The Impact of Cooperation on Incrementality Measurement: A Lesson From the CPG Industry
Cooperation between manufacturers and sellers is an important ingredient to the successful, accurate measurement of incremental sales. CPG manufacturers and CPG retailers have been focused on organic growth driven by incremental sales—using everything from UPC codes and loyalty programs, to merchandising management and shopper marketing—to increase sales by better targeting:
Such a system will sound familiar to digital marketers who strive to better target prospects and create incremental lift on a daily basis. Afterall, what benefits the category benefits everyone (a rising tide lifts all boats, as the saying goes).
Despite the reciprocal benefits that cooperation offers when it comes to incrementality measurement, the relationship between CPG retailers and manufacturers has not always been harmonious. In the early 2000s, the impact of cooperation on incrementality was thrown in question by one of the biggest retailers in the business, Walmart.
At the start of the new Millenium, Walmart was growing at an incredible rate. In some parts of the country, the retail titan owned more than 50% of market share.
This blend of growth and dominance led Walmart to believe they no longer needed to share their store sales data with the broader CPG ecosystem, specifically manufacturers of CPG goods.
When they pulled the plug, the ecosystem lost the ability to understand how Walmart sales benefited overall market-level sales. (Yes, manufacturers could track their shipment data to Walmart, but this would only cover the products they specifically made—they were still blind to category and competitive sales.)
Without this understanding, marketers in the consumer packaged goods space lost a number of capabilities.
Among them?—The ability to calculate the incrementality of sales. A calculation needed for making the key investment decisions behind real growth for CPG manufacturers.
Why does this matter? Well, assume you work for a manufacturer of a consumer packaged good like paper towels.
As a paper towel maker, your goal is to sell as many paper towels as possible, for as much money as possible. To realize your goal, you need incrementality measurement across all paper towel retailers and all paper towel brands to account for sales in the total market (…because not every consumer who buys your paper towels will buy them from the same retailer, and not every paper towel retailer will carry your brand).
Walmart’s aggressive approach to pricing made matters worse.
To see their products carried, CPG manufacturers needed to lower their wholesale prices to suit Walmart’s business model as a low-price retailer.
In other words, by lowering their wholesale price to Walmart, manufacturers effectively subsidized the purchase of the end-consumer.
But this subsidy only makes sense for manufacturers when they can “do the math” and determine the impact of said discount on their business’ versus overall category sales (sales made by the manufacturing competition).
And the key to doing said math?—Well, it’s the store sales data Walmart decided to withhold.
The decision to withhold store sales data came back to haunt Walmart when their brand began losing market share.
Manufacturers—motivated by a need to protect their brand value, facing a lack of transparency, and denied the store sales data needed to make the best business decisions possible—started collaborating with other retailers to create product differentiation strategies that went beyond price.
By 2011, Walmart had endured enough market erosion they capitulated on the issue, and resumed the sharing of store sales data to syndicated market providers.
The result?—Visibility into category sales and consumer shopping behavior returned, and incrementality could finally be measured with accuracy.
As it pertains to cooperation and information sharing, the digital marketing industry is no different than the consumer packaged goods industry.
Collaboration through…
…is what allows digital marketers like you to recognize individual consumers, run relevant tests, create ROMs, and calculate the incrementality of specific campaigns. The aforementioned identifiers can also be associated with “permissioned status” and a “persistent ID.”
It is a system of collaboration between advertisers (who are, essentially, the equivalent of “manufacturers” in this scenario), technology companies, publishers, and retailers. The reason the system works is because every collaborative stakeholder understands that cooperation is, ultimately, in the best interest of their business to show how they contribute to increased product sales.
Despite the benefits this system provides all stakeholders, a few dominant technology companies are considering taking a Walmart-esque approach to data restriction. The pending decisions of these major players threatens to remove advertisers’ ability to recognize individuals as they navigate the internet. Such an obstruction will make it far more difficult (perhaps even impossible) for advertisers to connect their spending (where they spend, how much they spend, etc.) to results.
(To learn more about this, please watch a recording of Zeta’s recent Addressability webinar.)
Will it take a decade for digital retailers to realize what it took Walmart a decade to realize?…That market dominance today (the most sales, highest site visitation, largest audience, etc.) isn’t enough to prevent market share erosion tomorrow due to data disruption?
No one knows with certainty.
What people DO know is that this realization will come sooner or later as a lack of market-level insights slowly puts the squeeze on customer retention, customer acquisition, and sales volume.
The painful lesson Walmart learned a decade ago should serve as a stern warning to the major tech players threatening to disrupt the current collaboration of the digital marketing world.
- The right offers
- At the right shoppers
- At the right time
- And in the right location
Such a system will sound familiar to digital marketers who strive to better target prospects and create incremental lift on a daily basis. Afterall, what benefits the category benefits everyone (a rising tide lifts all boats, as the saying goes).
Despite the reciprocal benefits that cooperation offers when it comes to incrementality measurement, the relationship between CPG retailers and manufacturers has not always been harmonious. In the early 2000s, the impact of cooperation on incrementality was thrown in question by one of the biggest retailers in the business, Walmart.
Take a look at Walmart
At the start of the new Millenium, Walmart was growing at an incredible rate. In some parts of the country, the retail titan owned more than 50% of market share.
This blend of growth and dominance led Walmart to believe they no longer needed to share their store sales data with the broader CPG ecosystem, specifically manufacturers of CPG goods.
When they pulled the plug, the ecosystem lost the ability to understand how Walmart sales benefited overall market-level sales. (Yes, manufacturers could track their shipment data to Walmart, but this would only cover the products they specifically made—they were still blind to category and competitive sales.)
Without this understanding, marketers in the consumer packaged goods space lost a number of capabilities.
Among them?—The ability to calculate the incrementality of sales. A calculation needed for making the key investment decisions behind real growth for CPG manufacturers.
Why does this matter? Well, assume you work for a manufacturer of a consumer packaged good like paper towels.
As a paper towel maker, your goal is to sell as many paper towels as possible, for as much money as possible. To realize your goal, you need incrementality measurement across all paper towel retailers and all paper towel brands to account for sales in the total market (…because not every consumer who buys your paper towels will buy them from the same retailer, and not every paper towel retailer will carry your brand).
Compounding the Walmart problem
Walmart’s aggressive approach to pricing made matters worse.
To see their products carried, CPG manufacturers needed to lower their wholesale prices to suit Walmart’s business model as a low-price retailer.
In other words, by lowering their wholesale price to Walmart, manufacturers effectively subsidized the purchase of the end-consumer.
But this subsidy only makes sense for manufacturers when they can “do the math” and determine the impact of said discount on their business’ versus overall category sales (sales made by the manufacturing competition).
And the key to doing said math?—Well, it’s the store sales data Walmart decided to withhold.
Paying the price
The decision to withhold store sales data came back to haunt Walmart when their brand began losing market share.
Manufacturers—motivated by a need to protect their brand value, facing a lack of transparency, and denied the store sales data needed to make the best business decisions possible—started collaborating with other retailers to create product differentiation strategies that went beyond price.
By 2011, Walmart had endured enough market erosion they capitulated on the issue, and resumed the sharing of store sales data to syndicated market providers.
The result?—Visibility into category sales and consumer shopping behavior returned, and incrementality could finally be measured with accuracy.
Cooperation on incrementality measurement in digital marketing
As it pertains to cooperation and information sharing, the digital marketing industry is no different than the consumer packaged goods industry.
Collaboration through…
- Cookies
- Device IDs
- Advertiser IDs
- And more
…is what allows digital marketers like you to recognize individual consumers, run relevant tests, create ROMs, and calculate the incrementality of specific campaigns. The aforementioned identifiers can also be associated with “permissioned status” and a “persistent ID.”
It is a system of collaboration between advertisers (who are, essentially, the equivalent of “manufacturers” in this scenario), technology companies, publishers, and retailers. The reason the system works is because every collaborative stakeholder understands that cooperation is, ultimately, in the best interest of their business to show how they contribute to increased product sales.
What’s at risk?
Despite the benefits this system provides all stakeholders, a few dominant technology companies are considering taking a Walmart-esque approach to data restriction. The pending decisions of these major players threatens to remove advertisers’ ability to recognize individuals as they navigate the internet. Such an obstruction will make it far more difficult (perhaps even impossible) for advertisers to connect their spending (where they spend, how much they spend, etc.) to results.
(To learn more about this, please watch a recording of Zeta’s recent Addressability webinar.)
What’s next?
Will it take a decade for digital retailers to realize what it took Walmart a decade to realize?…That market dominance today (the most sales, highest site visitation, largest audience, etc.) isn’t enough to prevent market share erosion tomorrow due to data disruption?
No one knows with certainty.
What people DO know is that this realization will come sooner or later as a lack of market-level insights slowly puts the squeeze on customer retention, customer acquisition, and sales volume.
The painful lesson Walmart learned a decade ago should serve as a stern warning to the major tech players threatening to disrupt the current collaboration of the digital marketing world.
