This is Part 2 of a video series. Part 1: Bill Bishop Talks to Ken Ouimet About Price Image and Personalization is here.
Ken Ouimet, CEO and Founder of Engage3, met with Bill Bishop, Chief Architect at Brick Meets Click, at the National Grocers Association (NGA) Show in San Diego. They discussed recent studies on the gut microbiome that will deliver the ultimate 1:1 consumer personalization, the importance of developing a master data management for product attributes, and how retailers should start planning for a future where consumers use product attributes instead of brands to make purchase decisions.
Below is the transcript of their conversation.
Ken: So Bill, when you think about personalization, what does a retailer need – what infrastructure do they need to have in place to be able to do that?
Bill: Probably the key thing a retailer needs to have in place to do the personalization is a rich set of product attributes. Now back in the day, product attributes were limited to color and flavor and a few items like that, but today many products have literally hundreds of attributes. It could be an ingredient attribute, it could be a claim attribute, it could be a health attribute. So there are entire businesses being built today to assemble rich attribution that allows a consumer to be able to make a judgment about a product and decide whether it really fits their need or not.
Ken: Most retailers that we work with, we see that they’re struggling just to maintain the product description.You know you’re talking about hundreds, thousands of attributes. How do you see a retailer managing those?
Bill: Well, the management of the attributes is tricky, and you’re absolutely right. Retailers struggle keeping track of data at a fairly basic level in many cases. But what I think the answer is, is that there will be third-parties who actually will assemble that data and transport it to you in a fashion, as a retailer, where you can put it to good use.
Ken: Yeah, it’s fascinating. Another interesting research that they’re doing at Davis–do you know Bruce German over there?
Bill: I’ve met him, yes.
Ken: Yeah, he’s doing some fascinating work on the gut microbiome. And they’ve just figured out how to sequence the polysaccharides in the sugars, and where that’s going is that they’ll be able to recommend diets specific to certain bacteria cultures. I think that could really transform–to be able to give consumers the information on what foods to eat to affect their gut bacteria cultures.
Bill: To me, the microbiome is a perfect example of personalization right down to the one-to-one level, because the analysis that can be done today will say exactly what your condition in your gut is and mine, and the recommendations would be highly personalized to your need. A retailer who delivers that kind of recommendation, and we feel the effect–which we’re likely to do with the microbiome–I mean, that’s pretty sticky stuff.
Ken: And there’s a lot of innovation going on with the dried foods right now. And then, what’s important is that you’ve got nutrients, like how much nutrients are stored in there. So giving that consumer that kind of information, I imagine, would be really powerful too, to direct them. Do they want frozen or canned, where are their nutrients going to be best?
Bill: The amount of nutrition is really something more and more people are interested in. So how a particular product is processed, whether it be frozen, canned, or dried. I mean if the retailer and the producer can explain which has the best vitamin and mineral components to it, that’s going to be very important to a growing number of people. And I think retailers can merchandise that very effectively, and maybe draw people back to center store.
Bill: I’m concerned that with all the good things that having product attributes available can do, that companies aren’t moving faster. Why do you think that is?
Ken: It’s a hard problem. First of all we have a huge change in marketing from mass marketing to personalized marketing. Then we need to tie the attributes to something–it has to be meaningful. The way we look at it is using them to create a consideration set of what each consumer will consider when they’re buying a product. Retailers struggle with just managing their product descriptions, and now you drill that down to a hundred attributes for each product–that’s a lot of work to manage. You look at some vendors like Amazon, they push it out to their vendors to manage, but if you’ve got 10,000 vendors that’s a lot to bring on-board to manage those. The other thing we see is master data management for the attributes. Each category is different, and will have a different set of attributes. And we’ll see that each consumer is different in what attributes they value.
Bill: So with the work you’re doing at Engage3 with consideration sets, is that going to help people move forward faster and realizing the full value of these product attributes?
Ken: Yeah, absolutely. The consideration sets are really magical. They allow us to make sure we serve up relevant products, but also they can allow us to use trade funds more effectively.
Bill: How do you develop a consideration set?
Ken: We look at the attributes of the products that the consumer is buying, and that’s a behavioral modeling point. So we use machine learning to cluster those sets of attributes and know what they’re looking for. And then there’s another way we manage it, is through what objectives does the consumer have, and that’s more of a top-down [approach]. Behavior will look at the history of when they set their objectives or maybe they’ve gone to the doctor and they see they’re gluten-free, you don’t want to wait for the history of the product purchases. You can start recommending right away.
Bill: Gotcha, so you’re able to help your clients more quickly implement and get to the value of these attributes, even though it’s a great big complicated job.
Ken: We’re moving in that direction. Today, we’re helping retailers manage their attributes to compare products with their competitors, so the store brands is a real challenge, especially with retailers like Aldi coming in with 90% store brands. How do you compare? You can’t just scan the UPC and know the product. So that’s a really important problem we’re helping them with. So that’s a smaller set of attributes, but where we see this going is to a broader set of attributes.
Bill: Developing this kind of expertise and developing consideration sets I think is going to really set Engage3 apart. I don’t know anyone else that’s doing that kind of work. I’m really pleased to hear you’re doing it.
Ken: Yeah we’ve been very innovative on that front. And we’ve got two patents issued, 20 in the pipeline, because we see those as being key to how retail is going to function in the future.
Bill: One of the things that I believe having good product attributes helps people do is when they know the attributes of products and they see several items with the same attributes growing. It’s an indication of a fundamental factor that’s attractive to consumers in both those products and probably indicative of a broader appeal. Do you see a role that Engage3 can eventually play in helping people sort see where the puck is headed in terms of some of the changing preferences?
Ken: Yeah, we’ve been starting to look at the categories on an attribute-basis, and that’s really fascinating. And so you start to think about understanding trends by attributes across a store. Things like gluten-free or organic or non-GMO, you start to see where there’s trends, and where you’re not allocating enough. When you start comparing to your competitors on those products, you might see that you’re short in some area or too heavy in some other areas.
Bill: So there’s really a number of different reasons why understanding the trends with respect to attribute beyond product sale is competitively valuable for retailers?
Ken: Yeah, absolutely. So they’re starting to look at their assortments on an attribute-basis, I think that’s a really interesting area. The other thing where we see that going is to understand the price–break down the price by attribute so we know, that way we can compare products better. To competitors or even products within the category, what should that gap be in price?
Bill: It’s interesting that you would say something like you just have in terms of gaps and attributes. We try to eat low-sodium products at our household, and the gaps between comparable items and the amount of sodium per consumption is huge. And we’d happily pay a premium, and we certainly like to have our attention drawn to the low-sodium items because that’s what we want. Right now we have to work hard to figure that out on our own. Is there going to be a way in which eventually you think people present their or curate their assortment so that things like low-sodium pop up more quickly and easily for folks like us?
Ken: Yeah, I’m starting to see retailers put signage up identifying the gluten-free products or the low-sodium products, but as you said earlier there can a hundred or thousand attributes for a product. I think it’s perfect of an area for a digital environment or to have a digital assistant that’s just guiding you by what you want, but reading through those labels is a lot of work and it’s too much work for most consumers.
Bill: Private label. Do you think these trends support more focus on private label? Will private label be more attractive as a result the emphasis on attributes and things like that?
Ken: It absolutely is. There’s an article recently in the Harvard Business Review where they were talking about consumers buy bundles of attributes as opposed to a brand. If you look at online, we’re seeing consumers search more by attributes. And probably the more that attributes–that data’s available and clean, we’ll see more of a focus on attributes than brands.
Bill: Love the idea that consumers are buying bundles of attributes. Now if I was in the brand business I think I’d get a little self-conscious.
Ken: I suspect where that’s going is it’s going to be competing on attributes much more than price. So I think we’re going to see attributes come up to the level of price in being a lever to move the sale. And the key is going to be knowing what attributes resonate with what consumer.
Bill: To reinforce your point, I will pay a pretty good price for dark chocolate to take advantage of the flavonoid effect and improve blood circulation. I’m not asking for, you know, a discount on that, I want the benefit.
Ken: I think we’re going to see more and more of that behavior, and that’s the exciting part about personalization. And it allows a manufacturer to capture more value when the consumer values hit, and they have the flexibility to price low to get people to try the product.
Ken: Well Bill, it’s been great talking to you and I always enjoy, over the last 25 years, getting together with you and your passion for pricing and your curiosity, and you’re always learning.
Bill: Well right back at you, you’ve had some amazing accomplishments and you’re clearly on the edge some additional major steps forward. You’ve got to be proud of that and your current company.
Ken: Well thanks, Bill, I look forward to seeing you again soon.
Bill: It’ll be my pleasure to get together with you whenever we can.
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This is Part 2 of a video series. Part 1: Bill Bishop Talks to Ken Ouimet About Price Image and Personalization is here. For more videos like this, subscribe to the Engage3 newsletter, Pricing Trends. Subscribe here.