In s i gh t s t oday f o r t omorrow’s dec i s i on s

M a r c h 2 0 0 0

The World of e-Tailing: Where Clicks and Bricks Converge

Linking Consumer Attitudes and Actual Purchase Behavior

Trend Watch: Big Changes in OTC

The Role of the Internet in CPG

CONSUMERINSIGHT:

Linking

Consumer

Attitudes

and

Behavior

For More Information

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March 2000, Volume 2, No. 1

3Delivering Consumer Knowledge for Action

For ACNielsen, our focus is to create aWorld Class Service Company. The

success of the business solutions we provide to you will be directly linked to our ability to deliver more effective and efficient direct-to-consumer marketing

and retail execution.

4The Role of the Internet in CPG:

A Conversation with Paula Sneed, President, e-Commerce, Kraft FoodsRecently, the staff met with the head

of e-commerce for Kraft Foods to discussthe near-term implications of the Internet

and e-commerce on the consumer packaged goods industry.

8The World of e-Tailing: Where Clicks

and Bricks ConvergeThink what the pundits were saying aboutthe Internet just five years ago. Who knewwe would come so far, so fast? Very soon,the CPG industry will represent one of the

largest online commerce categories.

13Linking Consumer Attitudes

and Actual Purchase BehaviorA strategic alliance between Market Factsand ACNielsen is now providing a break-

through approach that gives marketers thebest-ever insight into the relationship

between consumers’ attitudes and theirresulting behavior in the marketplace.

In every issue…16 Trend Watch—

Big Changes in OTC

Business Tools18 Retail Tracking

20 Retailers

21 Analytics

22 Merchandising

23 Consumer Behavior

24 Decision Support Services

Volume 2, No. 1

Publisher

ACNielsen

Editors

Mark Chesney

Art Massa

Design & Layout

Kathy Zonyk

Editorial Board

Gary Binkoski

Don Drews

Kathy Mancini

Elaine Noone

Mark Puccetti

ACNielsen Global Creative Services

Laurel A. Kennedy Marketing/Communications

Slack Barshinger & Partners

Copyright©2000 ACNielsen. Printed in USA. All rights reserved. ACNielsen, the ACNielsen logo, ACNielsen Workstation Information✽ Server,Category Masters, Convenience Track, Homescan,ICE, INF✽ ACT, Net Dispatch, PRICEMAN, SCANTRACK, SPACEMAN and SPACEMANEnterprise are trademarks or registered trade-marks of A.C. Nielsen Company.

SEGWAY is a trademark of A.C. Nielsen Companyand Market Facts, Inc. Microsoft, Visual Basic, theVisual Basic logo and Windows are either registeredtrademarks or trademarks of Microsoft Corporationin the United States and/or other countries. Otherbrand, product or service names are trademarks orregistered trademarks of their respective companies.

Consum

er Insight3

Our focus is

to create a

World Class

Service

Company

Steve Schmidt

ACNielsen

President, U.S.

The first quarter of the year

2000 is quickly coming to a

close. We all survived Y2K. The

“dot.coms” of the world domi-

nated the Super Bowl advertis-

ing environment. The economy

continues to grow. Presidential

campaigning is in high gear.

And thanks to you, the

Marketing Research business is

growing, driven by an intense

focus on better understanding

consumer behavior.

For ACNielsen, our focus for

this year and beyond is to create

a World Class Service Company.

What that means to you, our

clients, is a personal commit-

ment from me and the Senior

Management of this company

to direct the investments at our

disposal against four core

elements of our business:

• Enhance Data Quality

• Improve Delivery Options

• Increase Retail & Consumer

Coverage

• Drive a“Consumer Knowledge

for Action” Strategy

From our recent client satisfac-

tion survey, these were the four

areas that you felt would most

positively impact your business.

The success of the business

solutions we provide to you will

be directly linked to our ability

to deliver more effective and

efficient direct-to-consumer

marketing and retail execution.

Whether it’s data from our core

tracking services or insights

from our consumer panel,

ACNielsen will continue to set

industry standards. Similarly,

we are a player in the world

of e-commerce and all its many

facets. The cover story for this

issue speaks volumes as to what

lies ahead for the Consumer

Packaged Goods industry and

the Internet.

Kraft’s Paula Sneed is to be

congratulated for sharing

her thoughts with all of us.

I especially liked this insight:

“Now, through Internet tools,

we can open a true dialogue

with individual consumers

and gain a better understanding

about what’s valuable to

them, what they want and

what they need.”

ACNielsen’s measurement

and analysis of that consumer

knowledge is exactly what will

allow you to respond to your

customers’ needs with the right

product solutions and effective

implementation at retail.

Welcome to the new millennium!

Delivering Consumer Knowledge for Action

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Recently, the editorial staff of Consumer Insight met with the recently appointed head of e-commerce for Kraft

Foods to discuss the near-term implications of the Internet and e-commerce on the consumer packaged goods

industry. The conversation touched on a number of trends and emerging challenges that will redefine the way

all parties transact business and communicate with consumers.

The Role of The Internet in CPGA Conversation with Paula Sneed, President, e-Commerce, Kraft Foods

CI. How do you define uses for the Internet today—

both broadly as well as how it relates to CPG?

Paula. Internet-enabled tools and capabilities touch

all aspects of life—it will be as ubiquitous and trans-

formational as electricity. Today the Internet is provid-

ing an array of new tools and options, including new

ways to communicate with our consumers, customers

and suppliers; new ways to buy and sell products and

services; and new ways to work. CPG companies have

begun embracing the opportunities that the Internet

provides, working to capture the benefits. They are

moving from communication and limited commerce

to using it across the value chain.

CI. To summarize, for CPG firms the Internet has

transcended its initial mission as communications

vehicle and taken on the added role of transaction

facilitator. Along with that change, many established,

large firms recognize the need to compete in this

space. Still other companies are using the Internet

to build brands. Is that about right?

Paula. I see it in a slightly different way. New

Internet-based companies recognize that building

brands on the Internet is essential for their survival.

They recognize that, at the end of the day, the brands

that deliver on their consumer promise are the ones

that consumers will respond to and the ones that will

survive. As Internet-based companies launch, they

Consum

er Insight5

quickly move to mimic what traditional companies have

historically done—build a reputation, build trust, build

consumer loyalty by establishing a brand. For traditional

companies, the challenge is to deliver the full impact

of their brands through the Internet by magnifying

and/or demonstrating their brand promise. Their

opportunities are to build even greater brand equity

and even more brand loyalty. The Internet is a great

tool to build loyalty from existing users as well as

to attract new users.

CI. That’s a very important distinction, particularly

the loyalty-building aspect.

Paula. You are right. Now, through Internet tools, we

can open a true dialogue with individual consumers and

gain a better understanding about what’s valuable to

them, what they want and what they need. For example,

we have tools that allow more personal connections

with individual consumers on our website. With “Make

it Now!” consumers can input three ingredients they

have on hand, and we give them specific recipes using

those ingredients. Our new “Recipe Recommender” lets

consumers rate recipes by their appeal to the individual

visitor. We then make “suggestions” based on their

personal tastes. Make it personal, but also make it

simple—these types of things build loyalty.

CI. The sub-theme there seems to be interactivity.

Paula. Think of it as customized interactivity,

personalized interactivity.

CI. What do you see as the distinction between the

Internet and e-commerce?

Paula. Think of the Internet as a tool that enables

e-commerce. However, probably the best way to respond

to that is to differentiate between e-commerce and

e-business. Both terms are used interchangeably, but

they are different—one is a subset of the other. When

people talk about e-commerce, they mean transacting

or selling on-line. However, e-business is much more

encompassing. It includes all aspects of the business

value and activity chain that can be transformed by

the Internet.

For example, at one end of the value chain the Internet

provides a way to communicate with consumers. At the

other end of the value chain the Internet is changing the

way we source products. At every phase on the activity

and value chain, Internet-driven tools are changing the

way business is done.

CI. What are Intranets?

Paula. An Intranet is a network of computers within

a company versus the Internet, which is a network

of computers connecting across the world. We use

an Intranet to keep our employees informed about

company activities and benefits. For example, many

employees now have access to personalized benefit

information 24/7.

We use Extranets to communicate specialized

information between internally and externally net-

worked computers. For example, we use an Extranet

to streamline our package design process. We’ve

eliminated sequenced approvals, tons of trafficking

time and significantly reduced cost by conducting

design business over an Extranet.

CI. How does CPG stack up next to other industries

regarding Internet use?

Paula. Some other companies got there early because

technology was their core business, so evolving to

Internet-based business was a natural evolution. Most

CPG companies first used the Internet to communicate

with consumers. Now they’re expanding Internet usage

to include suppliers and other members of the value and

activity chain.

CI. Can traditional companies make the transition to the

Internet?

Paula. Absolutely! You need “t-business” (traditional),

and “e-business” (electronic) components to be

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successful. Companies must learn to blend both to

succeed in the 21st century. We’re not going to walk

away completely from what made us successful enter-

prises. At the same time, we have to recognize that

without capturing new Internet capabilities we will

not be able to compete successfully in the future.

CI. What are some of the things that CPG companies

need to take into account to become e-businesses?

Paula. Traditional CPG businesses face two major

challenges. The first challenge has to do with historical

practices and behaviors. Much of what drove success in

a mass marketing environment will not work if directly

translated to the web. Companies have to be willing to

abandon some business practices and to modify others.

The second challenge has to do with organizational

boundaries and structures. As the web modifies our

work, we must evolve our structures to accommodate

the new ways work is done.

CI. Speaking of structures, you mentioned that the

process of package design has changed at Kraft because

of the Extranet. How did that affect structure and cor-

porate culture?

Paula. Package design, approval and printing has

historically involved lots of steps, meetings, paper flying

back and forth, and lots of re-work. The number of

person-hours associated with the process was staggering.

An internal champion emerged who challenged the

status quo because he saw a great opportunity to

speed up reviews while getting better results from

color separators and printers, and delivering the

package to the plant more quickly, all while saving

money. For example, color copies alone used to be

a major expense. Now, we are able to do away with

them altogether. Everyone views and exchanges

work electronically.

CI. How do you change an entrenched process like that

and make it electronic?

Paula. It takes three things: a strong advocate or inter-

nal champion who will proselytize a team; partners will-

ing to adapt to the technology; and finally, support from

the organization based on early wins.

Technology

enables us to

personalize

the message.

It’s also

about

communicating

much more

directly and

personally.

Consum

er Insight7

CI. It sounds as though a major cultural shift is needed

to become “e-enabled.”

Paula. There has to be a cultural and behavioral shift.

In the CPG world, success used to be based on the ability

to find the best consumer insight and translate it into

crisp mass media messages. Enter the Internet. Now, it’s

all about communicating on a personal level. Before, we

sold to demographic or psychographic groups of people.

Now, it’s to John Jones or Mary Smith as individuals

and self-segments or communities of very specific inter-

ests and needs. Technology enables us to personalize the

message. It’s also about communicating much more

directly and personally.

CI. What about the retail and broker side of the coin?

Paula. The same holds true for retailers and brokers.

We can communicate with them on a more personal

level than ever before. There are benefits for CPGs,

retailers and brokers to communicate more efficiently.

And together, CPGs and retailers will enjoy better

communication with the ultimate consumer.

CI. What advice would you give manufacturers

and retailers gearing up to become e-businesses?

Paula. Thanks to the Internet, the competitive set

is changing. Competitive tools are changing. The

economics of doing business are changing. And con-

sumer expectations are changing dramatically. With

the Internet, any company has the ability to personalize

and customize capabilities and services with all of its

stakeholders and potential stakeholders.

Therefore, I would suggest that we’ll all have an

opportunity to transform what we do and how we do

it, across the entire value and activity chain. Act now.

Begin to live in Internet time, shortening work/review

cycles. Acting quickly, responsively. Using e-business

tools gets us even closer to our customers, suppliers,

consumers and other stakeholders.

CI. How do you see the Internet affecting the capture

and exchange of information and insights?

Paula. Hopefully, the information industry will trans-

form itself. There is so much new information available

we must find ways to get to it, analyze it and integrate

it with other information sources. This will increase our

ability to track and better serve our consumers. In the

end, the Internet is a tool, a powerful tool but still just

a tool. Tools only become useful when skilled people

put them to work properly. CPG firms have proven to

be excellent tool users in the past, and they will be in

the future as well. ACNielsen is in a unique position—

your informational products and services have helped

us grow our businesses over the past decade. Moving

forward, new informational products and services will

be required. By using e-capabilities and tools to gather

information and insights from new data sources, I’m

sure ACNielsen will continue to be an industry leader.

Feature

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The World of e-Tailing:Where Clicks and Bricks Converge

The Internet is the fastest-growing consumer phenomenon the world has ever seen. In its short history as

a marketing vehicle, its penetration has been a nearly vertical curve compared to the adoption of other

20th century media such as radio, television or cable.

Three major factors have contributed to this unprecedented growth: 1) a robust economy which resulted

in available venture capital to jump-start new e-businesses; 2) the speed of change facilitated by almost perfect

information available in virtually real time; and 3) the extraordinary marketing measures adopted by e-businesses

which abandoned traditional business models and margin expectations.

ACNielsen has been actively involved in many aspects of this medium. Recognizing the need for a single, indus-

try-wide standard for e-commerce, ACNielsen formed a joint venture with NetRatings, Inc. to launch the first

global service for tracking audiences, advertising and user activity on the Internet. In addition, the company has

for some time been tracking the trends in e-business to better understand its potential for the CPG industry.

Leslie Warshaw

Vice President, Media and Internet Services

ACNielsen

by Bob Tomei

Senior Vice President, Marketing

ACNielsen

Consum

er Insight9

Excess or Success?Think, for a moment, what the pundits were saying just

five years ago. Some thought the Internet a fad, great

for chat and sending messages to friends. Others saw a

brave new world of marketing messages for consumers.

But who would have guessed that consumers would give

their credit card numbers online...or participate in an

auction, where the only test of a seller’s legitimacy is

based on the “self-policing” ratings of other bidders?

Look at the CPG industry. Who knew that consumers

would purchase their over-the-counter medicine

over-the-web? Or have their non-perishable groceries

delivered via UPS?

And who could have predicted that an Internet search

engine would have a market value of over $90 billion

before the year 2000? Or that an Internet service

provider (the number two or three player at that time)

would buy Time Warner?

Super Bowl Sunday was the perfect example of how

far we have come, how fast. Longstanding advertisers

like beer and soft drink companies found themselves

blocked from their usual time slots by aggressive

e-commerce firms like Netpliance.com, WebMD.com,

Kforce.com and Pets.com. The medium is the message

now more than ever, and everyone is looking for the

right model to cash in.

Expansion Mode ContinuesToday, many analysts predict that Internet growth will

continue unabated for a number of socioeconomic

reasons. Barriers to Internet adoption have been broken,

thanks to educational advertising, media coverage and

exposure through net-related organizations. Savvy net

marketers have also pressed for increasingly simple

software and technology to create a user-friendly

environment comfortable for new entries. And the

emergence of relatively inexpensive personal computers

has contributed to Internet user proliferation. Even

the federal government is fostering Net acceptance,

sponsoring programs to provide Web access to low

income families.

The CPG Equation: Just How Big Is Big?It’s hard to pin down the true size of e-enabled transac-

tions. For 1999 alone, estimates ranged from $3.9

billion to $36 billion. Some even see online sales

climbing to more than $100 billion in three years.

The message is clear: Activity will occur. How much

depends on many unknowns.

Whether one accepts the high or low number for

predicted online sales of consumer packaged goods,

the CPG industry will very soon represent one of the

largest online commerce categories—ripe for competition

by small, nimble e-businesses. In the landscape of CPG

channels, the number of dollars spent as a share of total

CPG will initially be small, representing just 1–2% of

total industry sales. This is tiny compared to today’s

“traditional” channels.

But consider the other side of the coin for a moment—

which brand manager would be comfortable losing

share points to a start-up? The number of consumers

is not increasing, meaning that the Internet channel will

have new players going after the same savvy and time-

strapped customer. The smart marketers are getting there

now, finding the right business model while the risks are

still relatively small.

Now Entering the Game...If it feels like you need a scorecard to identify the players

in the CPG game, you are not alone. During 1999, many

established grocery and drug operations began their

foray into the wired world, taking the temperature of

the water before initiating a sea change in the way they

come to market. Concurrently, many online grocers

started to tweak their offerings to better match the needs

of individual consumer segments. Still others modified

their distribution systems to achieve greater efficiencies

via central warehouses.

For example, Peapod, one of the first to use the Web

for its home-delivery grocery services, used to employ

an army of “pickers” who converged on local grocery

stores armed with Internet-generated order forms. They

literally acted as surrogate shoppers who found the best

fruit and freshest baked goods for an elite group of

connected consumers.

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Peapod reconsidered this costly van-based, personnel-

intensive model, and opted to build central warehouses

in some markets as primary fulfillment centers. In addi-

tion, non-perishable products can be ordered via UPS as

part of the new “Peapod Packages” service.

Functionality Defines FormLooking across just the grocery e-commerce segment,

the list of players is long and diverse. Participants range

from pure Internet “e-tailers” who have no physical

store locations, like NetGrocer and Webvan; to the

“click-and-mortar” models like Albertsons and Whole

Foods, where the web site has the ability to drive either

traffic or product sales through the real estate.

And within these categories, there are a a wide variety of

sizes and flavors of business models at work. There are

nationwide services and localized van delivery models.

There are same-day services and two-day services. Some

businesses charge for delivery, others offer it free. Some

services deliver around the clock to in-home lockers;

others require an authorized person on-premise to

accept the order.

What format works best? It’s

too soon to tell, but look-

ing at the experiences

of other industries

may provide a clue.

In the shopping cen-

ter world,

organizations like

the International

Council of Shopping

Centers have gone on

record stating that

“there is great synergy

between the Internet and

brick-and-mortar stores, a

synergy that is greatly bene-

fiting both retailers and

consumers.” However, as

with all consumer-driven

businesses, the ones that

survive will be the ones that

engage the consumer easily and solve a need with the

least cost and hassle.

The Cross-Over PhenomenonWhen grocery and drug stores decided to enter the world

of e-commerce, they invited a new roster of investors to

the table. Amazon.com owns a 35% stake in HomeGrocer

and a large chunk of Drugstore.com. The founder of

Borders Books backed Webvan. E*Trade financed part

of PlanetRx.com. CBS owns a 20% stake in Rx.com.

The rapid infusion of capital, pronounced upstream

potential and unrelenting media exposure attracted

marquee players to the World Wide Web. George

Shaheen left Andersen Consulting to join Webvan as

CEO. HomeGrocer.com tapped Mary Alice Taylor of

Federal Express and Citigroup as chairman and CEO.

Streamline recruited Ed Albertian of Star Markets and

Staples to head its executive team.

An Established Advantage?Some in the industry feel established grocery chains

currently enjoy a competitive edge when adding the

Internet to their operating equation. For starters,

the brand equity and name recognition built over

the years will translates into immediate top-of-mind

awareness for the site and a positioning advantage

with Internet surfers.

CNET News (news.cnet.com) concurred. Reporter Troy

Wolverton asserted that “traditional grocery stores—

which already have warehouses and established names—

could enter the market. Veterans of cutthroat price com-

petition, the traditional grocers have the potential to

wage a price war that their red-ink-running online com-

petitors couldn’t sustain.”

Survival of the FastestHowever, when business is transacted at light-speed,

the need for quick service will be paramount. A recent

article in the e-Commerce Times (ecommercetimes.com)

noted that “the e-tailers that survive will likely

be those that streamline their sites for fast, easy

navigation and that can ensure rapid—or in some

cases same-day—delivery.”

Feature

Consum

er Insight11

The More Things Change...Regardless of the primary distribution medium, brick-

and-mortar and e-businesses share many of the same

fundamental operating issues:

• product assortment • marketing plan integration

• order fulfillment • peak management

• pricing • coupon redemption

• out-of-stocks • customer service

• loyalty • trade deals

• delivery—type, rates • product descriptions

• layout

Think of an e-tailer’s website as the “store.” Questions

such as “What products should I promote?”; “What are

my destination vs. impulse categories?”; and “How

should I configure my product assortment?” are many

of the same issues traditional retailers face.

The Role of Consumer InformationWhether it’s a manufacturer deploying the Internet to

conduct micromarketing, offer direct incentives, build

brand or franchise equity...Whether it’s a retailer deploy-

ing the Internet to engender store loyalty, attract new

customers, provide meal solutions or increase shopping

frequency...there is complete agreement on one issue:

consumer information plays the critical role.

All parties are hungry for a reliable arbiter of Internet

traffic and sales information, who can apply valid

research techniques to establish industry benchmarks.

As the world’s largest market research organization,

ACNielsen is in a unique position to leverage its scan

data model, consumer panel model, retailer and manu-

facturer relationships and international presence to cre-

ate that barometer of Internet performance. In addition

to our eRatings.com venture, ACNielsen is developing

several other products to help manufacturers and retail-

ers function more effectively in the Internet channel.

Like any other Internet venture, the keys to

success for information services remain:

actionable business insights, efficient business

processes, proactive strategies, collaborative

activities, scalable and customizable products,

and customer-friendly software applica-

tions—the hallmarks of ACNielsen.

Happy e-HolidaysThe online holiday shopping season proved to be a

success for many e-commerce sites. According to infor-

mation gathered by Nielsen//NetRatings, the service

marketed internationally by ACNielsen eRatings.com,

holiday shopping sites led the fastest growing properties

during the last quarter of 1999, with eToys topping

the list, followed by Sears, JCPenney and The Gap.

UPS found its web site affected by increased holiday

season gift orders.

“Among the top holiday commerce sites we find a

number of popular brands from the offline world,”

said Allen Weiner, vice president of analytical services

for NetRatings. “Sears, CBS, JCPenney and The Gap

are learning how to exploit the universal power of

their brand names on the Web.”

Lessons for 2000 As seen throughout the holiday season, brand rules on

the Web. The top 10 domains for the season are a mix

of the best known Web names (Amazon, eToys) and

time-honored brick-and-mortar names (Toys R Us,

Barnes & Noble).

The holiday season also saw the emergence of the

importance of commerce enablers (such as comparison

sites and focused gift-giving services) as a driver to all

sectors of e-commerce. Enablers provide Web consumers

with important information to facilitate decisions,

which lead to transactions.

Several of these comparison shopping and gift sites

experienced tremendous growth in traffic between

the months of November and December, including

Giftcertificates.com, 160.9%; mySimon.com, 146.2%;

Christmas.com, 118.9%, Flooz.com, 113.3%;

Ecost.com, 109.1%; and Redenvelope.com, 86.8%.

Nielsen//NetRatings predicts

that commerce enablers are

bound to be one of the

Web’s hottest sectors in 2000.

More information on

Nielsen//NetRatings can

be found via the ACNielsen

eRatings.com link at

http://acnielsen.com.

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The Caveman ReturnsRecently, Good Morning America (abcnews.go.com) hosted an

experiment called “e-cave,” where participants were moved into

a completely empty, unfurnished apartment wearing nothing more

than a robe. Without leaving their apartment, these participants

were required to obtain food, clothing, and furnishings—even care

for their pet. Although the Internet channel is small for CPG

manufacturers and retailers, it has already changed the way

many consumers purchase, and has opened up the gates to new

competitors who could never compete on a brick-by-brick basis.

“e-commerce” or “e-business”?Many in the industry use these two

terms interchangeably. And just as the

industry, the meanings of these new

words are changing rapidly. At ACNielsen,

we define e-business as the conducting

of any business using the Internet—

whether it is information delivery, e-mail

requests, or actual exchanging of dollars

for goods. We define e-commerce as a

subset of e-business, focused specifically

on transactions over the web.

Feature

Who’s Who OnlineHere’s a look at some of the players in the online retail world:

OnlineMarkets

ProductsAdvantagesRetailer & Services

2,000 prescription drugs, 3,500 over-the-counter health and wellness, personal careproducts, vitamins, minerals, herbs, and private label products; e-mail of refill reminders;24-hr. access to registered pharmacists; 9000+ insurance plans accepted,VIPPS certified

Attached to CVS drug stores so customers can order on-line and have items delivered or can pick up at store; delivery

CVS/SomaSeattle,WA

NetgrocerNorth Brunswick, NJ

PeapodSkokie, IL

Pets.comSan Francisco, CA

WebvanFoster City, CA

HomeGrocerBellevue,WA

Drugstore.comBellevue,WA

DrugEmporiumColumbus, OH

13,000 items: dry grocery, meat, dairy, produce, specialty foods (ethnic and organic), flowers, batteries, film, videos, beer/wine, pet items

9,700 items: dry grocery, toys, videos, pet items, HBC, books, smallhome electronics

12,000-20,000 items (7,000 non-perishables): dry grocery, frozen,dairy, meat, produce, pet, beer/wine, tobacco, HBC, nationwide care packages

13,000+ items for dogs, cats, fish, birds, ferrets, reptiles, and othersmall pets; advice from veterinarians/animal behaviorists, subscriptionservice, wish lists

15,000 items: Dry grocery, meat, seafood, produce, gourmet deli,dairy, bakery, wine, prepared meals, HBC, housewares, office supplies

Delivery w/in 90 min. window; do everything inhouse (i.e., digital studio, programmers); multi-ple small warehouses service large areas

Only dry grocery items w/2–3 day FedEx delivery; national service

First and largest (on-line in 1995)

Has plans to expand into UK market(with equity investment inPetspark.com)

30 minute delivery window

Attachment with both retail stores and mailorder pharmacy

Has retail store brand recognition

16,000 health, beauty, wellness, personal care, pharmacy, and private label products;e-mail reminders to replenish regularly used products;VIPPS certified

20,000+ items: prescription and non-prescription medications, nutrition and wellnessproducts, cosmetics, HBC, around the clock pharmacy; automatic e-mail reminder service for prescriptions and preferred products; not VIPPS certified

50 United States

50 United States

50 United States

Seattle, Portland,Southern CA

National (48 states)

50 United States and U.S.Territories

San Francisco,Atlanta

Austin, Dallas/Ft.Worth, Houston,Boston, San Francisco/San Jose,Columbus, Chicago, Long Island-NY;National for Peapod Packages service

Consum

er Insight13

Market Facts and ACNielsen recently entered

into a strategic alliance to develop and imple-

ment a cutting-edge approach that links

consumer attitudes with purchase behavior in the

marketplace, called SEGWAY™. The following demon-

strates how marketers can use this analysis to enhance

precision marketing for their brands.

A primary goal for marketers is to be able to measure

effectiveness both quantitatively and qualitatively. The

old adage that “I know 50% of my advertising works,

I just don’t know which 50%” holds true for most

marketing executions.

This new alliance between Market Facts and ACNielsen

will enable marketers to do a better job than ever before

at determining how to allocate marketing resources,

develop the most meaningful messages for each consumer

segment, and build overall long-term brand equity.

Specifically, this is accomplished by providing the

decision-maker with a foundation from which not

only to determine resource allocations, but also to

distinguish consumer segments along retention and

acquisition parameters.

The Key Questions To retain current consumers, especially those who are

at risk of buying a specific competitor’s brand, one

needs to know several things.

• Who are my brand’s users, and how do I segment

and reach them?

• How much current volume do they represent for

my brand and the category?

• Which other brands do my users consider, as a likely

risk to my volume?

• How do I quantify the value of retaining households

at risk of switching?

• What messages, vehicles and tactics can be leveraged

to retain them?

• How do I measure the impact(s) of my efforts,

and integrate the findings into future programs to

continuously lift my effectiveness?

To acquire new buyers one must have similar

information.

• Who are my brand’s best non-user prospects, and

how do I segment and reach them?

• How much potential volume do they represent for

my brand?

• Which competitive brands do they currently use, as

likely opportunities to my brand’s volume?

• How do I quantify the value of acquiring such oppor-

tunity households?

• What messages, vehicles and tactics can be leveraged

to attract them?

• How do I measure the impact(s) of my efforts, and

integrate the findings into future programs to continu-

ously lift my effectiveness?

Feature

Linking ConsumerAttitudes and ActualPurchase Behavior

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Improving efficiency in advertising and promotion is

also high on the priority list for marketers, who are

continually faced with doing more with less. To achieve

this goal, one must know to whom, where and how

to spend marketing dollars and how much to allocate

to each initiative. To avoid waste, specific consumer

segments must be defined at both macro and micro

(targeted) levels to ensure long-term strategic objectives

and near-term responsiveness. Marketers must also be

able to determine the attitudinal “availability” of

consumers, not only for their brands, but also for the

competitive brands vying for “share of mind” within

the desired category.

What’s Been MissingIn the past it has been difficult to fully answer these

questions. Marketers could draw implications from

consumer attitude data about their brands, but could

never link attitudinal segments with actual marketplace

volume. “Share of wallet” and “share of mind” had

no intersection.

Making the LinkThe two key elements of SEGWAY are the Conversion

Model, a proprietary segmentation tool for which

Market Facts is the exclusive licensee in North and

South America, and the ACNielsen Homescan

consumer panel. Linking the output from these two

well-established consumer insight methods creates a

powerful new instrument for marketers.

The Conversion Model is a leading measure of psycho-

logical brand equity. The key Conversion Model concept

is “commitment,” which is defined as the psychological

bond between the consumer and the brand. Relative to

users, the Conversion Model measures the strength of

their commitment to the brands they currently use.

For non-users, it gauges whether or not they are open

to switch to brands they currently do not use.

The Conversion Model assigns households to one of

four commitment classifications for each brand. Buyers

are grouped by whether they are “secure” to the brand,

in which case they are highly likely to stay with the

brand no matter what special incentives a competitor

may offer. Or they could be “vulnerable,” meaning they

would be receptive to other brand choices.

Non-buyers are grouped into whether they are “open,”

meaning they are receptive to the brand, or “unavail-

able,” making them poor prospects for acquisition

[see Conversion Model chart].

The key to this approach is the linkage of the Conversion

Model-classified households with the ACNielsen

Homescan consumer panel. This methodology enables

each attitudinally classified household to now be viewed

in terms of the dollar and unit volume each represents at

the brand commitment level. Finally, a proprietary vol-

ume “opportunity metric” associates the likelihood of

each household’s brand-volume migration in the context

of their actual purchase behavior. For example, a

marketer may assume that it would be too expensive

to acquire all its brand’s non-users in the open market-

place. However, if receptive non-user populations

(segments) can be classified as “open” to the target

brand, and are geo-demographically identifiable and

contained, then pursuing those segments becomes

a more realistic consideration.

Calculating the OpportunityAfter establishing this linkage between the attitudinal

and behavioral data, the next steps involve quantifying

the specific category and brand volumes for each house-

hold, then applying the opportunity metric against actual

category and brand volumes observed within each com-

mitment classified household. By beginning with an indi-

vidual household’s commitment to a given brand, com-

bined with the consumption of said brand, an actionable

opportunity for gain volume or risk of loss volume can

be uniquely associated for that household.

The Conversion Model assigns households to one of four classifications for each brand

Users

Secure:Commitment-driven

Vulnerable:Market-driven

Non-Users

Open: Receptive to our brand

Unavailable:Not receptive to our brand

The Conversion Model

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er Insight15

Precision MarketingOnce the opportunity (potential migration of volume in

terms of upside/gain vs. risk/loss) is determined, the tacti-

cal planning becomes more straightforward. For example,

after identifying your “secure” consumers, you might

consider how best to target them with reward, loyalty,

cross-sell or up-sell initiatives, given that you now can

associate any potential upside volume with specific com-

petitive brands at risk, all in a geo-demographic context.

To defend your at risk volume among your “vulnerable”

consumers, you could offer segment- or household-specific,

geographically targeted loading incentives, bonus packs or

retention rewards. To acquire “open” non-users of your

brand, you could offer high-value trial and awareness

building offers, incentives and samples.

The ability to effectively deliver meaningful messages and

offers, differentiated by desirable segments of consumers,

makes each marketing initiative strategically and financially

more effective. In each case, consumers may be defined,

qualified, and targeted through virtually any available

vehicle—from database marketing, the web and other

direct-to-consumer vehicles to radio, cable/network/spot

TV and print.

Combining the strengths of the Market Facts Conversion

Model with the ACNielsen Homescan panel, marketers

now have a seamless approach to linking consumers’ atti-

tudes with their behavior in the marketplace. This will

provide an invaluable tool for more efficiently allocating

marketing resources and building overall long-term

brand equity.

Assume a category with 50 MM purchasing households.

There are three brands in the category—Brands A, B and

C. Below is a Conversion Model analysis of an actual

household. The volume that is labeled “in play” shows

the opportunity volume for Brand A and the correspond-

ing at risk volume for its competitors—Brands B and C.

[See Analysis 1].

The Conversion Model analysis in this example showed

that 20MM of the category households are “unavailable”

to Brand A—not an effective target.

Of the remaining 30 MM households, 10 MM

are “at risk” and 20 MM are an “opportunity” for

conversion to Brand A. [See Analysis 2].

Using information from the ACNielsen Homescan panel,

one can measure the volume impact of each group. It

might be tempting to go after the larger group, the

opportunity households, but the analysis shows that the

at risk households buy far more category units than the

other group. Therefore, focusing marketing efforts on the

at risk households is a much more efficient initial play.

[See Analysis 3].

At risk10 MM

Opportunity20 MM

10 MM “at risk”

20 MM “opportunity”

60 MM “at risk”

40 MM“opportunity”

Sources of Opportunity and Risk for Brand A

Brand Classification # of HH purchases

Brand A Secure 10

Brand B Vulnerable 4

Brand C Vulnerable 2

Total HH Volume: 16Total Volume “in play”: 6

Category=50 MM HH

Analysis 1:

20 MM Households Are “Unavailable” to Brand A

Analysis 2:

Remaining 30 MM Households

Retain

Acquire

In Play

Category=50 MM HH

With this approach, Brand A can further help identify thebiggest payoff for its marketing activities.

Analysis 3:

Households Volume

Category=50 MM HH

x 6 unitsPurchase =

x 2 unitsPurchase =

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There are big changes going

on in the over-the-counter

department. Believe it or

not, nutritional supplements now

account for nearly as much sales

volume as the mainstay shampoo

category, the number one Health &

Beauty Care category. As recently

as 1996, the dollar volume of sham-

poo was more than three times

larger than that of nutritional

supplements.

Now the third largest OTC

category, nutritional supplements

enjoyed $1.7 billion in sales last

year, a 19 percent jump from 1998.

Comparatively, shampoo accounted

for nearly $1.8 billion in sales—a

six percent increase. And the growth

in nutritional supplements is not just

a fad—average growth per year since

1996 is over 40 percent.

Even with the overwhelming growth

of the nutritional supplements catego-

ry, opportunity for future growth

looks good, given that household pen-

etration for this category is still under

50 percent. Category penetration is

skewed to middle-aged and older

adults, including childless couples and

empty nesters, segments that are

growing rapidly.

Big Changes in OTC

Consum

er Insight17

Category DefinitionsNutritional Supplements

Products taken for nutritional defi-

ciencies or to supplement the diet.

This could be because of illness or

deficiencies in the diet. Some of the

products may also include a vitamin

ingredient to help absorption into

the body. Examples include alfalfa,

ginseng, garlic oil, and antioxidants.

Brands include Centrum Herbals,

One-A-Day, Ricola Herbal Health.

Protein Supplements

Products which are taken to supple-

ment a protein deficiency or to add

protein to the diet. These products

are also used as dieting aids. Brands

include Twinlab RX Fuel and

Metabolic II.

The dynamic upswing of the

nutritional supplements category

is fueled by an increasing consumer

emphasis on health, fitness and nutrition.

In contrast to nutritional supplements’

excellent growth, appetite suppressant diet-

ing aids experienced a 13 percent decline

last year. Many consumers are moving to a “whole health”

way of managing their diets—pursuing weight loss through

healthier foods.

A recent trend toward “condition-

specific” products is also responsible

for the momentum in the nutritional

supplements category. Products such

as gingko, which is claimed to improve

memory, and St. John’s Wort, used to

treat minor depression, are having a

significant impact on the category.

The whole health trend is also positively impacting

another OTC category: protein supplements. In 1999,

protein supplements grew 51 percent

across all channels, with a stag-

gering 146 percent increase in the

mass channel alone. The profile

of protein supplement consumers

differs greatly from that of nutri-

tional supplement users, with most

protein supplement usage coming

from young, single consumers,

often to add a boost to their fitness regime.

These trends in OTC products appear to be here to stay.

Through new product introductions, promotions and

education, the category shows signs of continued healthy

growth. New nutritional supplements

are being introduced at a rapid pace,

consumers are becoming more dedicated

than ever to a healthy way of living,

and mainstream retailers are devoting

more shelf space to such products

than ever before.

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for Retail TrackingBusiness Tools Is your company having difficulty matching salesforce performance to regionally defined consumption data?

ACNielsen’s Advanced Sales Areas can help. New fromACNielsen, Advanced Sales Areas are a highly customizablecapability to create sales areas by definitions other than thestandard “state and county” method, making your datareporting aligned with the responsibilities of your salesforces or brokers.

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Snapshots Plus helps you to:

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Consum

er Insight19

SAVE THE DATE!Plan now to join hundreds of representatives from the industry’s top retail andconsumer packaged goods companies at ACNielsen’s Category Masters Conference.

Category Masters is the premier industry event to learn and exchange ideas onconsumer focused business issues, such as globalization, retail consolidation,e-commerce, loyalty marketing and assortment. Through workshops, presentations and networking, you will gain the tools to convert your conference experience intoactionable solutions that will impact your organization.

A Category Masters conference brochure and registration form will be mailed to you inMay. Conference registration will also be available on the Internet as of June 5, 2000,at http://acnielsen.com.

We hope to see you at Category Masters!

Make Plans To Attend Category Masters™

August 13–16, 2000Disney’s Contemporary Resort

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C AT E G O RY

MA S T E R S

Data

Trade AreasSuper-

SCANTRACKHomescanProduct

Reference

Store chars.Product chars. Cost, SpaceInventory

CategoryManager

NITRO

SPACEMANSuite

PRICEMAN

SPACEMAN Professional and SPACEMAN Enterprise

SPACEMANConnectivity

RetailWarehouseSolution(RWS)

InformationManagement

InsightDevelopment

In-storeImplementation

InternetDelivery

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for RetailersBusiness Tools

Choosing the right category management approach to meetyour specific financial and marketing goals can be a daunting task. That’s why ACNielsen created intuitiveprocesses to help retailers and manufacturers sort throughthe full spectrum of integrated category management solu-tions in order to develop, evaluate and implement categorystrategies that address individual needs.

From initial category analysis all the way to in-store implementation, ACNielsen can help you design a categorymanagement program that best meets your needs and organizational structure. ACNielsen’s Analysis toImplementation approach starts with access to high quality data that directs store decisions. Measuring all retailchannels from supercenters to convenience stores,ACNielsen’s syndicated data coupled with consumer paneland retailer data provide consumer-focused results thatyield real opportunities to improve sales and profits.

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Management of data is a critical component to categorymanagement success. With products such as ACNielsen’sRetail Warehouse Solution (RWS), ICE, PRICEMAN™, andthe SPACEMAN® Suite, ACNielsen organizes the data tooffer ad-hoc reporting and access tools that help you easilymine and analyze the data.

ACNielsen’s expertise at drawing strategic insights from thedata is unmatched. By leveraging a full-line of analysistools, marketing and sales professionals can develop itemassortment, pricing, promotional and shelf space programsthat optimize category performance, meeting both retailerand manufacturer objectives. Once objectives are defined,ACNielsen can provide the right tools to implement in-storeexecution.

From Analysis to Implementation, ACNielsen provides thepathway that leads you to successful category managementsolutions.

SPACE PLANNING

FILES

SYNDICATEDDATA

ACCOUNTSPECIFIC

DATA

LOYALTYCARDDATA

PANELDATA

REPORTINGChartsReportsExports

DATAMART

ABC Now

ABC Now Lite

Logistics Optimizer

Logistics Lite

Space Optimizer

Space Lite

Assortment Optimizer

Assortment Lite

Price Optimizer

Price Lite

Promotion Optimizer

VISUAL EDITORData Cleansing

DefaultingUpdating

Promotion Lite

Consum

er Insight21

for AnalyticsBusiness Tools

Efficient assortment today is a $6 billion opportunity. And understanding assortment and Activity Based Costing(ABC) is key to arriving at shelf profitability.

The recent alliance between ACNielsen and Milton Merl & Associates combines powerful Performance Optimizerapplication with ACNielsen’s industry-leading assortmentmodeling capabilities. The combination of these powerfultools fills a major gap in the industry by clearly articulatingthe opportunities for using the most appropriate items tosatisfy store volume at increased profitability.

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Performance Optimizer Now Available with ACNielsen Analytical Models

See us on the Web http://acnielsen.com/ci or call 1.800.988.4ACN

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The SPACEMAN® Suite Sets the Standard for Visual MerchandisingContact your ACNielsen representative today for a freeSPACEMAN demonstration CD or visit our web site athttp://acnielsen.com/merchandising/

Evaluate multipleplanogram scenariosand identify the planthat best meets yourcategory financialobjectives. Theninstantly view youroptimal planogramwith the Restore key.

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See us on the Web http://acnielsen.com/ci or call 1.800.988.4ACN

SPACEMAN products help you to:Increase Productivity• Automate routine merchandising tasks to provide more time

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Make Better Business Decisions• Implement a total category management solution.

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Effective visual merchandising plans are a sure way to maxi-mize profits on a store-by-store basis. Today’s sophisticatedmerchandiser must design planograms that deliver financialobjectives for each category and each store and deliver themquickly and efficiently to the target audience. With TheSPACEMAN Suite, these complex tasks are made easy.

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for MerchandisingBusiness Tools

Consum

er Insight23

See us on the Web http://acnielsen.com/ci or call 1.800.988.4ACN

for Consumer BehaviorBusiness Tools

Category Management ApplicationsNow Available! ACNielsen’s Syndicated Category ManagementApplications are now available for 2000. These three keyHomescan applications are guaranteed to represent moreconsumer shopping trips than any other category manage-ment tool anywhere. You simply cannot find a more complete look at consumer shopping behavior across channels than with ACNielsen.

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ACNielsen’s Homescan Syndicated Category ManagementApplications contain many added upgrades for 2000—including a mid-year update. Talk to your ACNielsen representative today for more information.

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Fresh Foods Channel✽ Facts allows Marketing and Salesteams to compare and contrast basic shopping measuresacross channel shoppers and category buyers within keyretail channels and accounts.

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Used in conjunction with ACNielsen’s other syndicatedreports, Consumer✽ Facts, Channel✽ Facts and AccountShopper Profiler, you can gain a complete sales story forkey retailers in each market.

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Decision Support ServicesBusiness Tools

See us on the Web http://acnielsen.com/ci or call 1.800.988.4ACN

Use the Web to Receive YourMarketplace ReportsACNielsen NetDispatch™ is the industry’s premier subscrip-tion service that lets you receive marketplace insights via the Internet. Leveraging the capabilities of the Web,NetDispatch maximizes productivity and business intelli-gence by empowering you to select the unique products,markets, facts and time periods critical to your decision-making. NetDispatch automatically places these selections in either syndicated and/or custom templates, allowing youto quickly download and identify opportunities in productassortment, pricing and promotion.

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Imagine the gains in productivity!And since WorkstationInformation✽ Server 2.0 leveragesMS-Office, think of the reductionin application cost and training.

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Use NetDispatch to:

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See ACNielsen at theseupcoming industry events.

April8-13 Western Association of

Food ChainsAnnual ConventionMarriott Desert Springs ResortPalm Desert, California

29-3 National Association of Chain Drug StoresAnnual ConferenceThe BreakersPalm Beach, Florida

May7-9 Food Marketing Institute

Supermarket Industry ConventionBooth # 5330 – North HallMcCormick PlaceChicago, Illinois

18-21 Consumer Healthcare Products AssociationAnnual Executive ConferenceThe GreenbrierWhite Sulphur Springs,West Virginia

June9-12 Grocery Manufacturers

Of AmericaExecutive ConferenceThe GreenbrierWhite Sulphur Springs,West Virginia

25-28 National Association of Chain Drug StoresMarketplace ConferenceBooth # t/b/aNew Orleans Convention CenterNew Orleans, Louisiana

Upcoming Industry Events

Sales and marketing success isn’t aboutdata. It’s about understanding whatmotivates people.

That’s precisely the kind of insight and knowledge ACNielsen brings to your business.

Combined with superior client service, we deliver the highest quality and breadth of information, technology expertise and analytical solutions.

We offer capabilities in consumermanagement. Price management.Promotions. Assortment management.Category management. Loyalty marketing.And much more.

All so you can make better businessdecisions and get even closer to yourcustomers.

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