B ildi t i bl l h iBuilding sustainable value chains: The importance of being … relevant!

Professor Andrew Fearnea.fearne@kent.ac.uk

Centre for Value Chain ResearchKent Business School, University of Kent

Outline

The challengeg

Value chain design

Value chain management

The Power of consumer insight

Conclusions

WHAT WILL YOU REMEMBER?REMEMBER?

Remember this...

Assumptions are the mother of all f*** ups!

Looking at the market in aggregate leaves us blind to the realities of ‘people’ and ‘products’

Remember this...

The blind are leading the blind... into the commodity trap!commodity trap!

Organisations must change the way they think the way they take decisions and thethink, the way they take decisions and the way they behave

Consumer insight Consumer insight is the essential missing ingredient

Remember this…

Look more closely, listen harder, speak more clearlyLook more closely, listen harder, speak more clearly

THE CHALLENGE

TodaySustainability• Qualityy

• Size, Colour, Taste, Texture, shelf-life…• Who knows?

• Service• Service• Fullfillment!• How high should I jump?

V l• Value• Cost• To whom?• For what purpose?• How much did I lose?

And tomorrow…?Sustainability

Sustainability

SocialSocial

FOOD

EnvironmentalEconomic EnvironmentalEconomic

Sustainability

Ed tiEd ti

SocialSocialHealthHealthEthical LabourEthical Labour

EducationEducation

C itiC iti

Corporate ValuesCorporate Values

Succession Succession PlanningPlanning

CommunitiesCommunities

LabourLabour

ClimateClimate

FOODTransportTransport

Corporate Corporate Ecological Ecological

Climate Climate ChangeChange SoilSoil

EnvironmentalEconomic EnvironmentalEconomicSupermarketsSupermarkets

EthicsEthics FootprintFootprint

Energy SourcesEnergy SourcesWasteWasteProfitsProfits

ConsumersConsumersM k tM k t

Land UseLand Use

WasteWaste

Market Market AccessAccess WaterWater BiosecurityBiosecurity

Adapt or Die

It is not the strongest of the species that survive, nor the most intelligent

We only have two sources of competitive advantage:• The ability to learn more about ournor the most intelligent,

but the one most responsive to change

• The ability to learn more about our shoppers faster than the competition

• The ability to turn that learning into action faster than the competition

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action faster than the competition

Charles Darwin Jack Welch

Key Shopper TrendsSustainabilityThe Paradox of Choice:  Increasing choice wanted but it fosters 

confusion and indecision .. Macro desire for simplicity and orientation p ymore important now for shopping than we think 

Time Stealers : Breakdown in routines and structures has led toTime Stealers : Breakdown in routines and structures has led to ineffective use of time and increasing demand for ‘more time’. Shopping is under threat as an enjoyable activity

Complex Convenience : Convenience increasingly means different things to different people, increasing desire for personal, bespoke solutions, fuelled by innovative brands & new shopping channelssolutions, fuelled by innovative brands & new shopping channels

The Rise of the Smart Shopper : Knowledge is becoming the new currency and being ‘savvy’ when shopping has become a desirablecurrency and being  savvy  when shopping has become a desirable trait, price is no longer the easy signal of quality 

Source: Dynamic Reasoning

Money is not the only currency... BUT

Empty nesters –self-indulgence

YoungYoung mothers –food safety

Young adults & pensioners – diet

& h lth& health

What is your value proposition?

• The more relevant the product or • The more relevant the product or service the greater the demand

Value Chain DesignValue Chain Design

Segmentation and differentiation

Variation in demand within and between customersand between customers

D i f th ‘ t id i ’Design from the ‘outside in’

Source: Accenture (2009)

Design from the outside in

• Different customers pursue different strategies and p ghave different needs at different times

• Defend/grow market share• Build loyalty• Build loyalty• Extend product range• Reduce risk

Th i i i l h t d• Their consumers are increasingly heterogeneous and unpredictable

• The value chain must be responsive and ‘fit for• The value chain must be responsive and fit for purpose’

• This will not happen without design, commitment, pp gresource allocation, management and control

• Design needs to embrace strategy, structure and process

Value Chain Design (3-10)

Value Chain ManagementValue Chain Management

VCM – Principles

Allocation and utilisation of resources that is hard for others to contest and even harder to replicate

Add more value (effectiveness)( )

At lower cost (efficiency)

Faster (responsiveness)

Sustainably Sustainably

Economic Environmental Environmental Social

Paradigm Shift

Area ‘Conventional’ Approach(I t ti )

Value Chain Approach(O t d l ki )(Introspective) (Outward looking)

Focus Narrow focus on material procurement and logistics

Wider strategic focus linked to future growth

Make‐buy Reactive, cost minimisation Pro‐active, linked to core competence

Design Suppliers ‘build to print’ Key suppliers have major design responsibility

Quality

Business

Inspect quality in

Adversarial short term contracts

Certify supplier processes

Co operative long termBusiness Relationships

Adversarial, short‐term contracts Co‐operative, long‐term partnerships

Supply Chain Paradigm

Value Chain Paradigm

Value Chain Management – Zespri Style

Grower/Supplier Partnerships

Customer Relationships

mer Positioning

mer Positioning

Customer

Customer

Core Competencies Value Design Products Distribution

ChannelsConsumer Segments

e e

Consumer PositioningConsumer Positioning

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Costs RevenueSuccess/FailureS

tren Co

Innovation

Valu

Str

en Co

Innovation

Valu

Securing Shareholder & Grower ReturnsSecuring Shareholder & Grower Returns

Adapted from Osterwalder & Pigneur 2005 Adapted from Osterwalder & Pigneur, 2005

Key Enablers

• Strategic Alignment

• Value Chain Visibility

• Collaborative Relationships

• Consumer InsightConsumer Insight

Strategic alignment

Drives resource allocation

Strategic alignment

Tesco Appeal to all customers

Sainsbury’s Appeal to all customers Breadth before depth Stock unique linesq Competitive in the market Simple and logical

f First for customers Relevant for customers

How aligned are you?

• In depth knowledge of your customers • Know your product but not your market• In-depth knowledge of your customers• Product ranges for all store formats• Innovation exclusive to customer

• Know your product but not your market• Duplicate the range• Stifle NPD with process

• Speed to market with new products• Dedicated resource (account manager)• Openness and honesty

• Devote shared resource to the category• Keep information to yourself• See change as more workOpenness and honesty

• Willingness to change• Investment to grow the business

P ti th t th t

See change as more work• View investment as risk• Are unable to segment your market

• Promotions that grow the category• Resources to deliver projects/plans• Market expertise

• Promote for short-term category share• Require customer to deliver your plan• Manufacture product with no real skill

Value Chain Thinking (2-23)

p

Value Chain Visibility

CREDIT CARDCREDIT CARD

RetailerManufacturer DistributionSupplier Consumer

CREDIT CARD

1234 5678 90121234 5678 9012VALID FROM GOOD THRU

XX/XX/XX XX/XX/XXPAUL FISCHER

XX/XX/XX XX/XX/XXPAUL FISCHER

RetailerManufacturer DistributionSupplier Consumer

CREDIT CARD

1234 5678 90121234 5678 9012VALID FROM GOOD THRU

XX/XX/XX XX/XX/XXPAUL FISCHER

XX/XX/XX XX/XX/XXPAUL FISCHER

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

TimeTime Time TimeTimeTimeTime

R d t i t i j t d d dReduce uncertainty in projected demand

Collaborative Relationships

Commitment

Trust

Co t e t

Inter-dependence

The Power of C I i hConsumer Insight

Consumer Insight

Consumer insight is an essential ingredient for success, no matter how good the product is, g p

Differences in purchasing behaviour between segments may be significant and should not be be significant and should not be assumed

Heterogeneous segments Heterogeneous segmentsrequire differential treatment

The more limited the (marketing) The more limited the (marketing) resources the moreimportant it is to target them

What do we need to understand?

Shopper insight Vs Consumer Insight

Insight = Who + What (shopper behaviour ) + Why (consumer behaviour)

Shopper Consumer In HomePurchaseDriven by Shopper Marketing:Path to Purchase & Point of Purchase activity

Without a link or trigger to drive consumption products can sit in cupboards/ fridges/ on shelvescupboards/ fridges/ on shelves..

dunnhumby Data

Weekly supermarket purchasing behavioury p p g

17 million shoppers (40% of UK households)

Over 30,000 food products

Segmented by: Segmented by:

Geo-demographics (Cameo) LifestageRegion (TV) Retail Channel

Detailed Lifestyle Retail FormatSimple Lifestyle

Who buys avocados?

180

140

160

80

100

120

40

60

80

Older Adults Older Families Young Adults Young Families Pensioners

0

20

Medium Avocado Each Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe

g g

Medium Avocado Each Ps

Tesco Medium Rrte Avocado Each (C)

Tesco Baby Avocados Pack

Tesco Finest Large Avocado 2Pk

Tesco Large Fairtrade Avocado Each

Tesco Perfectly Ripe Avocado Pack

Source: dunnhumby (2010)

Who buys avocados?

450 Convenience Finer Foods Kids Choice Mainstream Price Sensitive Traditional

350

400

200

250

300

100

150

200

0

50

Medium Avocado Each Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly RipeMedium Avocado Each Ps

Tesco Medium Rrte Avocado Each (C)

Tesco Baby Avocados Pack

Tesco Finest Large Avocado 2Pk

Tesco Large Fairtrade Avocado Each

Tesco Perfectly Ripe Avocado Pack

Source: dunnhumby (2010)

Who buys avocados?

450Young and Affluent Singles Wealthy Retired Neighbourhoods

Affluent Home Owners Smaller Private Family Homes

350

400

Affluent Home Owners Smaller Private Family Homes

Comfortable Mixed Neighbourhoods Less Affluent Families

Less Affluent Singles and Students Poorer White and Blue Collar Workers

Poorer Family and Single Parent Households Poorer Council Tenants - Many Single Parents

200

250

300

100

150

200

0

50

Medium Avocado Each Ps Tesco Medium Rrte Tesco Baby Avocados Tesco Finest Large Tesco Large Fairtrade Tesco Perfectly Ripe Medium Avocado Each Ps Tesco Medium Rrte Avocado Each (C)

Tesco Baby Avocados Pack

Tesco Finest Large Avocado 2Pk

Tesco Large Fairtrade Avocado Each

Tesco Perfectly Ripe Avocado Pack

Source: dunnhumby (2010)

What do they buy?

% Change (Yr on Yr)Sales Distribution Average Price

Market Value Avocado Each 1.2 ‐86 ‐33 ‐16 0.8% 17.2%Baby Avocados Pack 14.4 ‐9 16 ‐8 3.4% 38.9%

% Change (Yr on Yr)Description Share of sales Penetration Repeat rate

Baby Avocados Pack 14.4 9 16 8 3.4% 38.9%Finest Large Avocado 2Pk 2.2 ‐91 ‐15 ‐1 0.6% 18.3%Large Fairtrade Avocado Each 3.7 ‐8 11 3 1.0% 22.9%Medium Avocado Each 16.5 ‐58 ‐4 20 4.6% 36.0%Medium Ripe & Ready Avocado Each (C) 5.2 23 18 4 1.6% 35.8%Perfectly Ripe Avocado Pack 37.7 ‐ ‐ ‐ 5.1% 42.3%Perfectly Ripe Large  Avocado Each 15.6 ‐ ‐ ‐ 3.2% 40.8%All Products 100 2 7 0.3 12.8% 55.0%

Annual sales = £13mllnSource: dunnhumby (2010)

Prices range from £0.5 to £1.84Only 12% of shoppers purchased avocados and almost half never came back!

What do they buy?

350,000

250,000

300,000

150,000

200,000

50,000

100,000

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Tesco Medium Avocado Each Tesco Perfectly Ripe Avocado Pack Tesco Baby Avocados Pack Tesco Finest Large Avocado 2Pk

Source: dunnhumby (2010)

What else do they buy?

Product Name Number of Baskets SignificanceChef N Vibe Avocado Slicer 1,430 29.1%Ch i t Mild Ch dd Ch 1 720 17 7%Chevington Mild Cheddar Cheese 1,720 17.7%Charedi Whole Milk 1 Litre 910 17.6%Chevington Grated Mild Chedcheese 400G 1,630 17.3%Osem Israeli Toasted Couscous 250G 1,180 17.3%Yutaka Sushi Rice 500G 9,230 16.9%Yutaka Sushi Nori 11G 12,770 16.8%Yarden Houmous & Tahina500G 2,690 16.7%Charedi Semi SkimmedMilk 1 Litre 1,080 16.6%Charedi Semi Skimmed Milk 1 Litre 1,080 16.6%Gefen Classic Marinarapasta Sauce 737G 840 16.4%Telma Chicken Stock Cubes 45G 3,470 16.3%Chevington Light Cheese 950 16.0%Y d H E t 250G 4 340 15 9%Yarden Houmous Extra 250G 4,340 15.9%Yarden Mini Turkey Kabanos 250G 2,060 15.9%Tivall Veg Slce Roast Chicken Style 100G 1,410 15.7%World Harbours Teriyaki Sauce & Marinade 510G 720 15.7%Yarden Red Cabbage Mayonnaise 250G 2,760 15.6%Chevington Grated Light Cheese 400G 1,510 15.4%Chevington Cottage Cheese Low Fat 227G 630 15.4%Prince Tehina Concentrate 500G 810 15.1%Prince Tehina Concentrate 500G 810 15.1%

Source: dunnhumby (2010)

What magazines do avocado shoppers read?

Product Name Customer Count Product PenetrationHello 16,870 0.3%,Closer 16,650 0.3%Grazia 14,770 0.2%Take A Break 11,760 0.2%Heat 14 440 0 2%Heat 14,440 0.2%Ok! 14,220 0.2%Now 13,230 0.2%Womans Weekly 9,420 0.2%W 11 350 0 2%Woman 11,350 0.2%Look 12,250 0.2%Womans Own 10,280 0.2%Best 8,330 0.2%Woman And Home 10,420 0.1%New Magazine 8,540 0.1%Bella 7,610 0.1%Good Housekeeping 9,350 0.1%Reveal 7,990 0.1%Bbc Good Food 7,900 0.1%Ok Bumper 7,900 0.1%Chat Magazine 5,130 0.1%C at aga e 5, 30 0 %Source: dunnhumby (2010)

How can consumer insight help you?

• Input to overall business planning

• Input to the development of new propositions

• Input to the development of a marketing plan

• Catalyst for changing relationships with the buyer y g g p y

Buyers have one common goal: profitable growth

ales

Val

ue s

a

Current category performance

Time

Simple approach to margin growth

M it ld O ti RRPDriving

lMax no. units sold x Optimum RRP value sales

Lowest realistic cost to sell Low costLow cost through supply chain

Different ways drive value sales

Encourage new Create new consumption  Encourage 

shoppers toEncourage shoppers topeople to shop 

the categoryoccasions, new reasons for people to buy

shoppers to buy more/trip, larger packs

shoppers to spend more/ trip, trade up

HH Penetration Frequency of Purchase

Vol Weight of Purchase

£ Weight of Purchase

Who knows what these are?

Ideal scenario for retailers and suppliers

WantWant

BuyEat again

EatEnjoy

And the faster the better!And the faster the better!

ConclusionsConclusions

Conclusions

Assumptions are the mother of all f*** ups!

Looking at the market in aggregate leaves us blind to the realities of ‘people’ and ‘products’

Conclusions

The blind are leading the blind... into the commodity trap!commodity trap!

Organisations must change the way they think the way they take decisions and thethink, the way they take decisions and the way they behave

Consumer insight Consumer insight is the essential missing ingredient

Conclusions

Look more closely, listen harder, speak more clearlyLook more closely, listen harder, speak more clearly

THANK YOU!

Prof. Andrew FEARNE

Centre for Value Chain ResearchCentre for Value Chain ResearchKent Business SchoolUniversity of KentCanterburyCanterburyCT2 7PE

01227 82 48 40 01227 82 48 40 a.fearne@kent.ac.uk