When customers enter stores and take advantage of loyalty cards and the benefits that the cards offer very few understand that the retailer is collecting data and exactly the depths of information that companies can collect from them. This personal and shopper information is being sold to customers in exchange for promotions, lower prices, or some other benefit that the retailer has found may be valuable for this data exchange. While this unseen transaction is occurring (with the customers signed consent) other retail transactions are also occurring simultaneously where the retailer is selling its collected customer data to Data Resellers. These Data Resellers buy the data from retailers and, in turn, sell it for a profit to Consumer-Packaged Goods companies and reap the profit between the buy and the sell. The description of this above transaction among buyers and sellers may seem like a cold matter of fact reality, but it is mostly beneficial to all parties in our view. The Data Resellers are able to produce and sustain a business model by providing useful information to companies that sell their goods to customers and ultimately, consumers. In short, the CPGs need to understand their customers in order to provide the best products at the best prices at the best time.
This white paper provides a brief scenario where Ingenuity Sourcing Solutions worked with a client to unravel a trio of data resell providers where the scope of work was divided among all them. As the reader can surmise the prospect of employing three partners to perform similar work creates inefficiencies and (sometimes) confusion as the data is parsed for any insights that can be gleaned.
The business complexities:
- Three different provider agreements that expired at different times
- Additional time for the stakeholders to partner with them on expectations and updates
- Various payment arrangements and timeframes for payment
- Different contractual terms that had to be managed such that they would not violate the terms of the other agreements
- Different levels of relationships with CPGs as some of the data resellers had partnerships that valued this retailers’ data differently
As mentioned above this Fortune 500 retailer partnered with three data resellers for a number of years. Two of three are the “national standards” in data resale of customer data and the third has a strength in specific area of data resale. Ingenuity Sourcing Solutions was engaged to untangle the complexities that they faced and more importantly transition this part of the business into more of a profit center. In other words, the client wanted to make more money based upon the fact that they are a national retailer with an expansive footprint. One of the challenges with this engagement was the fact that the incumbents had been partners for a very long time and while the two industry standard providers battled each other at every contract renewal period and undoubtedly provided some additional funding this strategic relationship was inherently not optimized. The third party seemingly thrived in their role away from bidding for the main part of the relationship and retained a veritable monopoly on their specialized scope of work.
Ingenuity Sourcing Solutions approach these issues one at a time as these were all trusted partners who delivered profit at an acceptable rate to the retailer. The issue was that the retailer did not understand what “acceptable” meant in the marketplace. Our approach is not completely articulated within this White Paper, but broadly highlighted to demonstrate the construction of our general thought process, process and outcomes.
Our Approach:
- Align with the stakeholders as to the status of the relationships of each partner
- Understand each incumbent’s scope of work and partnership history conducted through a series of discussions
- Compare the scopes of work with each other and then against the marketplace to establish the value of the total scope among all three
- Determine potential redundancies which were validated with the stakeholders in order to drive toward a single scope of work that each provider had the opportunity to assess for a future relationship
- Conduct a multi-round RFP (Request for Partnership) to establish the internal pricing benchmark and compare that benchmark against market data
We feel that it is important to point out one step that Ingenuity Sourcing Solutions did not take. We did not feel it appropriate to invite a new fourth (or more) entrant into the process. This step was not taken based upon the first step of our approach (stakeholder alignment) where it was established that due to the internal data challenges that the retailer grappled with the prospect of hiring a new provider would’ve delayed the onboarding process to an unacceptable extent.
Our Findings:
- The “non industry standard” provider did not provide specialized information whatsoever. They packaged their offering differently, but the rudimentary information was the same type of information that the industry standard companies offered
- Each of the main competitors expressed different views of how they can bring additional value to the relationship, but individually neither provider met the industry benchmarks that Ingenuity Sourcing Solutions had identified which signified additional value was possible
- The redundancies that the combination of providers created in this situation devalued their market value overall since some CPGs only received a portion of the data that they sought, but had to purchase additional data from the other reseller
After presenting our findings to our client and aligning on their desires to proceed with the process we conferred with each of the providers and relayed their position at a high level. Starting with the partner in the weakest position (non industry standard) we were transparent in that their data was not strategic to the overall corporate direction. Based upon the two strong companies that remained the client opted to allow this providers contract to expire without renewal. The two providers that were left have strong market positions and the ability to increase value in a number of different ways in addition to the financial ones.
Ingenuity Sourcing Solutions conducted an additional round of negotiations with the remaining two providers where in depth discussions about their capabilities given that the relationships have been longstanding ones. We recognize that technology and capabilities change, but sometimes clients are not approached with these opportunities due to “don’t rock the boat” culture or the “saving the best for new clients” they are trying to land. This was an opportunity to look forward and we challenged them to take that opportunity seriously. After receiving revised proposals that looked fundamentally different than the ones that led up to this point, we were excited to show our client the latest versions which included the following which amounted $2.2M+ per year for our client:
- Substantial increase in annual revenue along with annual bonus structures ($1.5M per year incremental funding)
- An increase in dedicated team members in one case and the addition of a new team in another case ($150,000 – $300,000 per year in additional value)
- A tiered signing bonus that adjusted based upon the number of years that the agreement lasted ($100,000 – $250,000 per year in additional value)
- The adoption of the latest technology that the companies had developed over the years that they provided as a part of the overall relationship which they had historically provided at an additional cost (client valued the time savings of approx. $50,000 per year)
- Financial floor guarantees that there would be a minimum annual fee that one provider would pay (which was higher than the highest historical fee in recent years). The client calculated this as cost avoidance as they could better plan their derived income which had an estimated $100,000+ per year of value
In this case, Ingenuity Sourcing Solutions helped our client create more value by widening the conversation into a more strategic one. We were able to create a larger pie by focusing every aspect that had value to our client in addition to the revenue stream. The teams that were provided lessened the workload of the client’s internal team, the P&L looked better as a result of the increased revenue and decreased internal effort, the technology enhancement helped to streamline data transfers and sped up payments, and strengthened the relationship of the remaining providers. This is a rare case where Ingenuity Sourcing Solutions determined that it was advantageous to partner with two industry leaders as opposed to a single source. One of the chief reasons was that each data reseller has relationships with different CPGs and it was our goal to optimize the revenue stream. This model also allowed the client to have a backup provider for any reason that may have become necessary to switch providers to one side or the other. As part of our recommendation, we recommended that one of the partners play the dominant role while the other provider was in a support capacity which provides additional opportunity for another good conversation upon renewal. By all accounts, this was a successful engagement and one where the number of providers were reduced, income increased, client resources dedicated decreased while delivering state-of-the-art technological advances.
