Digital Marketing Data Is Reshaping The Relationship Between Brands and Retailers23 February 2020
It was interesting this week to read two conflicting stories, about how brands were wrestling greater control from retailers and how retailers were wrestling greater control from brands. The great equalizer in the power struggle between them is digital marketing data enabled by the latest technologies.
Brands Using Digital Marketing Data To Shift The Scales
The first read was an extensive white paper by Deloitte titled Going Digital, Going Direct. It’s chock full of great information and can be summarized by the following diagram.
The white paper argues very effectively that all the digital tools, platforms, and analytics now available to brands, juiced with a healthy dose of VC and private equity funding, has empowered brands greater than ever before to establish direct relationships with the consumer, collect first-party data, influence the sales process, sell directly online (locally and globally) and even open their own stores.
In fact, underlying this empowerment shift are several key important dynamic shifts worth recognizing and Deloitte does a nice job summarizing these in a table, however, these do require significant discussion and several deserve quite a bit of pushback.
The notion that reach is unlimited online while Capex or Overhead is low is simply not true. Sure your theoretical reach is nearly infinite, but in practice your organic reach is actually quite low. The reality is that brands dependence on platforms such as Facebook/Instagram, Google or Amazon means paying to be on that toll road. Google is increasingly putting organic results well below the fold and making ads less clearly identifiable. They want more ad revenue. Want to show up in the shopping section? Got to pay that tollroad. Organic reach on Instagram is around 1% and falling, Facebook was 1.2% in 2018 and reducing by roughly half every year and in fact some posit organic engagement will go effectively to 0% as the platforms crowd ads in every crevice of your feed. Even Amazon is increasingly taking their piece not just on platform fees, but on their advertising business which has grown from $0 to $15 billion (!?!) and will grow 423% to $40b by 2023!
“Freedom isn’t free, there’s a hefty f&$ing fee.” - Trey Parker, Team America World Police
And it’s going to get a lot worse. Facebook CPAs are up 300% over the last 5 years. They are squeezing out all of the margins of every business they can. Zuckerberg might tell you that’s market efficiency, but that’s only because they have monopoly on the supply side of acquisition. Monopolies create unfair dynamics, just ask Jeff Bezos who famously said, “Your margin is my opportunity.” Ouch.
If you talk to D2C companies, they are all saying the same thing - “It’s time to open stores.” These platforms are becoming increasingly expensive. You want channels you have greater control over where there is competition in supply and demand. There’s a reason that 2/3rds of D2C companies that have raised more than $6m have opened stores.
That said, digital competencies and owned data create enormous efficiencies in scaling a brand and understanding the customer. Digital competencies allow you to A-B test content, establish demand for products, get customer feedback instantaneously, and become a more agile company to adapt and improve. It’s important to note that Perch does this for brands in-store as well. Bringing those digital competencies to the retail channel will allow brands to exert greater control all of its channels including developing deeper ties with retailers and maximize the value where 85-90% of transactions still happen.
Retailers Shifting The Power Away From Brands Using Data
Anyone following the retail industry knows that there is a massive sea change going on and no one take can describe the complexity of the chaos and opportunity underneath the surface. It was interesting to me at the same time as reading the Deloitte piece I was sent the following article in the Wall Street Journal about how how retailers in grocery are increasingly taking control of how brands are merchandised on the shelves, where brands used to have a greater role. The rise of computer vision and analytics providers like RetailNext, Dor, Euclid and many, many others has given rise to data-driven decision making. And often, it is the retailer that has the data specific to their stores now that is even more valuable than general category data.
“Our retailers have better information now,” General Mills Chief Executive Jef Harmening said. “So more of our conversation is about ‘How do we drive growth together?’”
And whereas before, retailers had a stranglehold on distribution, and thus could afford to take profits via slotting fees or coop dollar placement, even if that resulted in sub-optimal customer experience, in the age of Amazon and intense retail competition, especially in the grocery market, retailers are rethinking the equation and trade-offs.
“Grocers also didn’t want to invest in consumer insights, and they were happy to take the hefty slotting fees big brands pay for prime space.Now, retailers are more focused on doing what it takes to maximize sales growth even if it means giving up some of those fees by stocking more of their store-branded products.”
Finding The Middle Ground - Retailers and Brands Sharing Product Engagement Data To Optimize Mutual Value
The future now is about a shared understanding of the truth and never before has there been so much data generated. The problem is two-fold:
1) Making sense of the data and sifting information from the noise
2) Deciding what you want to share
The first point is a matter of focus, getting structured data, and a consistent approach and having the teams that have the time and expertise to find the insights from the limitless data universe.
The latter point on sharing opens up a lot of new questions on how retailers and brands can work together. Some retailers have been very careful with what they are willing to share with brands. They consider it part of their proprietary advantage over others, and with brands shifting increasingly to own customers directly, the relationship has some adversarial dynamics. We’ve heard many leading brands that won’t get any type of traffic, demographics or even basic store-level data from their retailers.
That said, we at Perch believe the future will be about a shared data understanding and ecosystem that encourages deeper partnership and sharing between retailers and brands. Perch is designed to help facilitate those very discussions, analyzing actual engagement at the shelf with both products and product-level content and industry benchmarks for middle-of-the-funnel analytics.
You don’t have to give up proprietary store-wide data to help brands understand their product engagement in-store and provide the insights on how they can improve merchandising, packaging, pricing or content. Now you can have data-driven conversations on:
Which products convert best from pickup (consideration) to sales and use that data to optimize the planogram
Identify issues with product conversion or low engagement and change merchandising or pricing to address
Identify which content drives increased engagement or sales conversion and leverage insights across the category
Maximize profitability of the planogram based on category engagement
This is a brave new world for retailers and brands to create a shared understanding and those that embrace the value of data and the willingness to be open with partners will see outsized results. Retailers that share these insights with brands will see greater co-op dollar spends from those brands and create more highly engaging and beneficial shopper experiences in-store. We are seeing CPCs that are 50-75% less than Facebook and Instagram, helping justify brands to shift their media spend to in-store thus helping retailers fuel their own in-store innovation and upgrade.
The FlyWheel of Digital Data - The Reinforcing Benefit Loops Between Retailers And Brands
Brands that bring these programs to retailers will get a treasure trove of newfound insights that will change how they market in-store and retailers can learn the value of this data to take to other categories and often will subsidize by waiving slotting fees or coop dollar spends. This creates a flywheel of value as increased adoption and sharing justify deeper investment into physical retail, thereby increasing data collection and value for both parties thus justifying greater investment and scale.
This is the future that we see when you unlock the digital competencies and data traditionally only found online into the physical retail channel. And we think it’s going power a brick-and-mortar retail renaissance.
Are you ready to be data-driven? Are you ready to share?