A solid fact-base
Creating the fact-base as a vital requirement for route-to-market insight and strategy development.
Jack de Wet, a business development associate at Frontline Market Research and a route-to-market specialist says, “To create the fact-base required to plan for improved route-to-market, you need to have a clear idea of the end-game – what ‘good looks like’ for your products and markets.”
What good route-to-market strategy and execution looks like
To do this one needs to answer the two questions: What is the picture of success in route-to-market? What is the endgame for long-term, sustainable solutions?
“A good route-to-market project design has to be tailored to bring you as close as possible to achieving the important elements for success in channels,” adds Jack.
These elements are:
- Getting your product within reach of as many potential users as possible.
- Getting the right product to each market or channel efficiently and profitably.
- Developing a channel architecture (structure) that enables you to identify and unlock growth opportunities.
- Fostering customer relationships that are focused on business development.
- Fitting your service operations to the customer’s business process.
- Motivating your sales and service employees to focus on growth-enhancing activities.
- Targeting your assortment to the channel’s key shopper segments.
- Getting your fair share of position, display space and exposure in the outlet.
- Gearing your merchandising and activations to the shopper’s needs and consumption occasions.
- Providing a superior service and buying experience for your customer and for their customers.
A good route-to-market fact-base is built around these principles.
Jack stresses that before you embark on a route-to-market exercise, you need to know and decide beforehand on what the optimal channel architecture is for your business and for your category.
Channel architecture
Jack further explains that a scientifically robust segmentation method is a pre-requisite to achieving a coherent channel architecture. Channel segmentation is a process of grouping retailers, dealers or customers into identifiable target units based on their shared needs, and shared buying and trading behaviors. This reveals growth opportunities and threats which can be addressed through tailored action.
“Identifying or crafting the channel structure for the product category is at the centre of route-to-market measurement,” says Jack.
More specifically, channel segmentation enables you to:
- Establish competitive advantage in key market clusters
- Compete on a wider front
- Address the needs of distinct customer groups
- Make more efficient use of marketing resources
- Design more responsive products
- Identify market gaps
- Execute campaigns that are “rifle-shot”, not “scatter gun”
- Tailor executional activity to distinct consumer groups
- Deploy strategic discipline further down the line
Should the marketer already have an established channel architecture, they would need to modify the fact-base, analysis and strategy to conform with this architecture, says Jack. However, for now, we will assume that the required task is to construct a channel architecture from scratch.
There are four possible points of departure (or segmentation frameworks) that govern the design of the channel architecture, namely:
Operations-based, Customer Value-based, Trade profile-based and Shopper mission-based.
Let us take a look at each of these.
Operations-based Channel Architecture
Description: Here, channel segmentation is based on the supplier’s sales & distribution structure, resources and operations. This approach is inward-looking, eschewing data-driven market feedback. Some companies merely conform with their distributors’ (or other third parties’) channel structure.
Base principle: The segmentation is internally driven by the product-supplier’s operational considerations. This is often the result of arbitrary groupings, or has evolved organically, or is based on the realities of the distribution apparatus i.e. depot locations, delivery routes, truck sizes.
Advantages and disadvantages: This approach is useful where sophistication and calibration is not required, or where sales and distribution is heavily invested in an existing framework. But there is often a lack of commercial rigour in the design, which can lead to unprofitable service models and delivery routes.
Information sources required for RTM planning:
customer / trader service needs survey for service modeling
cost-to-serve data for profitable routing design and for channel strategy.
Customer Value-based Architecture
Description: Outlets are ranked in terms of their sales value and buying patterns. The rank-order scores are used to group customers into tiers. Examples of tiering frames are “tier 1, tier 2, etc.”, or “platinum, gold, silver, bronze, etc.” An appropriate service plan and business objectives are applied to each tier.
Base principle: Customer value management drives the customer service model. This approach requires that the company possesses financial data on every customer, or delivery drop-point – at the very least, sales value data, but, ideally, servicing costs as well. This allows the company to group customers based on their contribution to sales and / or profitability.
Advantages and disadvantages: The upside is that this approach drives the outlet to its optimal or lowest-cost service model, to preserve profitability. E.g., driving smaller customers to buy at wholesalers, saving on distribution; or driving customers to buy online, to reduce the cost of sales. The down-side is that the view is internally focused, and not market-related, which can miss significant opportunities for growth.
Information sources required for RTM planning:
customer / trader service needs survey for service modeling
individual customer sales data in value and volume
cost-to-serve data for profitable tiering frames.
Trade profile-based Channel Architecture
Description: This approach is about developing segmentation to fit the characteristics and trading practices of the retailer. In the case of modern trade, some chain groups go as far as to influence or coerce their suppliers to conform to their own view of the market and to their own internal operations. The supplier organizes their channel operations accordingly(e.g. stores classified according to the retailer’s buying regions, or their business units – e.g. mass merchandise stores, supermarkets, mini-markets, convenience stores. With independents, the marketer organizes according to the trading type e.g. wholesale vs retail; or off-premises consumption vs on-premises consumption (these are usually split into sub-channels – e.g. restaurants, bars, etc.)
Base principle: For chain groups: using the retailer’s segmentation to design the assortment and service model for the outlet. For independents: using observable characteristics of the store and its trade e.g., one could segment bars into micro-bars; budget (low-end) bars; upscale bars; vibe bars; etc.
Advantages and disadvantages: Fits the trading processes and the business orientation of the customer or chain group, providing operational convenience. The key disadvantage is that this is a one-size-fits-all approach and does not necessarily suit the product category.
Information sources required for RTM planning:
- Directly serviced outlets: these require detailed outlet-level information, to allow each outlet to be classified into its appropriate channel.
- Indirectly serviced outlets: tailored surveys would be required for estimating and classifying outlets and channels that are serviced by wholesalers or by uncontracted distributors.
Shopper mission-based architecture
Description: Channels are segmented according to shopper missions i.e., the shopper / patron’s reason for the shopping trip as well as the usage occasion underlying the trip.
Base principle: This method is market-related i.e., how the shopper sees the category landscape. It is predicated on the principle that different channels are selected for different types of shopping trip. The marketer’s challenge is to place the appropriate assortment within each channel, to meet the implied requirements of the shopping trip.
Advantages and disadvantages: Fits customer service and supplier operations with how and why shoppers shop in a particular channel e.g., on-the-go, take-home, socializing with friends, after sport. The disadvantage is that these distinctions are blurring in some channels (modern trade) as stores have broadened the range of shopper missions that they want to capture – so you get the ‘multi-mission’ store. However, points-of-buying within the store become differentiated shopper-mission environments e.g. refrigerator vs deli for convenience meals.
Shopper mission-based architecture can be complex and challenging, but is usually the most effective in identifying market gaps and growth opportunities.
Information sources required for RTM planning:
This approach requires shopper / patron research to be conducted in outlets. Shopper missions, shopper behaviour and shopper profiles form the basis for classifying the stores into channels.
Contents of the fact-base
Jack says the usual insight “deliverables” for the fact-base in route-to-market projects are:
- Universe size (number of outlets)
- Channel architecture
- Category availability and size (in volume and value)
- Brand availability and market share
- Price and display competitiveness.
- Sources of stock purchase and how products reach the market
- Cost-to-serve and the profitability of channels
- Channel service and channel needs
- Distributor and partner performance and needs
- The buying environment – the ease and convenience of shopping the brand
- Shopper profiles and shopper behaviour
- The consumption environment (needs and usage occasions that drive the purchase)
He adds, “Not all of these ‘deliverables’ may be necessary for the product and its markets – some prior knowledge of the market, as well as the needs of your business, is required in order to select the appropriate measures for the situation.”
Constructing the Fact-base
The fact-base requires a meta-analytical approach. Jack explains, “Several research and information sources are integrated into a holistic structure for data-modelling and insight development. These information sources can be grouped into external sources and internal sources.”
External information sources
The external sources involve components made up from:
- survey and audit research
- secondary sources (‘web scraping’ and ‘desk’ research)
“Obviously not all of these would be necessary for most products – the nature of the market and the category will determine which external components are required for the fact-base,” adds Jack
There are a larger number of ways in which external information can be gathered. Jack says that no single aspect answers all the questions and so he advises that you ‘mix-and-match’ the appropriate combination of methodologies to obtain the following:
Market Structure
The size of the universe; the availability of products and brands; outlet classification and profiling.
Category and Brand Metrics
The size of the category in volume and value; market participants (competitors); market share; product range – pack sizes, format, variants.
Point-of-purchase
Displays (position and location); prices; promotions and activations.
Channel Needs Distributor or Partner Needs
Product assortment; operations (ordering, delivery, payments, etc.); supplier marketing support and investment; category development and demand creation; trading conditions and operations; business processes; customer relationships.
Shoppers
Items purchased; prices paid; shopper profile (demographics); the shopper mission (reason for visiting the store); buying behaviour; decision processes.
Consumers & the consumption environment
It is sometimes necessary for a route-to-market study to go beyond the shopper’s basket, to the consumption environment. This would be called a ‘route-to-consumer’ study, where buying and consuming are far apart in space and time. The focus is on the who? what? where? when? why? of consumption. In on-premises consumption the shopping and consumption environment are the same, while in off-premises consumption they are separated and usually require different information sources.
Internal information sources
“Here data is gathered from the company’s official records and data as well as from its management team,” says Jack. The most common sources are:
Company sales stats and warehouse shipments
Customer and channel data (sales and cost-to-serve)
Company Customer lists
Conclusion
In conclusion Jack says, “Having followed all or some of these guidelines one would now have a solid fact-base from which to generate insights into the market and plan your execution strategy.”
Please feel free to contact Jack de Wet for more information on email jack.dewet@frontlineafrica.com or call tel +27 (0)86 999 0407 or mobile +27 (0)78 422 9479
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