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3/16/2004
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Demand Chain Performance Management in Consumer Goods

The marketing-IT-operations ecosystem dynamic is leading to change

VentanaView™

Summary

Consumer Goods (CG) organizations now have marketing, operations, and IT organizations with conflicting motivations, technical platform architectures, application requirements, budget constraints, and vendor alliances. This is a result of a decade of implementing disparate and silo-ed systems to leverage data and sophisticated analytics to improve performance. Ventana Research has identified within the Consumer Goods (CG) market a growing demand for more comprehensive demand chain solutions targeting market performance management across the enterprise. Vendors have an immediate opportunity to establish a leadership position in this growing market.

Assessment

Consumer Goods (CG) organizations long ago embraced the value of analytical applications and business intelligence. Marketing-driven organizations were pioneers in adopting technology for dealing with external data sets from syndicated data providers and the information explosion that came with commercial availability of detailed scanner-based sales data. What began as a performance management technology revolution in the Consumer Packaged Goods (CPG), or grocery, sector has in recent years expanded significantly across virtually all CG sectors, and has established value for many functional areas within CG organizations.

This cross-functional history creates a dilemma at the point of confluence inside these firms: marketing, IT and operations often have conflicting motivations, technical platform architectures, application requirements, and budget constraints. Perhaps most importantly, the constituencies almost always have conflicting vendor alliances. Embedded in strategies aimed at adding value to internal operational metrics and external market data, vendors from each of the functional constituencies have gone to great lengths to establish their CG domain niche. The challenge now is to leverage the niche expertise into broader opportunity across the enterprise.

CG marketing organizations have a long history with specialized applications for marketing analysis and planning. These include response models for advertising programs, causal sales forecasting, trade and consumer promotion effectiveness, and syndicated store sales tracking and analysis. Specialty vendors have a solid footprint here, many having built applications with proprietary software, others having collaborated to deliver solutions on higher-profile partners' platforms. The specialty vendors include the CPG data syndication providers and others, most having roots in marketing research and analysis services. Service levels reflecting strong functional and domain expertise are sufficient to give these vendors credence beyond the marketing department at many organizations.

At the same time, there have been significant data management challenges inherent in the very large data sets that CG marketing organizations have at their disposal. Furthermore, the external and internal data integration hurdles are substantial. IT organizations are often better equipped to tackle solutions to these issues. In the IT organization, data modelers can address these issues in a data warehouse or business intelligence context. Virtually all BI vendors have some traction in the CG marketing arena, and those that do are typically more closely aligned with the IT organization than they are with marketing. Operationally, the CG market has been fertile ground for CRM applications across the demand chain. Identity branding is often critical to success for the CG market, placing a premium on business-to-customer demand chain relationships. However, manufacturers and consumers are often separated by distributors, brokers and/or retailers in the supply chain. Consequently, the direct marketing segment of CG was an early target for CRM operational automation. At this point, most vendors provide full-function CRM suites, and most ERP vendors have long since expanded into the CRM space. From any source, these applications are best characterized as operational platforms, most closely aligned with and enjoying the loyalty of the respective functional areas serviced — marketing, sales, and service.

The market dynamic has been one of separation among marketing-driven analysis and planning, IT data management-driven DW and BI solutions, and operations-driven functional process efficiency. In addition, powerful technical and competitive challenges are present in CG. Challenges include a shifting focus from operational efficiency to outside-in performance effectiveness, the emergence of retailers as brands, collaboration pressures, consumer value perceptions, declining margins, and the Wal-Mart effect. Furthermore, the strategic influence of the large business-consulting firms in the CG sector cannot be ignored. These change agents can wield powerful influence on Operations and senior executives in CG and other organizations. Meeting somewhere in the middle of this marketing-IT-operations mix is the convergence of influences that organizations are struggling to control as they integrate demand chain strategies.

View

Ventana Research judges there to be significant market opportunity for vendors to bring new value-added solutions to the CG market. Organizational and competitive market conditions are such that spending priorities of Consumer Goods marketing, IT, and operations constituencies for marketing intelligence and analytical applications are gaining traction and momentum. Vendors are challenged to take steps to understand the relative importance of the technical issues, solution functionality, domain expertise, and business functional hierarchies. Solution vendors for the CG market are advised to find answers to four key questions: 1.) How are performance management initiatives being dealt with today? 2.) How are new technologies and analytics being viewed inside these organizations? 3.) Where are budgeted investment monies targeted? 4.) Who will be held accountable for delivery?

Another important set of drivers in this space are the perceptions each constituency has of the software vendors and service providers. Vendors must target their messaging accordingly in order to leverage their value across the CG Demand Chain.

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