MM: We’re here with Doug Liles of SGS International. Doug, if you would, give us a little background in terms of your professional history.

DL: Currently I serve as Group Director of Enterprise Solutions. The function is an IT role, deploying customer-facing solutions. Before this, I was a partner program manager for Nstein Technologies – a web CMS company based in Montreal, Canada.

Before Nstein, I was senior manager of Partner Relations for Quark, based in Denver, Colorado. I focused on the OEM and enterprise product line.

Previous to that I was a business development director for Vertis. I deployed enterprise solutions that included dynamic publishing, asset management and workflow, primarily for the CPG, durable goods and retail verticals.

In the late 1990s, I was VP of Sales & Marketing for Miller Media & Imaging (later known as MediaHippo) – a small, interactive firm that had developed asset management solutions based on Kodak Photo CD and other technologies. They eventually became an AdWeek Top 100 Interactive company.

Early in my career, I was an account executive at a small graphic design firm. Before that, I was a marketing manager focused on the hospitality industry. So I’ve done a little bit of everything.

MM: Could you bring us up to speed in terms of SGS? I believe they used to be called Southern Graphics?

DL: Yes. Southern Graphics is a $300 million+ company that provides services to top trade packaging-production printers and also directly to Fortune 500 CPG accounts.

We have a fine account list, servicing over 1000 customers. SGS has a global footprint extending beyond North America to include Mexico and Canada, on into Europe – where we have a strong presence throughout the United Kingdom. We have teams in the Netherlands, China and the Philippines. We continue to expand that global footprint.

The primary focus of our company is process improvement for the delivery of packaging graphics. This includes manufacturing rotogravure image carriers and plates for both flexographic and offset printing. But we also provide a variety of creative production services, including production art design for brand line extensions and 3D art creation.

We manage color control across the global platform for very significant organizations, assuring that their brand fidelity is maintained globally. We also provide workflow improvement processes as part of a comprehensive outsourcing package that we give to those market-leading firms.

MM: Could you bring us up to speed in terms of what you can see as the state of the art or state of the industry in terms of digital supply chains for marketing and packaging content?

DL: Obviously, the challenge within the packaging business is ever more variance in packaging for channels and consumer markets and getting the product into the market more efficiently and effectively within tighter timelines. Client staff are trying to assure that different elements are going to be correct once they arrive in the aisles. They want to ensure that the color is correct and that the form factor is appropriate, based on shelf format and the manufacturing/distribution constraints within a particular local channel, market or region.

At SGS, we assemble different elements of data together, so that we can better deliver for our customers. We take a slightly different approach than that of our competition in this regard.

We deploy our value-added technology, which provides job information, project information and KPI data on the performance of particular jobs and projects. We link it to assets and to the proofing workflow. Also, to the project workflows, so that we can provide visibility to our customers on the various tasks that we’re engaged in deploying on a given moment or an annual basis.

Obviously, there are a lot of moving parts, especially when a client has significant numbers of SKUs – for many of these accounts in excess of 1000 change annually – with ever more complex packaging. If you look at physical packaging today, there's a lot more shape and a lot more layered, complex graphics and color applied onto a wide variety of substrates, with very unique varnishes, foils and other effects being put onto the package.

CPGs with this level of complexity are looking for reliable partners that can deliver consistently on it. It allows them to focus on driving things that they’re most concerned about – consumer trust, lift at retail and managing their cost basis.

MM: Before this interview, Doug, we’ve talked about how you were sharing some of the data that had come from research firms, with respect to the kind of lift that a brand could expect. Could you take us through some of the factors that are graphics and/or packaging related and that affect lift on the retail level?

Certainly. There have been traditional techniques, obviously, where brands have delivered free-standing insert (FSI) campaigns.

MM: The type you’d find in your Sunday supplement. Right?

DL: Exactly. Mailed coupons such as ValPak or an advertising insert that's delivered in your Sunday newspaper.

But those are traditional techniques that have been used to drive consumers into the retail environment. The lift that's driven by the incremental sales that those types of initiatives deliver has been mixed. Like any kind of direct-marketing initiative, the results variance is usually between 1 and 9 per cent, based on the relevance for the particular consumer, the breadth of the drop that's put out the marketplace, awareness of that particular brand and so on.

These direct-marketing techniques extend beyond general brand advertising, because they’re transactional in nature, and tied into POS, because there's redemption that occurs when the consumer commits the purchase.

These techniques drive consumers to retail. Other initiatives drive sales in-store within the store planogram. Various brands put displays on end caps of aisles or put standees in featured places within the stores where consumers are more likely to do discretionary pickup. By just pure product placement, the improvement can often be north of 10 per cent. There are other techniques that are being used. POP, floor graphics, shelf talkers and other materials are examples.

In-store couponing devices was a trend we saw early in the 2000s. Coupons were being put into the market to drive lift in competitive categories. A consumer would see a variety of cereal boxes in the aisle, but they would take the package when a coupon was offered in-store.

Obviously, brands don’t like that, because you’re cannibalizing some of your revenue that they would normally get in favor of driving more incremental sales against the competition's share, hoping that that they would able to switch consumer behavior and build loyalty.

New things that are happening in the market these days – most concepts are centered around localized marketing. Let me give you some examples.

If we just look around at the neighborhood you live in – if you go into greater New York City, you can see different neighborhoods that are somewhat suburban in nature. You can see neighborhoods with dual-income households, no kids and people living in condos. You can see people who live in projects or apartments. There are a variety of different individuals living in those different areas.

That's the notion of a cluster, and clusters have affinity for different things. A recent study done by a major research group had found that affinity marketing promotion to a particular target market audience when deployed on-package with either a movie or a local sports tie-in – such as Nebraska Cornhuskers or a Disney film, the lift was north of 50 per cent, based on sales-tracking results.

The above suggests that retailers and also brands need to really look at how they’re engaging the consumer and driving lift by differentiating their package, then drive meaningful promotions to their audience.

Another older concept is how retailers take a solutions approach by managing category mix within the planogram. If a consumer is looking at things like sour cream, offering a dip flavoring mix adjacent to that package drives incremental lift in the brand. To provide solutions for consumers who are either trying to find meals or electronics packages that work together makes sense. To simplify the consumer experience is a key strategy.

MM: In other circles, Doug – I’ve heard and started to use the term, ‘Shopper marketing’ to describe many of these trends and developments that you’ve just expressed. My background is from database marketing and traditional analytics, so it really piqued my attention when shopper marketing began to emerge.

The concept of shopper marketing really entails some very simple, tried-and-true principles. That is – there are some shoppers that walk into my retail operations that are more profitable than others. When I do a profit analysis of my ideal customer or my ideal customer sets, I discover that there are some very specific demographic and psychographic aspects that distinguish one high-margin segment from another – as well as low-margin segments.

The idea then is that I want to start to reconfigure my store and the footprint of my store to speak to very specific demographic and psychographic segments.

Specifically, taking my POS transaction data and seasonal data, I’m now able to identify that my customers or various customers come in for these staples.

What can we put around the beer, chips and dip that are higher-margin, impulse items? If I’ve got this single-guy cohort coming into my store, I can make additional offers to them that are ultimately not driving additional store traffic – at least initially – but certainly driving my bottom-line profit.

The other thing with regard to retail marketing, a Safeway or a Kroger in one neighborhood oftentimes has a completely different clientele and vibe than another. Many forward-looking retail operations and brands are looking at how to effect micro-localization at the point-of-purchase. That is, giving the in-store marketing team the ability to customize out of a portfolio of pre-built assets, promotions and brand images that connect with the local tribal mind of the consumers in my particular neighborhood.

Can you speak to some of those issues in terms of shopper marketing?

DL: Michael, I think shopper marketing – this trend that you offered up – is probably the most interesting concept I’ve seen in many, many years. Really, it's about driving transactions and really getting things to drive the economy – where the rubber hits the road.

Brands and then also retailers have been using a variety of different tools for many years. Those systems have always been operated in silos.

They often do consumer profiling with PRIZM data. They try to understand and predict how that particular consumer is going to behave.

When they look at broad-line consumer information and aggregate POS data – such as from companies like AC Nielsen and Abacus, this provides the big sales trendlines and patterns.

When they’re trying to assess the value of marketing campaigns and the ROI that's being driven by them, they’re using tools like SAS. They use merchandising/analytics applications like JDA – which help them with their product placement in the store planogram to help predict what's going to be moving in the stores.

All these systems don’t talk with one another, nor do they give a central dashboard. That's only getting to the point of the information challenge.

For our audience, we all know there are current publishing-oriented technologies – asset-management, workflow, graphic lifecycle management, marketing operations management, dynamic publishing, digital printing systems and so on. All these components don’t talk with one another. There's no common language or event framework.

I think that the retail market, especially private-label packaging groups within store brands, along CPG companies, are really looking for new ways to innovate and deliver an experience and a solution for the consumer that's intimately relevant to them.

Retailers used to talk – at least in the grocery category – about the ‘Golden U.’ The letter ‘U’ refers to most profitable categories on the outside perimeter aisles of a conventional store layout. They’d try to drive discretionary lift in those areas. But you really had to pass through all those different aisles to get to every brand promotion. It wasn’t always integrated through the physical store landscape in terms of the way merchandising meant it to be.

Really, the market needs to look at the ‘Golden YOU’, meaning marketing to you as an individual. Whoever is marketing to ‘me’ as an individual needs to provide relevant messages and solutions based on my consumer likes and dislikes, patterns and behavior. This needs to be communicated en masse to groups of consumers in that trading area (nee cluster), timely, effectively and efficiently.

A component of that is providing relevant offers to drive consumers into the store, then providing unique merchandising, production combinations and packaging configurations that drive lift. I think that's the future.

I think retailers and the CPG companies are looking for campaign-oriented solutions that work seamlessly with one another, either through web services, adaptors, connectors or even comprehensive platforms that can enable this sort of delivery in a way that's not abstract. Information has to be presented in a way that can be readily understood, visually.

I have seen certain retailers start to move in this direction, but they are very hungry for these types of solutions.

MM: It seems to be that the analytics are really about identifying insights on whom to sell what to, and how to promote it. We’re mashing up all of these data to really understand what to market to whom, and how.

As you alluded, there's a disconnect between my insight on what would be the optimal configuration of product to maximize sales and store profits in a particular season. There seems to be a disconnect between what I’ll call the ‘A-ha’ moment of insight, and the ability to execute against that insight, vis-à-vis changes in my packaging, changes in the point of purchase and configuration of promotional items.

Could you speak a little more, if you will, on closing the gap between insight and execution?

DL: Yes. I think that's where business stakeholders attempt to understand where the opportunities are. So they can activate campaigns nimbly.

They want to drive micro-campaigns that are fresh and very relevant. The challenge is the data that people need to find a way to provide information, with the intention that it can surface to the marketing people, so that they can then connect to the merchandising people and act on it.

Let's talk about an example. As people know, there’ve been disasters that have happened in the country. There is economic uncertainty at this given moment. Consumers are very concerned about different things. I hate to say it, but that creates retail opportunity.

In the online readiness category, disaster survival kits are becoming a hot ticket item. A lot of the hard goods line retailers such as Lowe's and Home Depot could capitalize on this, but really haven’t yet found a way to assemble and communicate a consumer offer that contains simple kits in a package that makes sense for a single mom or a large family that can be had readily at retail, at an appropriate price point.

The above marketing insight isn’t translating into a consumer offer, despite the fact that the hard-line retailer already has the merchandise on shelf. Retailers are having trouble activating on combining consumer data, marketing opportunity and merchandise in a holistic manner. I think that by having unified interfaces and using web services to assemble data, so that people can understand those consumers, assemble content, collect merchandise and actually deliver an offer – that's really the crucial point.

It all gets down to not only combining merchandise but also to crafting that message in a way that makes sense. For a single mom, for example, she doesn’t want to be thinking about living in uncertainty without a survival kit. But when she hears about Katrina and stuff like that, and that she better have 3 days’ worth of food, she wants to find a solution to protect her children. That's a relevant message to a parent, but to a DINK couple, it's not personally meaningful.

The message can be very, very different from consumer group to consumer group. That's where this type of merchandising and this type of presentation of material are absolutely critical in today's market.

MM: This calls attention to another dimension of what you’ve just outlined from insight to execution to merchandising. That is, I think, something that's begun to emerge certainly within the context of shopper marketing and micro-localization – the notion that the most keen insights in terms of what works bubbles up from the bottom.

When we look at CPG – when we look at the big-box retailers and so on, we have a whole other category of retail operations that are competing with the big-box stores and the category busters. They have to compete not based on the lowest price and great inventory, but on the basis of innovation: innovation in terms of customer relationships, customer loyalty programs, messaging and personalization.

It seems to me that another element in this is, ‘How do we enable the virtual mom-and-pop store?’

The question then is, ‘How do I provision services or applications or requirement-planning tools to that local merchant that allows him or her to say, “Here's a supply chain of marketing content and packaging. Here's what I need in order to really grow my business”?’ How do I structure that innovation so that I’m now orchestrating a supply chain as opposed to simply being the terminal point for a dump truck of content and packaging that will back up to the back of my store and pour it in like wet concrete?

DL: Michael, I think you’re talking about one of the biggest challenges when we look at systems today. What were computers originally intended to do for business?

MM: Generate bills, generate invoicing.

DL: Precisely. Computer platforms evolved into inventory management. Finally, systems got to customer relationship management and sales force automation. But marketing automation lags far behind. MPOS, MOM and MAM are all in their infancy.

In fact, marketing departments remain very siloed, paper-oriented and bureaucratic. You like to use the term, ‘Soviet’ to indicate the way that we execute our brands in our markets and in localized markets. It's really something that goes against the grain in an era of social media and text messaging.

Let me talk about two innovations that may change the market landscape. What do we know about LCD screens? LCD per square-inch pricing has come down immensely and continues to fall. New video-display technologies are coming to the market. The square-inch cost for the displays is so far down that you can put them just about anywhere. They can be connected wirelessly. Fast wireless networks are expanding. These devices can display things at any given time with any given offer. Why not in the store aisle? We can already drive offers to cell phones with a variety of different mobile-awareness (presence marketing) technologies that are out there. People redeem coupons with their mobile devices already in Europe. You walk by a retailer and it sends you the code. It's a lot more straightforward than you would think.

Then there's digital printing. We never think about digital printing for CPG companies in the way that we should. If we put fill lines or marketing at points of distribution – improving the way we actually handle logistics – and we’re much smarter about it, as opposed to having these centralized warehouses with components shipped across the water from China or thrown on a railroad car from Wakesha down to Joplin, we could radically change how this infrastructure works. The way that we are currently shipping material all over the place is not only wasteful and time consuming, it takes away an opportunity.

Think about it from a CPG perspective. If the brand gets packaging from China and it's printed over there, by the time it gets here 8 or 9 weeks later, the offer is often sometimes irrelevant or even wrong. From an accounting perspective, the material is a cost-of-goods that floats as a carryover for 2 months.

But frankly, if we looked at it in a different way and just said, ‘Hey CPG – we’re going to take raw packaging materials, which fall on your balance sheet not as COGS and reshuffle in a very, very different way – by digitally printing packaging as we need it, with the precise offer and content, then we’ll integrate the offers and delivery it via an in-store LCD or mobile-awareness (presence marketing) technologies, we can radically change our interaction with consumers as it relates to promotions and couponing.’

What's kind of funny is that with all this technology that exists today, digital printing, LCDs, web applications for advertising, digital asset management, consumer profiling, merchandising and campaigns, nothing new needs to be created. It's not rocket science.

We have to accept that there needs to be a behavioral and cultural change in the way we combine these disparate systems. I think we have to be brave in the market and look at this vision and find a way to execute this and put it together. It's the people behind these things who have to change to accept this new method of engaging consumers on this level.

Obviously, it's a matter of connecting applications – systems need to exchange data. But the crux is the model behind the data exchange and the language used, so that systems can execute it. I think forward-thinking marketers need to think of standards that can unify merchandising and promotional marketing data into a comprehensive docket that can be distributed or rendered.

MM: Doug, that sets up nicely a topic that I wanted to develop with you. That's the notion of how best to drive change into a marketing operation.

As you so eloquently put forward, IT has its roots in – basically – accounting. So many things till today still bear the DNA imprint of accounting and really are about cost constraint. It's about reducing costs through standardization, through sharper negotiations.

So that's why till today the IT mindset is really about the systematic reduction of costs through standardization.

DL: If I could put an argument against that – let's look at the web enterprises.

MM: Let's draw a distinction, and say that marketing and sales have had a fundamentally different principle. Marketing and sales professionals generally think in terms of discovering and exploiting opportunities and of essentially, driving revenue. The marketing and sales mindset is all about opportunity and revenue enhancement.

When you take the opportunity and revenue-enhancement mindsets, and you have them start to interact with cost-constraint financial mindsets, there's an inherent structural conflict that rarely gets resolved – except in those e-commerce companies where IT really drove strategic value and strategic revenue streams and was no longer just about counting beans and standardizing stuff. It was about lighting up new opportunities and provisioning services that generate incremental revenue.

Did I summarize that right for you?

DL: Yes. You did.

I sit here and look at web retailers like eBay, who’ve adapted social media and more straightforward online advertising methods, such as CPC models to assess sell through, to really engage different types of user communities and connect them in a very efficient structure with a whole new commerce model.

I even look at the brick-and-mortar companies that have done incredible work with their dot-com functions. The web units remain very separate from the traditional marketing and brick-and-mortar groups in terms of how they’re driving success. I think we can learn a lot from these patterns of success.

Web groups look at the marketing and order process in a very, very integrated way. They’re all looking at the same web trends reports. They’re all looking at the same merchandising. They look at the data centrally that's connected. All teams have basically the same understanding and contribute by providing the component in the selling infrastructure, which includes the messaging and the consumer experience.

I think that conventional retail can look at that innovation and look at some of the technologies that exist today for web units and be inspired to connect their tools in an innovative way.

MM: I want to speak to the mindset. You’ve touched upon it, but I went off in another direction.

For the companies with really effective, strong e-commerce offerings – they are completely immersed not just on a day-to-day basis, but on a minute-to-minute basis with real-time feedback from real customers wanting to buy real stuff and having real problems.

DL: Absolutely.

MM: It's not just a tight feedback loop – it's a hyper-accelerated feedback loop. With each cycle of feedback, the e-commerce merchandiser or the e-commerce business manager gets smarter and smarter about what works and what doesn’t work.

This basically is the principle of Lean Six Sigma. If you’ve got really good, accurate feedback data – if you then execute what logically follows from the feedback and insight, you’ll have continuous process improvement that over the short term may make just marginal value. But over the long term, it may become strategic if not transformational, disrupting markets.

That's the mindset. I think what's happening with most marketing operations is that they lack the tight-cycle feedback that stimulates insights. Then even if they have the insights, the other gap then is the execution.

DL: Well, I think traditionally business groups are very, very siloed right now in merchandising, channel sales, product management, global advertising and field marketing. All those groups don’t look at the same information. It's a behemoth. We’ve really got to learn to run like a SEAL team or at least like a Marine Recon Unit. Very lean, very mean. Solid, tactical execution with great operational rigor.

MM: This would probably be a good time to conclude. We’ll pick it up in a future interview around how we move the mindset of a sales team – a Navy SEALS team or an Army Ranger team into a marketing operation, such that they can really drive structural transformation of how we engage customers.

DL: I can’t wait for that day.

MM: Fabulous. I look forward to it. Thanks, Doug.