extension by a branded goods manufacturer. New categories that are related to existing ones therefore offer more potential with less image risk. Accordingly, successful category migration usually follows one of two diversification routes: - Either new categories and services are offered that are closely related to the core assortment. Examples would be furniture stores that offer accessories, DIY stores offering garden furniture as well as sport stores offering skiing trips or sports nutrition. - Another strategy is to diversify the assortment into new categories that appeal to the core target group of the retailer. Clothing retailers for young fashion that add cosmetics or music CDs to their assortment are good examples. Adding new items to the assortment or eliminating items from the assortment is a fundamental and ongoing process for retailers. Studies of retail patronage have found repeatedly that the variety of assortment is an important determinant of attitude towards the store and store choice, ranking only behind location and price. Shoppers are often looking for very specific items. A greater variety and larger assortment increases the probability of finding what they really want. Consumers may also like variety, because of a simple desire to purchase different alternatives rather than the same thing each time. Manufacturer Brands and Store Brands In defining their merchandise mix, retailers also have to decide on the mix of manufacturer brands (e.g. Ariel, Nestlé, Philips, Ferrero) and their own brands, the so called store brands. While manufacturer brands are owned, produced, managed and marketed by manufacturers, store brands (also called private labels or own brands) encompass all product brands that are owned, managed and marketed by retailers. The property rights for the brand in this case, are held by the retailer. For many retailers, manufacturer brands comprise the main part of their merchandise. Danone in food retailing, Bosch and Black

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

& Decker in DIY retailing, Adidas in shoes retailing and Sony in consumer electronics are just a few examples. Retailers include manufacturer brands in their assortment for several reasons. The two most important ones are the pull effects and image effects exerted by the manufacturer brands. Strong manufacturer brands often enhance customer frequency in stores, because strong brands have loyal customers and their store choice is influenced by the availability of brands. Manufacturer brands are often heavily advertised in the media, so that consumers have clear images of these brands. Brand equity has been built up from which retailers can benefit. Strong manufacturer brands are said to pull customers into the store, so that other selling efforts by the retailer can be reduced. The image of manufacturer brands in the assortment influences the retailer’s image. A retailer’s store image can be improved when it is associated with manufacturer brands that are evaluated positively. The number of available manufacturer brands as well as a strong anchor brand in the assortment can affect the retail brand positively. Positive effects can be expected to raise the perceived quality level and enhance certain intangible brand features such as brand character. A store carrying a good range of Camel Active clothing, Levi’s and Timber land will be associated with other characteristics than a store carrying mainly Prada and Gucci. However, the suppliers of strong brands are well aware of these benefits and their heavy advertising investment has to pay off. They have a strong negotiation position with retailers, which often results in unfavourable procurement prices for the latter. Therefore, manufacturer brands usually yield low profit margins for the retailer. The proliferation of store brands in many product categories is one of the major developments in retail merchandising strategy. Once viewed with skepticism by consumers in terms of quality, in most countries store brands are now widely accepted substitutes for manufacturer brands and regarded as being of comparable quality. Store brands, on the other side, provide an opportunity for differentiation. They are available at one retailer only, and can, therefore, be used to distinguish the retailer from its competitors. The brand image of a store brand must be established by the retailer himself and communication expenses paid by the retailer, but the brand can match the retail brand image of the retail company perfectly. Customer loyalty can more easily be built on store brands than on manufacturer brands. If a customer is satisfied with a store brand and intends to repurchase it, he needs to revisit the retailer. Conversely, if he is satisfied with a manufacturer brand, he can still switch stores and buy the product elsewhere. At the same time, store brands are not easily comparable across retailers. Therefore, price competition may be less severe. This factor, combined with lower procurement or production and marketing costs, often results in better profit margins for store brands. The first store brands were generics, that is, very low cost commodity products, with no brand like labeling, but plain white packages that contained only the name of the product (“sugar” or “milk”). Currently, there are store brands in all price and quality segments. Store brands also cover different segments with different attributes, for example, organic food or healthy eating. For budget store brands and standard store brands, price still plays a dominant role. The standard store brands are usually positioned as being of as good a quality as the manufacturer brand, but for a lesser price, and are targeted at the price conscious customer segment. Premium store brands, on the other hand, are often positioned even above the manufacturer brand. Currently, many retailers are establishing a premium store brand segment. While all store brands have an impact on the retail brand, the premium store brands in particular, are introduced to improve the profile of the retailer and shape the retail brand image. As part of the branding strategy, it also has to be decided how closely the store brand should be associated with the retail brand. Sometimes, the retail brand is used as an umbrella brand for the store brand products (for example, Tesco uses Tesco Finest, Tesco Organic, Tesco Value, among others, as store brands), while in other cases, the store brand is not directly connected to the retail brand. Anna’s Best, the store brand for pasta at the Swiss retailer Migros, or Mibell, the store brand for German Edeka’s dairy products are examples. For those retailers which carry manufacturer brands and store brands, a general trend can be observed towards reducing the brand selection in order to avoid consumer confusion and enhance efficiency. Only the best manufacturer brands are kept in the assortment, while the others are systematically eliminated or replaced by store brands. In recent years, the merchandising process is often integrated into a more holistic management approach to retailing, so called category management. ECR Europe (1997) defines category management as a retailer/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value. Each category follows a specific strategy, which is embedded in the retailer’s overall strategy. The importance of working together with the suppliers of a category is emphasized. One reason is that manufacturers usually have a deeper knowledge of the peculiarities of their category, because they frequently offer only products in one category. By contrast, the retailer has knowledge of his customers’ behaviour across categories, so that the two can merge their knowledge in the pursuit of mutual goals. Category management has developed as a stepwise planning process for categories, and was first proposed by the consulting company The Partnering Group in the mid 1990s. Over the last decade, it has developed into a standard industry process, which has been promoted by national and international ECR initiatives. Standard processes support an easy knowledge transfer across different retailers and/or suppliers. Category definition involves determining the specific SKUs that constitute the category, based on which products consumers perceive to be interrelated and/or substitutable. The primary aim is to develop a category definition that is based less on the procurement perspective of the retailer and more on the consumer perspective. Within the category definition, the category is also segmented into subcategories. This segmentation should be based on the consumers’ decision tree, when purchasing in the category, that is, the sequential consumer choice process. For example, the category “wine” could be segmented at the first level by price categories (premium wines, standard wines, budget wines), countries (French wines, Italian wines, German wines), colours (red wine, white wine, rosé) or brands. In the next step, a role is assigned to each category, that is, the purpose of this category for the retailer is identified. Then it is analyzed how the category fits in the retailer’s company strategy. This facilitates managing categories according to their importance

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and allocating resources (such as marketing budgets, shelf space and management capacity) optimally. Before assigning a role to a category, the category’s importance to the consumer, retailer, and competition should be analyzed. After a more thorough analysis of the category and subcategories (category assessment), the category targets are set and relevant performance indicators selected (category performance measures), because different roles lead to different target indicators. The so called fair share is an important indicator. This is the market share of a retailer in the category, compared to his overall market share. It is an indicator of retailer performance in this category relative to overall performance. The next step is to decide on a marketing strategy for the category. Many different strategies are possible, including: Traffic building, attracting many consumers into the store, for example, by offering price promotions for frequently purchased products. Transaction building, enhancing the average size of the shopping basket, for example, by exploiting demand interrelationships in the space allocation in stores or encouraging impulse purchases. Profit generating, enhancing the profitability of customers’ shopping baskets, by offering products with high margins and/or higher inventory turns. Image creating, improving the retailer’s image, e.g. by offering products that are sold uniquely at the retailer or offering an outstanding choice in the category. At the level of the category tactics, operational decisions on the assortment, pricing, space allocation, and other retail marketing instruments are derived from the strategy and the other steps in the process. The final steps of the process are implementing the plan and a regular review of the category’s performance, including plan adaptation. Conclusion As with many other facets of retail management, merchandising is becoming more strategic and more fact based, because retail information systems provide the necessary data for analyzing the effects of merchandise changes. Some trends have emerged in the last few years: - Retailers are increasingly adding new categories to their merchandise (category migration). - Retailers are reducing the depth of their assortments in each category, focusing on leading brands, and eliminating underperforming manufacturer brands. - Retailers are increasingly adding store brands to their assortment and the store brand portfolios cover all segments, including the premium segment. In many cases, merchandising planning is integrated into a category management process, which supports the strategic retail positioning by assigning defined roles to a category and systematically deriving the subsequent marketing decisions from the role. The merchandising process is determined by the retailer’s most valuable and limited resource: shelf space. For Internet shops, however, this constraint does not apply. Therefore, merchandise planning for e-commerce is different. Assortments can be larger and structured differently: products can be placed in more than one category, because this does not use shelf space, and constitutes an alternative way of finding the right product. More than one consumer decision tree can be modelled. References [1] BERMAN, B.; EVANS, J. (2007): Retail Management, 10th ed., Upper Saddle River/NJ. [2] BURT, S.; DAVIS, S. (1999): Follow my leader? Look alike Retailer Brands in Non Manufacturer Dominated Product Markets in the UK, in: The International Review of Retail, Distribution and Consumer Research, Vol. 9, No. 2. pp. 163-185. [3] CORSTJENS, M.; LAL, R. (2000): Building Store Loyalty Through Store Brands, in: Journal of Marketing Research, Vol. 37, August, pp. 281-291. [4] DHAR, S.; HOCH, S. (1997): Why Store Brand Penetration Varies by Retailer, in: Marketing Science, Vol. 16, No. 3, pp. 208227. [5] MULHERN, F. (1997): Retail Marketing: From Distribution to Integration, in: International Journal of Research in Marketing, Vol. 14, pp. 103-124. [6] OGDEN, J.R.; OGDEN, D.T. (2005): Retailing – Integrated Retail Management, Boston et al. [7] VARLEY, R. (2006): Retail Product Management, 2nd ed., London et al. [8] J.Zentes, D.Morschett, H.Schramm-Klein (2007) - Strategic Retail Management, GWV-Vieweg. [9] ZENTES, J.; SCHRAMM KLEIN, H.; NEIDHART, M. (2005): Handels Monitor 2005/06: Expansion – Konsolidierung – Rückzug: Trends, Perspektiven und Optionen im Handel, Frankfurt a.M.

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Romanian Distribution Committee Magazine Scientific Review of the Romanian Distribution Committee Volume 4, Issue 4, Year 2011

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