Originally published in Consumer Goods Technology
How to understand your retailer partners to build value and avoid disruption.
As a consumer packaged goods company, you only have so many promotional opportunities, and you want to plan for them wisely. Whether limited by the number of available end-caps or the real estate of a weekly circular, your pricing and promotions strategies must be strategically executed when given your moment to shine.
In addition to the mechanics that go into simply changing a price or offering a deal right at the shelf, there are many factors at play. As your costs fluctuate, you want to respond responsibly and communicate changes to your buyers effectively. At the same time, you also need to solve for unforeseen challenges – for example, a supply cost increase – in a way that still drives revenue for all parties.
While retailers make the ultimate decisions around product assortment and price points, CPGs play an important supportive role, and not just by funding promotions. By having the ability to forecast promotion potential and analyze the impact of price, you can position yourself to be a partner that provides even more value.
How AI builds cooperation and value between CPGs and retailers
Ultimately, retailers rely on trade promotions funding to promote sales, and CPGs use this opportunity to improve their visibility and value to retailer partners.
But building a collaborative and symbiotic rapport with a retailer takes time and effort. When pricing strategies are viewed as a joint effort for mutual benefit, success is realized for all. If your products do well, you become an indispensable partner. But lean on presumptions and best guesses and you may fail enough times for the retailer to consider choosing a competitive brand over yours.
As such, informing pricing strategies that deliver optimal outcomes for both parties is AI’s primary value in the context of the CPG-retailer partnership. Implementing AI to help improve promotional success leads to better, longer-term relationships and an edge over the competition.
Understand your retailer partners and rise to the occasion
A retailer’s use of AI should be known to you, and as such, you can be better positioned to showcase your ability to deliver on their volume and margin goals during negotiations. Ask to leverage the retailer’s analytics and reach out to provide your own data-informed insights. The most powerful combination is a CPG-retailer duo that has the analytics on both sides, sharing insights freely.
Savvy brands also use AI to work ahead of the retailer to start determining where to stop funding ineffective promotions in order to add fuel to pricing campaigns that hit the mark more frequently. As a CPG, you want the best analytics in place to understand if Product A is more important to promote than Product B, thus maximizing spend with a given retailer. Ask your data and it will tell you, through AI and machine learning, which product is a better spend for driving revenue.
Retailers appreciate this insight and their bottom lines benefit from it. While many leading retailers use AI themselves to optimize pricing, promotions and markdowns, the power of a joint data set is undeniable. It’s highly beneficial to both parties and helps ensure shoppers get the products, prices and deals they want.
Embrace AI now to lay the groundwork for future disruption
Highly unusual or emergency situations have a tendency to put a spotlight on the functional gaps inside any organization. Unsurprisingly, we’re seeing that play out in retail pricing for many organizations in the wake of the current pandemic.
It’s clear that many have struggled to respond with agility to the pricing pressures of a pandemic no one could predict in a quarterly planning meeting. From runs on paper products and bakery items to growing concerns of a meat shortage, retailers and CPGs alike are working furiously to meet demand and price products accordingly.
The truth is, the organizations that are already further along in the AI-enabled pricing journey have more insights to more efficiently react. Their accessible analytics elevate them as they monitor the situation and its evolving trends. They have significant advantages over trying to solve pricing questions through Excel spreadsheets and historical sales reports.
As supply pressures and rising costs emerge, you can’t manage prices independent of a cohesive and data-driven plan to come out stronger on the other side. Therefore, this is a unique opportunity to put new tools and capabilities in place and build the infrastructure for whatever unforeseen crises may lie ahead.
You must plan for the future in order to manage the future, and now is as good a time as any to build the AI infrastructure to become better prepared. When things return to some level of predictability this year or next, our new retail “normal” will belong to the organizations that have become AI fluent. With AI driving decisions around pricing and promotions, CPGs will become more profitable while building better relationships at the same time.