Note: A version of this post originally appeared in Forbes.
Endcap displays, temporary price reductions, circular ads… Trade promotions aren’t sexy, but they still get the lion’s share of marketing dollars, accounting for nearly 44% of packaged goods companies’ 2017 marketing budgets.
Initially popularized by CPGs as a means to drive short-term sales and market share in supermarkets, catching consumer attention at the point of sale long proved essential to goods manufacturers, which today spend more than $200 billion each year on trade marketing with retail partners in the U.S. alone. But trade marketing typically ranks as the second-largest line item (after the cost of goods sold) on a company’s P&L and eats up nearly 20% of gross sales — and according to 63% of CPG executives, current levels of trade spending are simply unsustainable.
The problem is that trade marketing, as a practice, hasn’t kept pace with consumers’ shift to digital buying. And this equates to millions of lost opportunities to engage with customers — and, potentially, millions of lost sales. Research from Deloitte reveals digital interactions influence 56 cents of every dollar spent in brick-and-mortar stores, totaling $2.1 trillion annually.
Although manufacturers are increasingly migrating trade spending to online promotions on retailer websites, retailers have been putting more focus into social media, email and mobile initiatives to compete with digital disruptors delivering more personalized consumer experiences. As a result, trade marketing strategies are misaligned and less effective. It’s time for business partners to consider a new way to collaborate, and a more valuable currency to trade — namely, customer data.
Sharing customer data isn’t a new idea, of course. But it’s one that hasn’t been fully realized. Too often, brands think that their underlying asset is their physical product, not knowledge of their customers. But today businesses are competing with next-generation companies that don’t have product legacies. Instead, they are built on a foundation of customer data, which enables them to discover, fulfill and create new consumer desires.
Think about the unprecedented success of Amazon. It isn’t going to be the first trillion-dollar company because it offers shoppers the best products. Rather, it’s because it uses every bit of customer data it has to make the most convenient shopping experience possible. Through its customers’ website interactions, Amazon essentially can read their minds. And with its 2017 acquisition of Whole Foods, Amazon now knows even more about what people shop for and what they actually consume, filling in the gaps in customer knowledge to inspire even greater end-to-end experiences.
So where does this leave the suppliers and retailers that are still bartering prices per unit and endcaps? Odds are, scrambling more than ever. Gartner’s CMO Spend Survey 2017-2018 reports that one-third of CMOs expect their marketing budgets to be cut or frozen, with retail and manufacturing hit the hardest.
To compete with the likes of Amazon (or Walmart, or L’Oreal, or any of the other oft-publicized brands that are leveraging offline and online data to gain a more holistic understanding of consumer behaviors), trade relationships need to be based on customer data. Both retailers and suppliers have unique first-party data sets, and these are exponentially more powerful than an aisle display or Sunday circular.
Consider the relationship between Best Buy and Samsung, for instance. Say you need a car charger for your Samsung mobile phone, so you do a quick search on Best Buy’s website and run to the store to purchase it. Best Buy now has knowledge of your browsing history, along with in-store transactional data, uncovering the behavior and intent of this single shopping journey. Samsung, not privy to this data, may believe its promotional display by the cashier is the reason for this sale. Likewise, Best Buy — without previous knowledge of your relationship with Samsung — lacks the historical insights necessary to inform contextually relevant ways to engage with you post-sale. By strategically trading first-party data, both partners can encourage you to buy more from that brand — and more from that store.
Look, you’ve seen the headlines. You may even live them. Digital disruption is old news; absolute domination is the story of the day. To compete with the major players, a new tactic is needed, particularly for companies that lack the large data sets, resources and skills to go it alone. Moving forward, brands and the retailers that sell their products need to reconsider their trade relationships. By banding together in strategic data partnerships, they’ll forge comprehensive and scalable customer data assets to drive smarter strategies to meet customer needs, create more valuable engagements, even open up new revenue streams — all of which leads to better bottom lines. Now, that’s sexy.