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Evolving Business Needs to Pave Way for Retail Distribution Centers in South Africa

Traditionally, retail distribution in South Africa was largely in the hands of the manufacturers, who solely owned and operated the warehouses and fleet of vehicles that were used to distribute products to retail stores. Today, this system is seen as inefficient and is increasingly losing in popularity. Leading retail chains, such as Shoprite, SPAR, Pick n Pay, and Woolworths, established centralized distribution centers and implemented warehouse management technologies to cut costs and ensure that there are no disruptions in demand and supply. While online retailers have also established central warehouses, it is still to be seen if they can implement the model with equal success as online retailing supply chain is more complex.

Back in the day, it was a well stated fact in the country and also across the world that manufacturers were responsible for moving goods from their manufacturing hubs to the retailer’s back door. These manufacturers would own and operate large warehouses and vehicles for distribution, and would supply to several retailers in its coverage area. As retailers were largely at the mercy of the manufacturer’s delivery schedule, this system put significant control of the supply chain in the hands of the manufacturer. Moreover, retailers could not cater to unexpected demand spurs, which in turn hampered their business.

Over the years, several leading retail chains in South Africa have abandoned this system and worked towards gaining complete control of their supply chains. This has resulted in them establishing their own centralized distribution centers (DCs). Under this system, retailers buy in bulk and then distribute from their DCs to various outlets on a need-be basis. This has not only helped them gain autonomy over their inventory levels, but has also reduced their distribution costs as well the lead time between order and delivery time to stores. Moreover, with self-owned distribution centers, retailers have been able to re-engineer their retail stores and improve its space utilization by dedicating a minimum required area to storage and all the remaining space to sales.

Benefits of centralized retail distribution centers are not only limited to retailers, but extend both ways in the supply chain to manufacturers and end consumers as well. This model enables the manufacturers to keep inventory levels as low as they can and eliminate the risk of obsolete or over stock positions. In addition, this model empowers smaller manufacturers, who do not have the financial strength to maintain their own warehouses or large distribution fleet. Under this model, they can compete with larger manufacturers as they only have to deliver their products to the retailers’ centralized distribution centers instead of investing heavily in their own distribution network and infrastructure. At the consumer end, retailers pass on a part of the benefit accrued (in terms of savings and discounts, respectively) from the elimination of a middle man and buying in large quantities from manufacturers.

Shoprite, a leading retail chain in South Africa was one of the first to adopt the centralized distribution strategy, giving it a strong competitive advantage. The group has distribution centers in Centurion (145,000 m2), Cape Town (45,000 m2), and Durban (11,500 m2). SPAR, another major retail group operates six technologically advanced DCs across South Africa. Two other retail chains, Woolworths and Pick n Pay, also receive their stocks from self-owned DCs. Experts estimate that retailers, which follow the centralized distribution system, manage savings of about 5-7% of supply chain costs.

In addition to working wonderfully for retail stores, centralized warehouses have lent immense support to the online retail model. While e-commerce in South Africa is still in its nascent stage (with Internet penetration at around 34%), online retailing has been growing rapidly (33% year-on-year in 2013) owing to attractive pricing, as well as improved technology and online payment security. Usually, online retailers store their goods in a central warehouse. However, the delivery of large volumes of value goods within short periods gives rise to the need for more distribution points that are located close to stores. E-commerce companies undertake direct-to-customer deliveries through their own internal facilities or through outsourced partnerships. They extensively use the services of courier and express parcel (CEP) industry to distribute their goods.

Another important aspect for efficient distribution is supply chain information technology and sharing. South African retailers have invested heavily in advanced distribution and supply chain technologies, such as RFID, electronic point of sales (EPOS), and electronic data interchange (EDI) that link the physical inventory levels with the information flows to adapt quickly to changes in demand.

The introduction of RFID into the distribution system helps in attaining real-time access and updation of current store inventory levels, along with increased inventory visibility, availability of accurate sales data, and better control of the entire supply chain.

EPOS facilitates the consolidation and transmission of aggregated sales data and other information from individual retail stores to the centralized DC. Alternatively, the centralized warehouse uses EDI to share information among all its supply chain trading partners. Over and above the inventory and warehouse management solutions, retailers also use transport route planning and scheduling system that optimizes store deliveries and integrates the operations of the distribution center and the transport division.

Although it is safe to say that the evolution of centralized warehouses have benefited retailers, manufacturers, and customers alike, the ever-evolving and digitally empowered consumer is driving the need for further innovation in the way companies, especially online retailers, are managing their distribution and supply chain operations. The rise in e-commerce and its inherent challenges and opportunities is spurring the need for greater visibility across the entire supply chain. While South African retail chains are on the right track with centralized distribution centers and warehouse management technologies, only time will tell if they manage to optimize their retail industry to the levels of the developed nations.

by EOS Intelligence EOS Intelligence No Comments

Vietnam’s Macroeconomic Environment: FDI Paving the Way for Growth

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2013 was the sixth consecutive year since Vietnam first witnessed macroeconomic instability. With high inflation levels, a collapse of the banking system, and relatively lower growth levels compared with its Asia-Pacific peers, the economy faced immense pressures. However, thanks to continuous efforts by the government to uplift the economy as well as the presence of several inherent benefits that Vietnam offers to foreign corporations, the economy has been resurging, largely on the back of soaring FDI.

Vietnam has faced several economic pressures since 2008, which resulted in high levels of inflation, stagnated growth, and a crumbling financial system primarily led by rising bad debts and loss of liquidity. This also brought a negative impact on the real estate sector and its periphery industries. Over the past few years, the country has struggled to find its ground and has undertaken several policy measures to instigate investor interests. In fact, the Vietnamese government is largely focusing on increasing FDI investment levels and exports as the key tools to pull its economy out of stagnation.

The government made substantial moves with regards to economic policies. These initiatives, which led to a boost in the country’s FDI in 2013, included:

  • Equitization of 573 state-owned enterprises (SOEs), wherein foreign investors are eligible to hold stake in SOEs with few conditions

  • Tax allowance that reduces corporate income tax from 25% to 22% from January 2014 and further to 20% in January 2016

  • The approval of a scheme to enhance FDI management in Vietnam

These efforts by the government appear to have started yielding results, as the registered FDI rose by 95.8% to US$13.1 billion during the first 10 months of 2013, and the disbursed FDI rose by 6.4% year-over-year to $9.6 billion for the first 10 months of the year.

In addition to these initiatives, the government has stepped up to strengthen the country’s banking sector since 2012. Over the past two years it has significantly reduced average lending rates, equitized four state-owned commercial banks, and set up Vietnam Asset Management Company, a state-owned company created solely to purchase bad debt from existing banks in order to clear their books. This company purchased bad loans worth about US$1.6 billion in 2013. In an effort to further speed up the restructuring of the banking system, the government announced that it would increase the allowed limit for foreign strategic investors to invest in a domestic financial institution from 15% to 20% in February 2014.

VietnamInvestmentEnvironment


The government efforts to stimulate FDI have also been supplemented by the existence of several positive intrinsic factors that Vietnam boasts off. The country remains an attractive investment destination thanks to its abundance of natural resources and cheap labor availability (according to JETRO report, monthly pay for general workers in Vietnam is about 32% of levels in China, 43% of that in Malaysia and Thailand, and 62% of that in Indonesia). The country also offers a young and dynamic consumer base domestically, as well as favorable conditions and location to supply within the subcontinent. It also enjoys a stable political environment, a significant advantage over several of its neighbors.

The resurfacing of negotiation talks regarding Vietnam becoming a member of The Trans-Pacific Partnership (TPP) is also positive news for the export sector, which is expected to receive a significant boost with the signing of the agreement (especially in the area of garments, footwear, and wooden furniture). This will also ease investment inflow in Vietnam from other TPP members.

Backed by the aforementioned factors and a robust young population, several sectors in the country are registering a double digit growth and intensified attention from foreign investors.

  • Vietnam’s aviation sector, for instance, is expected to be the third-fastest growing sector globally with regards to international travel and freight, and the second-fastest with respect to domestic travel in 2014.

  • The electronics sector has also witnessed keen interest from foreign players. Nokia, a leading telecom handset player, opened its first factory in Vietnam in 2013. Samsung and LG have announced plans to build factories in the country primarily for export purposes.

  • Retail, consumer goods, and tourism are some of the other best performing sectors with strong growth potential in the near future.

  • Moreover, in anticipation of the TPP agreement, Wal-Mart is also exploring investment opportunities in Vietnam that would entail sourcing of several products, such as clothing and footwear, entertainment, home appliances, toys and seasonal goods.


It is clearly visible that Vietnam is on the right path of growth and expansion, nevertheless, there is still a long way to go. While the FDI levels rise, the government has to channelize this investment to develop support industries and high-quality workforce to sustain growth. Moreover, while Vietnam enjoys abundant natural resources and cheap labor that attracts FDI, these factors remain exhaustible, especially in the light of new investment hotspots (such as Myanmar) emerging. Therefore, in addition to just focusing on economic policies, Vietnam must work towards creating better investment climate to lure FDI. The country’s legal framework still presents several hurdles to foreign investment and the country ranks very poorly on the global corruption index (114 out of 177 countries). While it is almost certain that Vietnam will continue to see an inflow of foreign investments, it is to be seen if it can use this to achieve sustainable growth for its economy.

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How To Confuse The Consumer – Organic Cosmetics or ‘Organic’ Cosmetics?

Despite the ongoing crisis, there is a continuous interest in green, environmental, and health-centered benefits across consumer products, including personal care. While organic personal care and beauty products markets have been growing in several geographies, they are still a fraction of the overall cosmetics industry. Industry experts expect organic personal care and beauty products to continue on its growth trajectory; it might, however, be hampered by consumer’s increased scrutiny and lack of trust in the authenticity of organic claims.

Cash-stripped consumers do shop less and trade downwards in some of their purchasing choices, however, still remain under the universal pressure to stay young and to fit in the general convention of beauty, allowing the cosmetics and personal care markets to do pretty well. The ever existing need to beautify oneself, satisfy vanity, or to heal personal insecurities, had led to a healthy growth of beauty and personal care industry worldwide during the pre-crisis years. Despite the current slowdown, Euromonitor estimates the beauty and personal care market to grow 5% annually to reach US$562.9 billion by 2017, with the US sales alone accounting for US$81.7 billion.

The industry has not remained untouched by the widespread trend of going green, and natural and organic cosmetics segments have seen some good growth rates even amid crisis. Transparency Market Research estimates that the global demand for organic personal care products was about US$7.6 billion in 2012, with anticipated CAGR of 9.6% by 2018, when it is expected to reach US$13.2 billion. While this might be still a fraction of the overall beauty and personal care industry, the growth is promising, especially that more and more consumers express strong interest in organic cosmetics in hopes of their more beneficial or at least less harmful effect. The interest in organic cosmetics is particularly strong in a few developed countries, led by the USA, Japan, and Germany; however, other developed and developing markets are also exhibiting the trend. It is believed that, over long term, there are even greater opportunities in markets across Eastern Europe, China, Brazil, Mexico, or India, where health awareness is increasing, purchasing power is growing, and ‘going green’ trend is catching up. As a result of these opportunities, makers of organic and natural personal care products proliferate, led by names such as The Body Shop, Burt’s Bee, Dr. Hauschka, Weleda, Bare Escentuals, Herbal Essences, or Aveeno.

However, organic beauty and personal care products industry has its own dark face, and while the growth is promising, there are a few issues challenging the overall market growth.

If it quacks like a duck, is it… ‘organic’?

In several markets (probably most of them), many organic products are not organic at all. While certain level of organic regulation and certification has been achieved in the food industry, personal care industry lags far behind. Therefore, large part of cosmetics, despite having some natural or plant-derived ingredients, is made with synthetic and petrochemical compounds. Further, several of those naturally grown, supposedly organic ingredients, in reality are grown on soil that was treated with fertilizers and pesticides, thus has barely anything to do with organic – pesticides’ harmful effects can be transferred to end products, and further to consumer’s skin. The reason for such dishonesty is not hard to guess: truly organic products are far more expensive at each stage, from product development, to raw material sourcing, to production, as well as distribution, as their short shelf-life is a real challenge for both producers and retailers.

Producers benefit from lack of legislation, as they can put an ‘organic’ label on products with some (even marginal) natural content while using synthetic ingredients to achieve better product properties. However, such practice will harm the industry over long term, since it will destroy overall consumer trust and dilute the differentiation of genuine organic products. Legitimate organic cosmetics have to compete with conventional ones labeled as ‘natural’ or ‘organic’. It is fair to say that the ‘evil’ cosmetics producers just take advantage of the lack of law that would clearly regulate when a cosmetic product can and cannot be called ‘organic’. Organic personal care products are not government-regulated and no global or universal standard has been developed so far.

 

‘Organic’ Legislation Gap

The USA has not introduced any regulation that would control the use of ‘organic’ in labeling of personal care products. While USDA regulates organic agricultural products, which might also be used as ingredients in cosmetics (e.g. honey, cinnamon, avocado), it does not have authority over the production and labeling of cosmetics and personal care products as such. Therefore, if a cosmetic product’s ingredient is plant-derived but is not a food ingredient (e.g. plant-derived essential oils), it does not fall under jurisdiction of USDA, and producer’s claims go unregulated. At the same time, USDA issues certifications under the USDA National Organic Program, however it just allows cosmetics to be certified organic, it does not require it.

Similarly in Europe, there is no clear regulation on the types of claims. There are certain private organization certificates, such as Ecocert, which help guide consumers through the plethora of claims on labels. However, no legislation has made it mandatory for cosmetics producers to obtain such certification, therefore, ‘organic’ claims can still be made. The EU recently introduced new EU Cosmetics Regulation, which imposed uniform rules for all cosmetic products, including “Common Criteria” that identify principles for cosmetic product claims. However, organic cosmetics still lack regulatory definition, leaving an open gate for greenwashing.

Greenwashing in the spotlight

With increasing confusion about what really is and is not organic, several organizations and campaigns are pointing fingers at industry cheaters, calling for stricter regulation preventing false claims, and these organizations’ voices are increasingly audible. Drives such as The Campaign For Safe Cosmetics by a coalition of several organizations or Coming Clean Campaign by Organic Consumers Association, point out that governments do not regulate cosmetics industry for safety, long-term health impacts, or environmental damage they cause, and that producers label their health and beauty products falsely as ‘organic’. While these efforts have not led to fundamental changes in legislation, one goal has been achieved: consumers are increasingly aware that the word ‘organic’ on the label does not guarantee organic content. Moreover, consumers learn how to scrutinize the real-deal brands and differentiate them from the ones that just greenwash their products’ image. Just this year, some voices were raised indicating a slowdown in organic beauty products sales. It appears, that while market and consumer trends do remain favorable, the claims on organicity of such products do not convince consumers. Simply put, consumers no longer trust that ‘organic’ means really organic, and that such products can meet their expectations, especially given their higher price.

‘Organic’ or ‘with natural ingredients’?

The inclination to natural content in consumer personal care products is nothing new. However, with the overall confusion of what can and cannot be rightfully called organic from regulatory point of view, there is another issue – lack of clarity on the consumer side. Organic products are not always differentiated in consumer minds, and they are thrown in the same bag with all ‘free from parabens’ or ‘with natural ingredients’ products. This is not the same as a truly 100% organic product, made with organically grown, pure ingredients, with traceable and certifiable organicity of all raw materials used. Still, organic cosmetics marketers have not been able to define clear positioning for their products yet, and they seem to have settled for the word ‘organic’ do the job for them. Yet for many consumers, ‘organic’ and ‘with natural ingredients’ seem almost the same, and they perceive such products as alternative, artisanal, rather than luxury or aspirational, resulting in their lower commitment to purchasing choices remaining only within the ‘organic’ category.

The overall natural cosmetics market, with its organic segment, is growing, and several market leaders have managed to establish a reasonably strong position (while some brands, such as Herbal Essences or Aveena, still being a target of awareness and integrity campaigns). At the same time, there have been several failed attempts to bite a share in the organic sales cake – including Clarins shutting down its Kibio brand or L’Oréal’s Sanoflore brand’s unsatisfactory performance, with some less significant brands exiting the market within a couple of years of launching. The market is quite competitive and not easy to get to, and will be subject to increasingly tightening regulation, though it remains unknown when a truly, organic-oriented regulation will be introduced. Till then, it is up to individual consumers’ to understand the ingredients and research into particular producer’s practices to understand whether they really buy what they think they buy.

by EOS Intelligence EOS Intelligence No Comments

Yet Another Word on Showrooming. Should Brick-and-Mortar Retailers Start Packing Their Bags?

We all seem to have heard the intriguing word of ‘showrooming’ some time recently, term that stands for consumers going to a physical store to see, touch, and test a product before buying it somewhere else, in most likelihood from an online store of a competitor retailer. Showrooming has been a buzzword for some time now and it is making some retailers very nervous. News article titles, ‘The Next Victims of Showrooming’ or ‘Retailers Stand to Suffer from ‘Showrooming,’ paint a rather grim picture for retailers. Is it really the case?

According to the 2013 TNS Mobile Life Study, some 30% of shoppers globally admit to showrooming, with an estimated 20% of them using mobile phones while doing it, in search of price comparisons, product specifications, consumer reviews, expert opinions, checking product availability in different stores, etc. Although showrooming is increasingly a worry for retailers, they might take relief from the fact that, at least for now, consumers still prefer to get product details from a store assistant, than to look up the information online. European consumers are particularly attached to shop assistants – over 50% of consumers prefer interacting with store staff over getting the information on their phone, with the ratio being as high as over 65% in some European countries, e.g. Poland. What retailers are unhappy to hear, is that this ratio is expected to continue to decline, as the penetration of smartphones increases, shopping and comparison applications proliferate, and consumers get familiar and comfortable with using them on a daily basis.

Online stores don’t mind at all

Obviously, online retailers are very eager to take advantage of this new trend, and encourage consumers to use their sites to compare prices and make final purchases. Some online stores, e.g. Amazon, offer free apps to check prices in their store and offer special discounts if the user purchases from them after using their price-check application.

Some online retailers go even beyond that. Bonobos, men clothing online retailer, made the headlines recently by opening “stores that don’t sell anything”, as quoted by USA Today. These ‘Guideshops’, which are regular brick-and-mortar locations, are used just to showcase the online offer, allow customers to feel the fabric, check the sizes, and try on the clothes, before purchasing them online. It seems silly and contradictive to the essence of online shopping, but Bonobos appears to have gotten on the path to strategically benefit from the showrooming trend.

Traditional retailers still slow to react

There is no way the showrooming (and e-tailing) will come to a halt and magically disappear to the satisfaction of traditional retailers. Thus, it is clear the retailers cannot just sit and wait for the trouble clouds to go away, as they risk becoming a showroom with high foot traffic with no sales to justify their operations. Physical, traditional retailing will inevitably decline to some extent, so the retailers must devise strategies to tackle the issue head on – fight it or embrace it.

We have already seen retailers’ attempts to counteract the showrooming. Some of them started charging an entry fee – for just looking through the products in the shop, a fee later deducted from the final bill if any purchase is made.

Overall, it’s neither good nor bad, depending on whether you view it as the death of physical retail or a kick to traditional retailers to innovate their cross-channel experience. Those who are tackling it head-on may actually consider showrooming the future of retail.” – Brian Gillespie, Continuum, Global Innovation and Design Consultancy, for Mashable.com, May 2013

Needless to say, such approach is likely to be very successful in limiting showrooming – and probably overall sales as well. There will be a group of consumers, who will never come in the shop that carries notification of entry fee on its door. People who will enter, but won’t find anything worth buying, will be left unsatisfied with spending money on… nothing in return. It can be fairly assumed that this group of consumers will not be converted into customers later on.

Customer experience is the key

The smarter option (though not necessarily an easier or cheaper one) is to deal with reality by embracing the new trend. With good strategic thinking, investment and willingness to change the way customer is handled day-to-day, showrooming can probably be flipped to an advantage, or at least considerably neutralized. Let’s look at some ideas of what retailers can and should do in this uneven battle with showrooming.

The key weapon, currently underutilized by many retailers, which should be improved and used against showrooming, is customer experience. Some industry experts say that it is not the price, but the lack of great experience in physical shops that is the key driver pushing consumers to buy online.

E-commerce is not the reason people don’t shop in the store. Customers come to a retail environment for the recognition.” – Jean-Pierre Lacroix, president of Shikatani Lacroix Design, for Stores Magazine, March 2013

If they lack the right experience, they focus on other criteria for store choice, such as price or convenience, which allow online stores to win growing share of consumers’ wallets. Industry experts indicate that excellent in-store experience can become the key weapon in retailers’ hands:

  • Engage with ‘showroomers’, as since they are showrooming and browsing, it means they have been hooked to the idea of purchase and are actively considering buying a given product. More importantly, they are already in your shop. Look for ways to engage with the ‘showroomers’, and you might be able to convert them into your customer. Reward them for already being at your store – offer better discounts, deals on immediate purchases, etc. available to those who are already in.

  • Online-enable the store. Encouraging online presence in your store might sound crazy. However, your store might be a physical location, but it does not mean it is cut off from the outer world. Don’t expect the customers to go off-line when they are in your brick-and-mortar shop – they probably stay online all the time. Entwine online experience with your in-store experience. Introduce store mode of your website, ability to connect via WIFI when on the premises, reward with deals accessible via this mode for purchases from the physical shop

  • Make it speak. Instead of placing product info in print on the shelf, allow customers to browse product information via their smartphone (or self-operated information kiosks on the store floor), searching via QR and barcodes, linking to interactive content available on the in-store mode website, including product specifications, reviews, additional content, e.g. virtual fitting rooms for clothes or visualization for furniture purchases, interactive maps guiding the customer through the store to specific products

  • Revamp the role of your floor staff. They are not there just to show the customer down the aisle, answer basic questions about the product, and ring the register bell. The staff is the element that can really make the difference, engage and capture the customer. The key here is to wow the customer with helpful and knowledgeable assistants, who offer depth of information that goes beyond what a typical consumer can anyway find online. Invest in turning your assistants into ‘mobile points of service’, that is create tablets and smartphones-equipped staff with access to CRM and product data, and provide them with certain level of autonomy to offer special discounts and other deals right on the spot when interacting with individual customer

  • In large stores, where self-service naturally dominates (e.g. groceries), invest in precision retailing. Your customers are probably enjoying the level of personalization when shopping on Amazon and the likes, so it is time to start using your big data effectively. Some developers already offer cloud-based enterprise solutions allowing for one-to-one, real-time retailing personalization, which includes personalized content allowing for virtual shopping lists, special offers presented at the point of decision in the shop, deals tailored depending on the past purchase history, shopping frequency, etc.

Retailers can also opt for other weapons, not necessarily linked directly to the customer in-store experience, but rather ways to attract them to come through the door:

  • Use technology to draw customers – adopt geo-location solutions and use GPS or NFC technologies to make yourself visible to the consumers remaining near your store

  • If you can afford it – try price matching. While customer experience might be the selling point of physical experience, a lot of customers are price-oriented after all. This might be dangerous to the margins, so not all retailers are able to afford this strategy

  • Emphasize the advantage of immediacy in two meanings. First, immediacy of information across all senses: the customer gets the information about the product (especially if in-store information incorporates elements of digital media and is as diverse and exhaustive as online) and can feel and try the product at the same time, something that online shopping will never be able to offer. Second, once the purchase decision is made, customers in general would prefer to get the product right away. This is a huge advantage for physical shops, where no shopping time has to be added (as still rather few online stores are able to execute ‘same-day-delivery’ on most of their products)

  • Make it exclusive by carrying unique products, limited editions, products with customized content, which will make it impossible to compare prices with other retailers and will attract the traffic towards your door. Unique products alone will not support all your sales, but will drive some level of unplanned purchases that are made ‘by-the-way’

There is no way to say which physical retailers will be able to withstand the pressures of the showrooming trend, and what mix of tactics will turn most successful. Showrooming potential to negatively impact retail industry indicates that it should be treated seriously, and dealt with by strategic solutions rather than immediate measures. The development of comprehensive solutions should therefore be a task for retailers’ strategy top executives, and must go far beyond attacking consumers for their willingness to participate in this trend.

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Will Pharma Tweet Louder? 6 Rules of Doing it Right on Social Media

Initially considered to be exclusively a tool for common people to connect with friends and share their private pictures, social media platforms have now gained the status of a potent communication channel eagerly used by companies across the world. While the expansion of social media is influencing the way businesses are conducted today, pharma and healthcare industry has been somewhat slow and reluctant to use it to its fullest potential.

By 2012, Facebook user base crossed 1 billion mark, increasing by 200 times since 2005, while Twitter recorded tremendous growth, reporting 200 million active users sharing 400 million tweets per day. While some industries such as consumer goods, retail, and hospitality have been benefitting from engaging with their customers through a range of social media platforms, other sectors, including pharma and healthcare, have been slow to join the ‘social crowd’.

Points of concern

There is a reason why healthcare-related sectors were late on the social media map. Creating an open platform for communication on health and drugs aspects, raises a range of concerns: the FDA regulations, patient confidentiality, cyber security, unavoidable off-label use discussions, uncontrolled negative comments, and risks of providing wrong medical advice that could lead to lawsuits. The FDA in particular, plays an important role here, through its Division of Drug Marketing, Advertising and Communications (DDMAC), which lays out the rules of the content that can and cannot be communicated, what content must be included and the manner in which the communication must occur. The fears associated with social media activity monitoring by the FDA, typically originate from three problems:

  • Lack of clarity and formal guidelines – in 2011, the FDA published draft guidelines, and it is yet to develop definitive rules on social media policy. The FDA is acting slow, and there is no clarity on dos and don’ts for social media engagement, yet the authority regularly scans the social space to monitor risky communication, while pharma companies find the rules of the game ambiguous

  • User-initiated off-label use discussions – a common issue in pharma social media platforms is user questions and discussions on off-label use of drugs, i.e. using a drug in a different way than described in the approved drug label or leaflet. This is considered unsolicited content and companies must respond and correct such a content occurring in public forum as these discussions might encourage dangerous experiments with drugs by patients or might be confused with recommended and approved use of a drug

  • Adverse event reporting obligation – the FDA obliged pharma companies to immediately report any adverse drug effect or reaction they learn about. Social media give platform for large numbers of patients to share their experience with adverse drugs effects, and the companies are afraid they will have to report it, which may cause investigations, bad press, and might lead drug being banned from sale

Similar fears are faced by non-US pharma companies too, as the FDA’s local counterpart authorities introduce similar regulations on communication via social media, which at times can be even stricter than the American ones.

Game worth the candle

Ignoring the risks by pharma companies can unfold a range of undesirable scenarios, a fact that has kept many drug makers hesitant of engaging in social media for quite some time. But this does not mean that pharma and healthcare organizations are still not present in social media at all. To the contrary, pharma companies, healthcare providers, device manufacturers, and health insurers have started to listen and engage with users through social platforms, though many of them still do it cautiously and have still not been able to unlock the social media’s full potential. These players have started to understand that with careful moves, the benefits will outweigh the risks:

  • generate engagement and discussion around health issues, which contributes to the positive reputation and brand image, and obviously – increase sales,

  • get quick, cheap, first-hand information on drugs’ effects on a large scale, which brings valuable insights that are not available from regular clinical trials whose scale is always smaller,

  • gather information invaluable in building marketing strategies, including pointers on price perceptions, drug availability as well as patients’ opinions about competitors’ drugs.

Who’s doing it?

Though it was estimated that in 2011, 90% of the pharmaceutical industry was still inactive on social media, currently, this has changed (though today’s participation share is unknown). Several pharma-sponsored communities are now active across Facebook, Twitter, YouTube, Google Plus, on one or multiple platforms, with a differing level of interactivity and different weight being put on inbound versus outbound marketing. Some of the examples include:

  • Roche’s Accu-Check Diabetes Link, a diabetes-support community with information, discussions, and blogs

  • GSK’s Alli Circles well-being, weight loss, and health community

  • Novartis’ CV Voice for cystic fibrosis patients and Chronic Myelogenous Leukemia own community-based site CML Earth

  • Pfizer’s community ‘getold.com’ targeting the expanding elderly group of the American population

  • Sanofi US’ Diabetes support community

  • Soon-to-be-launched Boehringer Ingelheim’s Facebook-based game, where players create and operate their own pharmaceutical firm, and discover imaginary medicines through virtual laboratory

Getting it right

It appears that the healthcare industry is finally attempting to catch up on the social media revolution in spite of a slow start. From primarily information dissemination, it is now moving towards real time engagement between physicians, patients, and other stakeholders. Soon, developing a social media policy will no longer be an option for pharma companies. But this should not be seen as a burden, but rather as an immense opportunity for the pharmaceutical companies to develop trust, build brand image, and impart health education. Drug makers that want to be successful on their social media path should consider 6 basic rules of online presence for pharma companies:

  1. Take your risks seriously – social media engagements, especially in pharma domain, always raise privacy, legal, and confidentiality concerns among the participants and monitoring bodies. Extra cautiousness in operating online communities is of utmost importance, including constant monitoring of the content being added by individual users and patients. Social platforms also pose risk of incorrect drug information or unfair accusations that might damage your image, but it can be flipped to an advantage, using the platform to quickly clarify and avert unwanted comments, provided that you have a dedicated, competent staff handling your social media

  2. Control your speakers – given the high risks and ambiguity of formal guidelines, there is a need for internal policy or guideline book listing dos and don’ts for online communication, content approval process, crisis management practice, confidential information sharing policy for employees running social platforms on behalf of the company

  3. Know your target audience – the social media pharma-related content must stay relevant and target focused groups to have the right impact. Patients with a particular disease or ailment look for relevant, detailed information, and they typically already know quite a bit about the problem. Expertise must be shown along with dedication to creating high quality content, that is useful, new, and (ideally) entertaining

  4. Get the objective right – social media is not another advertising board. The primary aim of the social media presence is to generate engagement as well as share and manage knowledge by facilitating interaction and discussions. This must take precedence over advertising

  5. Be transparent – transparency is always appreciated by consumers and patients. The link with the company must be clear, users working for the company must disclose their affiliation, and negative comments, unless unjustified or vulgar, cannot be censored

  6. Understand that social media are not a lone island – social media activity and content must be aligned with overall marketing strategy and be used cohesively with all other marketing channels, ideally to complement each other. Social media cannot become a neglected child of the marketing department in a long run, it must be maintained actively and linked to other marketing efforts whenever possible (e.g. to disseminate important announcement teasers, generating traffic to blog entries, or provide interactive content as part of larger marketing campaign including traditional media)

Social media engagements by drug makers might seem only as a nice publicity stunt, but it is so much more than that. Pharma companies, as most players across many industries, finally started to realize that listening and engaging with conversation with the customer pays off in many aspects. Just as was the case in consumer goods or retail sectors, social media will continue to change the pharma industry on a large scale. Players who want to matter, should not allow themselves to stay behind, even considering the risks involved.

by EOS Intelligence EOS Intelligence No Comments

Horse Meat Scandal That Has Nothing To Do With Horse Meat. Have We Been Fooled On Our Own Request?

In early 2013, an uninvited equine guest was found on several European beef-only plates, giving way to a series of accusations, finger-pointing and investigations. Meat adulteration scandal has now spread to allegedly involve slaughter houses, suppliers and meat-based food producers from across Europe, with names of France, Ireland, Romania, Poland, Germany and the UK popping up on the news. Regardless of the authorities’ investigation outcome, one thing stays for sure – the consumers’ trust in the meat processing industry, already not very strong, has been further shaken.

While DNA tests confirmed horse meat presence in several beef products (in some cases even 100% horse meat in supposedly 100% beef dishes), there is no certainty yet on how horse meat entered the food chain. And the problem is not just with horse meat, as pork was also found in beef-only products, with further investigation for donkey meat as well. Horse meat, as well as pork and donkey, are edible, and does not cause harm to humans per se, but the problem is big – it is consumer misinformation as well as the fact that since horse meat should not be found in beef products at all, we don’t know whether it met any safety standards. The scale and spread of the scandal may suggest that it was not a one-off case of a dishonest supplier, but rather a silent, probably not infrequent industry practice of deliberate product mislabeling.

Consumers are outraged at the ‘evil meat producers’ responsible for the malpractice. They announce their shaken trust in meat processing industry (and food industry in general). But this smells of hypocrisy on the consumer’s side as well. Majority of consumers across most markets (apart from a small health-conscious group) have long taught food producers one fundamental truth – price is the most important factor in their purchasing decisions, driving producers to take shortcuts wherever possible. While there is no justification for the malpractice and deliberate fraud, food producers and suppliers are oriented at cutting costs to deliver products at the demanded price yet still maintain margins. Same is true across other industries – we openly condemn child and underpaid labor in several Asian manufacturing centers, yet continue to demand extremely low prices on electronics, apparel, etc., knowing where and how it’s been produced (or conveniently forgetting about it at the time of purchase).

The consequences of the scandal around meat products are likely to go beyond a temporary dip in processed beef products sales. Early surveys in some of the European countries, such as UK, indicated that close to 1/3 adult consumers said they want to buy less processed meat (not only beef), indicating potentially harder times for producers across meat segments. This is likely to spike consumer interest in fish and seafood products. However, the changed meat demand dynamics might not necessarily lead to the lowering of meat prices, as more stringent safety and control procedures might allow prices to remain stable. The rapid, and in some cases unfair, finger-pointing towards suppliers from Central and Eastern Europe will continue to damage meat exports of these countries, unjustly affecting farmers and suppliers. Consequences will also include added effort by supermarket chains to rebuild the shaken trust in meat products, i.e. Tesco, Morrisons and Asda, for instance, will re-test meat products to ensure compliance and launching widespread reassurance campaigns; these will add to cost burden to the chains – costs that are eventually going to be passed onto the consumers.

It will be a difficult time for producers and suppliers found guilty of introducing horse meat to the human food chain, as under the pressure of public opinion, authorities aren’t likely to be easy on them. But meat producers who are able to be transparent and honest about their procurement and processing procedures, can actually benefit from the scandal, as more and more consumers will look beyond price and start to value quality (at least temporarily till the memory of the scandal is fresh).

So as the scandal unfolds, there are a few important questions here: Will it improve transparency of the supply chains in meat processing industry? Will it improve the quality of meat products we purchase and feed our families with? Will it force the authorities across Europe to improve control measures? Will it enforce correct labeling of products? And finally, will it make us, consumers, permanently shift our focus from price only to quality-oriented purchases? If the answer to these questions is ‘yes’, perhaps there is a silver lining to this scandal after all.

by EOS Intelligence EOS Intelligence No Comments

It’s Good the Crisis Happened – How Private Labels Benefit from Global Economic Turmoil

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Stagnating or declining consumption, falling sales, lower financial stability – the economic crisis is in full swing in many geographies. But it is not a bad thing for everyone. Across markets, private labels have witnessed strong growth over the past five years, the upward trend coinciding with the onset of the economic turmoil in 2008. Cash-strapped consumers, worried about their financial security, turn to cheaper options during their everyday shopping, providing the retailers’ own labels with unprecedented opportunity to win consumers’ hearts.

Since the very beginning of the private labels story, retailer-owned products have been typically associated with low quality (to some extent quite rightly as the first private label products were clearly inferior). These concerns over quality made it difficult for the private label market to take off, making it cater predominantly to the least demanding or poor group of consumers. Several retailers started to realize that while many consumers are indeed price-driven, what most of them actually look for is value for money – so value matters to most of them. While changing the private-labelled product quality was relatively easy to do, changing the consumer bias and conviction of these products’ low quality was a more difficult task.

Quality improved, but it was the onset of the economic crisis in 2008 that made many consumers develop a ‘crisis mindset’ that led them to actually try out private labels for the first time. It appears that the crisis gave private labels a unique chance to enter homes of a group of consumers who were very unlikely to try them out before, mainly due to the consumers’ loyalty to branded products, strong unverified perception of poor quality of private labels and lack of financial pressure to even consider cheaper options. With search for cost savings and brand loyalty in decline, many consumers have found private label products quality to be on a par with market leading brands across segments, but at considerably lower price (even up to 40% cheaper than branded equivalents, depending on product category).

Private Label Market Share in Europe - 2012Private labels market has been growing across several countries (most of Asia still has a relatively low penetration of modern retail formats thus presence of own labels is largely limited there), but the increased acceptance of private labels is particularly visible in Europe. According to a AC Nielsen report “The Power of Private Label in Europe”, already in 2010, a considerable group of consumers associated private labels with good value – between 82% and 87% of consumers across Spain, France, Belgium, Ireland, the Netherlands, UK and Germany believed that supermarket own brands offer extremely good value for money. This is a significant change of mindset, considering the long period of inferior quality associations. Such opinions have played an integral role in boosting the growth of the European private label segment, and in 2012, the average value share of private label across European markets was estimated at 30%.

Clearly, private labels will continue to benefit from the overall deterioration of the economic climate, not only now (even though private labels are gaining higher share of retailer sales, the overall consumption expenditures are all in all lower), but also after the crisis, when consumption will start to grow again. This will be possible provided that retailers use the current situation to build some sort of loyalty amongst customers. This is the time for retailers to prove to their customers that private label products are not half as bad as generally regarded, and to convince the consumers to stick to private label products even after the crisis.
It is not all nice and easy for private labels yet, as they are faced with a range of challenges, which might question their ability to win customers’ loyalty that would last even in the post-crisis era. Obviously, producers of branded products have also reacted to the deteriorated financial capabilities of their customers, and introduced a range of offers or launched product lines in cheaper segments.

Additionally, we have already seen an increase in private-labelled product prices, resulting in lower cost benefit over reduced-price branded products. Growth in the private label segment is linked to improved product quality and the retailers’ attempts to offset the decline in overall sales as consumption stagnates. This increase might eventually lead the consumers to realizing that they can get an old, beloved brand, that reminds them of pre-crisis security, at just marginally higher cost, especially with branded products now available at discounted rates and in promotional offers.

So, the question really is, whether the private label growth story is just a temporary affair, and most consumers will hop back to the branded cart the minute crisis is over?

by EOS Intelligence EOS Intelligence No Comments

So What’s the Deal with Groupon? 8 Things for Groupon to Work On in Order to Survive

Over the past few years, Groupon has managed to build a recognizable brand, and currently claims to have attracted 250,000 merchants and over 200 million subscribers globally, with some 40 million active customers (as of November 2012). Undoubtedly, these are valuable assets and such considerable customer and merchant base offers great potential, yet the company’s market cap fell by about 80% since its IPO, from US$16.7 billion in November 2011 down to US$2.8 billion in December 2012. Is Groupon’s heyday over for good?

Recently, there has been discussion around Groupon’s future, triggered by the rather consistent decline in the company’s shares price (from around US$26 on Groupon’s IPO down to US$4.5 in December 2012), increased discontentment on the customer side, and disappointment on the merchant side. Given its declining market cap linked to slowdown in revenue growth, fall in sales volume to existing customers and shrinking sales force, clearly, Groupon is currently not the best target for potential takeovers.

Groupon’s service novelty status that drove the company’s success in the first place, seems to be wearing off for its customers, especially as competition is intensifying, with similar daily-deal websites proliferating thanks to low entry barriers. Nevertheless, Groupon seems to be keeping its head high, trying to introduce more or less successful measures to drive customer interest and retain merchants (e.g. the moderately successful Groupon NOW drive offering nearby deals on demand for use on the same day).

While some of the initiatives might allow Groupon to marginally rebound, it does not seem they will bring the company back to its glory days. Groupon’s executives should revamp several aspects of their business (perhaps previously missed or underestimated) – aspects that currently appear critical for Groupon to survive:

  1. Revisit Groupon’s model key selling points – perhaps Groupon got it a bit wrong in the beginning and conveyed it incorrectly to merchants, luring them with the idea of super-cheap offers turning masses of first-time-consumers into masses of regulars. Some customers will establish long lasting relationship with certain merchants, but such conversions proved to hold only a small share in overall purchases. Therefore, this should not be the main selling proposition to merchants, as this leads to disappointment and merchant expectations are not met.

  2. Understand your customers – consumers are always looking for discounts, but many purchases via Groupon come from customer willingness to try something new once – something that they would typically not be able to afford at full price. For such customers, the assumption of them turning into regular customers after trying a product is flawed, as they are unlikely to continue purchasing at full price. The only conversion rate that might occur here, is the conversion from trying-how-Groupon-works-for-me customer into Groupon-regular customer, which does not bring any benefit to merchants, thus fails to justify merchant’s relationship with Groupon.

  3. Re-orient merchants’ approach and re-shape their expectations – offering mass deals at very slim or zero margin is not going to work for merchants at all, given that only small fraction of customers MIGHT turn into regular customers. Groupon must make sure that merchants see real value in the relationship with Groupon, not just a vague promise of potentially (read: maybe, maybe not) expanding customers base as a way to organically grow merchant’s business.

  4. Indicate the real value proposition to merchants – merchants should be clear about the tangible benefits of working with Groupon:

    • For product merchants, Groupon can be a great tool for selling excess or old capacity e.g. during low demand season (discounted winter sports equipment in summer, unsold end-of-line products) or getting rid of old stock before restocking for anticipated rush periods with products that could be sold off-Groupon-route at higher margin. Whatever the reason, merchants must ensure the products offered are original product quality and without defects.

    • For service merchants, Groupon can be ideal for filling in off-peak times through discounted restaurant vouchers for weekdays or morning spa sessions. Customers are likely to understand the link between discount and non-peak time, provided that the service level is consistently high with the service they would receive during peak time. This can allow to maintain continuity of orders and utilize the merchant’s resources in times when they are largely idle and generate nothing but costs.

    • Regardless of merchant’s business orientation, Groupon can be positioned as a tool for getting quick cash by merchant at times when improving cash liquidity takes priority over generating profits due to temporary operational circumstances.

    • Groupon can be used to fuel new product trial for newly launched or novelty products and services, especially expensive ones, where the high full price and unfamiliarity with the offering would normally deter customers from trying the product or service.

  5. Control the number of groupons released on a single product or service at once – with large numbers of vouchers released, the merchant is flooded with more orders than that can be processed without delay or with dozens of consumers wanting to use the service over short span of time right after groupons’ release. Experience shows that this often leads to delays in delivery, giving the first-time-customer wrong impression of the overall level of service, causing disappointment, and reducing the likelihood of first-time-customers converting into regular customers even further.

  6. Ensure that Groupon customers are treated as normal customers by merchants – treating the customer with groupons in their hand as a worse sort of customer is a common sin of merchants (service merchants in particular). They tend to forget that serving such customers is their only chance to showcase the excellence of service and customer care, and create memorably great experience. Instead, customers are reminded that they are getting less as they paid less, which lowers the chance of customers returning to purchase the service at a full price.

  7. Ensure that Groupon deals are real deals – consumers are smart and given the easy access to online tools allowing for price comparison, they are likely to wise up to the so-called original price being inflated, and the discounted price being the actual price. Such discovery by the consumer leads them to feeling tricked, and they lose trust and interest, probably for good.

  8. Keep it clear and play fair – do not discourage consumers with unclear, confusing or hidden statements on limitations in using the groupons. Including such conditions in small grey print at the bottom of the page is not enough. Customers often discover these limitations only after purchasing the groupon, finding themselves feeling disappointed and deceived. The conversion rate for such customers is obviously close to none, with some of them also creating negative word of mouth for such a merchant.

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