Podcast | Customer First Approaches for Category Management

David Ciancio (00:12): Welcome everyone to this dunnhumby podcast series, all about the importance of putting your customers first no matter whatever retail setting that you operate in. My name is David Ciancio. Together with my colleague, Dave Clements, we’re hosting a series of bite sized podcasts with experts from the retail and from the data worlds, exploring the importance of putting customers first with practical examples, techniques, and lessons for both retailers and brands.

Well, today we’re speaking with Daryl Wehmeyer, who’s dunnhumby’s North America Head of Category Management. Daryl has broad and expert perspectives on retail decisions regarding product assortment, adjacencies, private brands, product placement, and planogramming and on supplier collaboration. Well, Daryl, thanks so much for joining us. Kindly start by describing what customer first means to you, and then more about your experiences of customer first in your very interesting career.

Daryl Wehmeyer (01:16): Thanks, David. It’s good to be here with you. Customer first to me is in ethos or philosophy, and it’s the lens through which you run your decisions. So if you’re planning a store, if you’re planning a campaign, you want to understand which customers are most important to your business. All customers are important to a business obviously, but there are those that you really want to make sure you’re building your business around because they will represent your loyal shoppers that contribute most of your growth in the coming years. So running your decision through that lens first and foremost is what I believe represents a customer first focus.

David Ciancio (02:02): Thank you for that. And now the second part of the question, you’ve had a very interesting career.

Daryl Wehmeyer (02:06): Yeah, I describe it as I’ve spent the first half of my career working with suppliers and the second half of my career working with retailers, primarily, and I’ve been fortunate to be able to work across a variety of different verticals in my career. So I’ve worked very closely in grocery retail, which has been the biggest chunk of my career. I’ve also worked in financial services, applying customer principles. I’ve worked in home improvement. I’ve worked in the restaurant space applying data to make better decisions. Those are sort of the fields I’ve been in.

My background has been in a variety of different customer analytics applications, so whether I’ve been leading analytics teams, data science teams, subject matter teams, I’ve led client teams for dunnhumby. I’m really happy about the fact that I’ve had a variety of experiences and it’s made it really interesting. I get to see the customer problem from a lot of different dimensions, from the perspective of the customer through the data, but then also from the perspective of folks who are making decisions at retail and from the perspective of leading a client engagement team and how do you make sure your team is addressing your client’s most important customer needs. It’s been a lot of fun.

David Ciancio (03:31): From all those different perspectives then, and the different industries, different roles, does customer first mean anything different? Does it manifest itself in different ways do you think?

Bringing the customer to life

Daryl Wehmeyer (03:43): I think at the core, the kernel of customer first is consistent in any line of business. How you harvest that information or how you take advantage of it, how you understand it is going to be different. So for example, when I worked in financial services, banks can be incredibly customer centric in some sense, but in some sense, they can be very financially driven first and foremost. And how you bring the customer to light and the benefit and the financial benefit, frankly, of putting your customer first in that sector is very different than in home improvement, for example, where there’s some radically different types of shoppers. You have professionals, you have folks who are coming in once every two months to do a project. You have to think differently about how you bring those insights to life and how you use those insights to drive strategy.

But the challenge is the same in any vertical or any line of business, which is: how do I understand what matters to the shopper? How do I understand what they’re doing today so I can determine whether or not what matters to them is aligned with how I’m operating as a business. So the fun part to me, and why I’ve enjoyed working in different areas in my career, is bringing our best capabilities to those areas and identifying what’s going to fit, what’s not going to fit so well, and where do we need to create some new capabilities to bring the customer to life in this particular area of the business. But the philosophy in the core approach of how I think about it is consistent across lines of business.

David Ciancio (05:22): In that great career, one of the roles was you led a client that I worked for. In fact, I was your client so we’ve known each other for a lot of years. And thinking now about the time when we first started with customer first back in the early 2000s, have there been some changes to the customer first approach, specifically as it applies I think to category management?

The science of getting the right products on the shelf

Daryl Wehmeyer (05:48): So, when I think back way to the early days of customer first, some of the first work we did was around pricing and how do you make a better price investment decision by understanding your shoppers. It’s who are your price sensitive shoppers and what are the products that are most important to them to help build your business with those shoppers so that you don’t lose them to your competitors on whether its promotional events or other things that will steal some of their basket. And that’s sort of core center plate work for most retailers is you got to get your pricing strategy right. We see that in our RPI work as well, how important having the right value proposition is and a consistent value proposition for shoppers.

David Ciancio (06:40): Yeah. We call that the value core, I think, in the RPI, but yes.

Daryl Wehmeyer (06:43): That’s right. That’s right. And so where I’ve seen us evolve over that call it 15 to 20 years is we’ve gotten better and better at how we think about things like assortment and placement in store, which categories should be next to one another, which subcategories within a category should be aligned next to one another and which products should you carry on the shelf? So the early days of customer science around things like assortment planning was all about the composite rank, which is I’m going to grab five measures and I’ll cobble them together in some weighted fashion and that’s going to tell me what’s best and worst. And then that’s evolved into bringing in some more complex science to understand customer needs states. We sometimes refer to them as customer decision trees, but at the core it’s what are the key drivers of choice in a category and which products are complimentary and which are substitutes, which if you know that information, you can minimize the amount of duplication on the shelf and have a really an assortment that leverages as we call it breadth versus depth.

You want to make sure you have all the right needs represented on the shelf so regardless of where a customer’s head is at when they get to that shelf, there’s at least one or two products that are going to meet their need on that purchase occasion. So that science has evolved as well. In the old days, it was some pretty esoteric statistical clustering techniques that an analyst had to sort of group products together using their judgment and based on what they were seeing in a pretty complex chart. It’s evolved to the point now where we’re applying machine learning techniques that automatically do all of that work using a variety of pretty advanced clustering techniques and measures of association to put that together for the analyst so that the analyst merely needs to review what’s happening with the assortment or with that customer decision tree rather, the implications on the assortment and then make a few tweaks based on their business understanding and of course they’re applying their art to the science.

And so we’ve taken what could have taken days previously down to literally within an hour, an analyst can have a point of view on how are customers shopping and which products are most and least important in the category so when you make a delist decision, you’re minimizing your risk. And I believe that within the next five years, that hour’s going to go away and we are going to be on the verge of real time assortment insights that would allow retailers to make decisions in near real time about products that need to be moved off the shelf.

David Ciancio (09:39): Of course that’s what it feels like now, as you said, between the difference between 15 and 20 years ago, where insights are so much faster than they were for us in the early days. And I like how you talked about the evolution or the sophistication of the science. All of that though sounds to me like it’s on top of the basic though eight step framework of category management, understanding category roles, et cetera. And that most of what the changes have built feels to me have been bringing shopper data, retail customer data, into all of those decision. Is that the way you see it as well?

The evolution of customer data and insights

Daryl Wehmeyer (10:20): Yes. Certainly if you go back to when that eight step framework was first created, there was always a need to get data and insights. One of the benefits of that approach that has evolved over time has been people started asking the right questions. And one of the right questions is, “Well, what’s the data telling me?” Now the fact that customer data is part of that equation is a game changer in many cases because the granularity and the understanding of what it means for shoppers makes all the difference when you’re making a choice of which product to put on the shelf. Or in the case of adjacency science, which categories should be next to one another? How should we organise the aisle? If you don’t have that shopper lens is sort of like trying to see a pitch coming at you with one eye covered, you don’t have the full view of what’s happening with the shopper and with their experience.

And so the customer data and the addition of customer data in that thinking is of course incredibly powerful. That’s the whole basis of why we do what we do at dunnhumby. I would say though that the approach as well is something that, although there are analogies to how we think about category management to that eight step approach, we’ve also added some builds to it, particularly around things like what matters in a category. So many approaches will start with what’s the role of the category, which is the right thing to start with. And if it is a destination category or maybe you call it by some other name like a win category, then you’re going to invest across your whole marketing portfolio to be successful in that category. What we have found by looking at the customer data is that’s just not the case.

There are some categories that even if they’re incredibly important to you as a retailer, not all categories respond the same way to pricing or promotion or to adding assortment or to introducing new products. So the customer signs that we’ve evolved over time has further peeled back the onion on those kinds of insights. So that, not only do we help our clients understand which roles are most important to your business based on how your shopper responds to them, and based on their financial profile for your business, we can also tell them how they should invest in the categories that are most important and where to invest, more and less, so that at the end of the day, retail continues to be the kind of a business where you don’t have unlimited resources.

David Ciancio (13:07): Sure.

Daryl Wehmeyer (13:07): The more we can help our clients focus on what matters to their shopper, it makes the spend and the ROI much better.

David Ciancio (13:16): Speaking of what matters most to the shoppers and going back to the analogy you just gave us about trying to see what’s coming with one eye closed, the world feels like it changed dramatically in the last eight months with COVID-19 and the pandemic. What and how might category management have changed and what advice do we have for retailers and brands given this really seismic disruption?

Reset and rethink – A retailer’s response to a pandemic

Daryl Wehmeyer (13:45): Yeah, from my perspective, it’s been interesting to watch the events of the last year unfold as a practitioner of category management because of the fundamentals that were disrupted for a lot of retailers. You think about the impact on many assortments across many categories. We’ve seen customers change their behaviors as items weren’t in stock. And the elements of the pandemic that were affecting how customers shops has been really interesting. To me, the ability of retailers to stay nimble is what makes or breaks a retailer in a disruption like this. So to say a bit more on that, clearly COVID has influenced shoppers in a lot of ways. And one of the ways that we you saw in the RPI is price and quality are always important, they’re always at the top of the list, but the importance of speed was significantly more important in this last RPI.

The reason speed was so important is because safety became really important to shoppers. And we saw a big correlation between customers’ needs for safety in their shopping experience and the speed of the transaction and of their experience in the store. And so customers wanted to get in and out quickly, and that meant they were frustrated if they were out of stock in a category because they made a trip to buy a particular set of products and they weren’t there.

And the retailers that can react quickly, that have clean assortments, that have enough holding power on the shelf to protect them during disruptions like that were in a better position and they created a better shopping experience for their customers. They could get in and out quickly and get most or all of what they needed. And so when I talk to clients about how you protect yourself from something like COVID, it’s really making sure your assortment and your shopping experience is well cared for, and in particular, making sure that you’re covering all the needs of the shoppers at the shelf, but then also making sure that you don’t over assort so that you’ve got enough holding power at the shelf to protect yourself.

David Ciancio (16:11): Sure. I believe actually that this pandemic has given groceries the opportunity to reset, to rethink their range and assortment, to rethink the breadth and the depth that you mentioned earlier. I’m glad you emphasised that. That would be a recommendation that we would have as retail advisors going forward. And thinking about speed and safety, it feels to me like that means there’s knock on implications for adjacencies and even for store design.

Creating a better shopping experience

Daryl Wehmeyer (16:46): That’s right. That’s absolutely right. So I alluded to some of our adjacency science earlier, but essentially what we do is we identify how customers shop across multiple categories and which items are most likely to be in the same trips for those shoppers. And using that science, we can help ensure that the right categories are next to one another to make for an efficient shop.

So if you imagine a situation where a customer walks into the store on a shopping trip, and they’ve got a mission for that occasion and they’re able to move through the store quickly and cleanly, get what they need and then move out, that’s the best case scenario, that of course all retailers are striving to achieve. In a period of disruption where you’ve got items that out of stock, that of course is more challenging. But if your assortment is clean in the sense that you’re carrying what you need, but not a lot more than what you need, and therefore can have more holding power on the shelf, you can help protect yourself from the ups and downs of a situation like that like we saw in the pandemic.

I think back to some work we did for a major retailer a few years ago where they used this kind of customer science to completely reassign the center store across the store because they were having issues with out of stocks. And this was a few years before pandemic, but not too many years before. And they wanted to improve the out of stock situation they had. And so they set a target to drop about 20% of the products in center store. Using the science they did so, effectively brought in some new products, but overall removed between 15 and 20% of the items on shelf, saw an increase in sales as a result of a cleaner shopping experience.

Importantly, saw customer feedback go up as well. So the shoppers reflected back that this was more shoppable experience and it was a better experience. And availability went up by almost 20%. So by applying this kind of science in a disciplined way across the store, in a relatively short period of time, they were able to tick the box on all the things that you would want to do to get a cleaner shopping experience. And as a result, by the way, this retailer was in better shape when the pandemic started because the assortment was clean and the shopping experience was as simple and clean as it could be for customers.

David Ciancio (19:22): Cool. So if I try to sum that up and I’m thinking about a world that’s likely to have more disruptions, the competitive disruptions, could be other pandemics or even continuing this one, the summary would be that if we’re using the customer data and applying good customer science that’s grown up and evolved over the years and we understand that the category management framework still works but it too has evolved and grown up, retailers can prepare themselves for disruption. Retailers can successfully survive disruptions. Would you say that’s true?

The role of private brands

Daryl Wehmeyer (20:03): Yes, absolutely. That’s the core principle of what we’ve seen over the last year or two as the pandemic has played out. And the other build I would have is there’s a natural tension between impulse behaviors and creating a quick speedy shopping experience, and that pendulum has certainly shifted in the pandemic to less emphasis on impulse and more emphasis on let’s just get the customer in and out as quickly as possible. And of course the extreme example of that is the customers, the massive amount of shoppers that have shifted towards online shopping as their preferred channel, I think this is accelerated probably five years the shift to online that we’ve seen over the past few years.

And so the emphasis on reducing dwell time is something that’s really important now for shoppers. And I wouldn’t, as you think about where we’re going in the next year or two, excuse me, as we come out of the pandemic, I expect to see further disruptions over the next year or two because shoppers have changed some of their behaviors. And some of those behaviors will shift back and some of those will likely remain. And we’ve seen customers buy products that they’ve never bought before because they had out of stock challenges. So there will likely be further disruptions in the next year or two as we see new variants of COVID as we see, now fortunately, we’ve got vaccinations in place, but that will take some time to drive progress as well. So, yeah, absolutely, all of the principles we’ve talked about can help us in the years to come.

David Ciancio (21:56): Daryl, thinking about that value core, reflecting back on the RPI and also on our consumer research that we’ve done through COVID, customers have been telling us that private brands are a key way that they’re thinking about value. Can you comment more on the development of private brands please?

Daryl Wehmeyer (22:19): Yeah, definitely. It is interesting to me over the last year to see how customers have shifted a little bit away from value in some areas during COVID because of out of stocks, because of the need to have a faster shopping experience, to get in and out of the store quickly, because customers are trying to protect themselves from COVID. So they want a fast experience in and out of the store and so were willing to select a variety of different types of products. Now in the coming year or two, I expect value to become increasingly important again as we start to return to what the new normal will be, and the economy is not going to recover rapidly overnight. It’s going to take some time. So value will become increasingly important to shoppers. We know during COVID, customers tried a number of new products they hadn’t tried before because of the experience and that includes private brand. So we know that private brand, we believe private brand will play increasing importance to shoppers in the next several years as a value.

David Ciancio (23:32): Sure. And actually, we’ve almost been here before during the last great recession in 2008, 2009, we also saw an uptake on private brands. I’m glad you mentioned the return to value again as a priority in the very near term, but let’s develop some more thoughts about the importance of private brands and how a retailer would go about understanding if the private brand is right for them and in what categories and so forth.

Using data science to develop a private brand strategy

Daryl Wehmeyer (24:03): Yep. Yep. So we’ve, in fact, I’ve just rolled off a project where we were working with one of our retail clients to help them redesign and rebuild their private brand strategy. What should their brand architecture look like? Where should they invest brand wise? And of course we apply a lot of customer science to do that. We also have customer science to understand which categories are most important for private brand. We know which customers, for example, are loyal private brand shoppers, and we know what categories they shop in a lot. And there will be categories for which there isn’t sufficient private brand presence or the right breadth of private brand portfolio in those categories. So if you think about the portfolio between premium items, more niche, better for you items, mainstream and value led items, private brand really covers more than just a value shopper in a lot of cases. And you need the customer data science to be able to build an architecture, a private brand architecture, that really will appeal to as many of your shoppers as you can with your private brand portfolio.

David Ciancio (25:20): We thought the topic important enough and you and I together helped write private brand framework for our clients and then from on the back of that, a private brand playbook. So in exactly how you go about using the science to determine categories, tiers, brand architecture, and so forth. That can be found on dunnhumby.com. There’s a perspective on what we call the five types of private brand and the seven Ps of private brand marketing.

Daryl Wehmeyer (26:02): Yeah. Excellent. It was a lot of fun to work on that project because in my experience, I spent a number of years in a portfolio strategy consulting firm where we looked at brands and consumer packaged goods and built strategies. And for that whole time, I felt that that kind of portfolio strategy work was needed in private brand to help private brand retailer or retailers understand how they should organize their portfolio. So by using the customer data, it’s possible to, and we were able to fairly easily paint a cogent picture of where the brand should go, what categories will matter most, and where you should start with building out your investment in private brands. So, yeah, that was a great experience. I really enjoyed it.

David Ciancio (26:57): We’ll talk more about that in a webinar that we’re holding on the 10th of February this year sponsored by Progressive Grocer Magazine. So we’ll send or make details available on how to sign up to listen to that webinar. We’ll also make copies of that available afterwards on dunnhumby.com. Daryl, you’ve triggered some really interesting topics for future discussions and I’d like to come back to you to talk further about your ideas around adjacencies and future store design, and even the future evolution of category management. And it also reminds me that if you listeners have other topics that you’d be interested in hearing more about in future podcasts, please write us at customerfirstradio@dunnhumby.com. So thank you, Daryl. Thanks to you in the audience for listening today. We hope that you found this conversation helpful in thinking about how your organisation can activate and practice customer first in category management. Thank you again, Daryl.

Daryl Wehmeyer (28:11): Thanks David. Enjoyed being here.