Shopper Marketing is Dead

• Published on August 6, 2016

Gary Hawkins

Leading shopper-focused retail innovation

Shopper marketing has grown over the past decade to become a commanding presence in the consumer packaged goods industry. CPG manufacturers spend nearly $225 billion annually on marketing, representing over 20% of total revenue, with approximately 57% of that spending paid to retailers to fund shopper marketing and trade promotion initiatives [2014 Marketing Spending Industry Study; Cadent Consulting Group]. Large brand manufacturers have built out massive shopper marketing departments within their organizations, employ legions of data analysts searching for insights and fund countless agencies conducting never-ending research. Shopper marketing has established itself as a vital discipline in the retail industry.

Shopper marketing is dead.

Wall Street demands for greater return on massive marketing budgets, the sense that shopper marketing has lost its original focus, and a gnawing feeling that rapid innovation across the supply chain is creating new ways to go to market, are all driving industry leaders to search for what’s next. Shopper marketing is becoming the latest victim of the technology-fueled transformation sweeping the retail industry.

Enter Customer-of-One retailing.

Let’s imagine you are a brand manufacturer and you have just one customer to focus on, let’s call him Joe. You would want to learn all you could about Joe but most importantly you would want to know how often he purchases from your product category and your share of his category business. You would also want to understand Joe’s brand loyalty and discount propensity.

Armed with this knowledge you would then want to promote to Joe just before he’s due to make his next category purchase, aligning brand promotion activity to Joe’s purchasing cycle. Ideally communicating the right offer (knowing Joe’s discount propensity) at the right time (easy to do in today’s digital world), and in the right place (including in the store as he’s approaching the category).

Over time you would want to grow Joe’s value to your brand by increasing his purchase frequency, up-selling and cross-selling into larger package sizes, multiple units, and related products.

Stepping back from a focus just on Joe, you would want to maximize the lifetime value of each of your brand customers, aligning promotion timing and discounts to each individual customer.

Now compare this marketing nirvana to what actually happens today. Mass promotions are inefficient at the customer level, either providing too little savings to convert a sale, giving away more margin than necessary, or out of sync with the individual customer’s purchasing pattern. There is often no recognition of first-time brand buyers or effort expended seeking to retain customers defecting to a competing product. CPG marketing suffers from massive waste and lost opportunity.

The Customer-of-One approach mandates new analytics and reporting. It requires scorecards that enable a brand to measure the number of customers purchasing its products by category, and whether they are new customers, repeat customers, or those declining in brand spending. This customer inventory also reflects a corresponding share of category, sales, and units sold.

Armed with this new data, brands become ideally positioned to invest marketing funds more intelligently. Experience will quickly prove the best ROI comes from increasing the purchases of existing customers, growing brand loyalty. Brands will also discover that first-time customers represent a growth opportunity when able to intelligently encourage repeat purchase.

These new scorecards — finally — provide brands definitive measures of the efficacy of in-store merchandising initiatives, which are able to evaluate the off-shelf display in terms of securing brand trial, growing purchases of existing customers, or slowing the rate of declining and defecting customers.

A handful of loyalty disciples understand the power of this customer-focused approach. For example, Kroger’s focus on growing the value of existing customers has been a core tenet of their Customer First Strategy over the past decade, which has delivered an unprecedented 50 consecutive quarters of same store sales growth.

The mainstay of Kroger’s success is the strategic targeting of promotions to acquire, grow, and retain customers. As Kroger has grown share of customer it has realized improved margins that have in turn been reinvested in key item pricing, helping the company grow market share. Improved pricing helps bring in new customers that are funneled into Kroger’s targeted marketing initiative, starting the cycle anew. Kroger’s customer strategy has created an upward spiral of value creation.

The same concept of using strategic promotion targeting to acquire, grow, and retain customers can be applied to brand marketing. I am not suggesting an incremental approach, rather, a wholesale transformation of how shopper marketing and trade promotion is executed; a Customer-of-One approach.

 So why hasn’t it happened?

When challenged to explain why they are unable to more effectively maximize customer lifetime value at a brand level marketers are quick to point out that they often have little access to the end customer, let alone the requisite data and ability to take action. I would agree that brand marketers are challenged; even Kroger works in promotion cycles that coincide with only some customers’ regular purchasing activity.

But that is changing. While big brand manufacturers fixate on shopper marketing initiatives at the largest retailers, or expand digital coupon initiatives (which make purchase subsidization even easier), a quiet revolution is occurring in the hinterlands of supermarket retailing.

In a growing number of regional chains, often given little consideration by big brands, the capabilities I am referring to are being put in place and ongoing digital engagement with a growing number of shoppers is taking hold. To be fair, many of these retailers do not yet fully realize the power of the platform they have deployed but this too is changing quickly.

Consider this scenario: A retailer has ongoing digital engagement with a growing portion of its customer base. It is able to leverage all digital channels — web, email, text, mobile, even the receipt at checkout — to communicate a customer-specific promotion to the individual customer. Behind all of this stands big data customer intelligence: an understanding of purchase history, brand scores, discount propensity, purchase frequency, seasonality, what items are on the shopping list, what items have been searched for, typical shopping days, time in the store, typical path through the store, time spent in different areas of the store, and more. On top of this big data foundation is a system that leverages AI and machine learning to suggest the best promotion for a specific customer at that moment designed to maximize customer lifetime value.

This retailer now has the ability to market to Joe as we described earlier: the right promotion at the right time in the right place, in the right amount, just for Joe. And because the platform is using cognitive computing, the ability to do this for each and every customer, all in real-time.

Imagine as a brand marketer the sales gain and marketing efficiency that could be achieved by partnering with this retailer and aligning promotional activity across all your product categories to the purchase cycle and discount propensity of each individual customer. Or think of the competitive disadvantage created if other brands move first.

This capability is disruptive to traditional CPG marketing. Automating strategically driven promotion targeting combined with ongoing, pervasive digital customer engagement supports synchronizing brand promotional activity to each individual customer’s purchasing cadence. This customer intelligent approach makes trade promotion, and even shopper marketing, the equivalent of bringing a knife to a gunfight. Customer-of-One retailing fires a broadside into established industry marketing practices.

In presentations I’ve delivered recently at retail conferences and Georgetown’s McDonough School of Business I speak of a growing innovation-implementation gap. Companies are increasingly unable to keep pace with implementing new innovation, opening the door to competitors leaping ahead by employing new capabilities or new competitors coming in from outside the industry.

Big CPG brands are very much at risk. Embedded processes, complex organizational structures, and compensation plans tied to old measures, make the largest CPG manufacturers resistant to fundamental change. Burdened by their very size, big CPG brands many times have an inability or unwillingness to devote resources to new innovation that does not immediately move the needle. Yet at the same time, many of these same large companies have launched technology accelerators and incubators. These large brand manufacturers are innovation schizophrenic; their entrenched bureaucracies impede change in the market while management seeks solace in exposure to nascent innovation.

Meanwhile, retailers with Customer-of-One marketing capabilities are finding fast growing interest, and participation, from tier two brands, regional, and local manufacturers. Smaller brands are positioned to take advantage of the market opening, having been largely precluded from the shopper marketing movement. These companies are hungry and the era of true customer-specific marketing is tailor made for them.

Think this can’t happen? The capabilities I’m describing are already in place and being used by an increasing number of customers at Niemann Foods’ County Market stores,Coborn’s, Woodman’s Markets, Foodtown, and a growing number of other regional retailers. Each is experiencing increasing participation from regional and local brands salivating over access to industry-leading digital marketing capabilities while their larger brand brethren are having yet another agency review in search of the next insight.

Like the retail industry itself, marketing is in flux today, as new channels and new capabilities for reaching consumers appear daily. Shopper marketing’s original goal of influencing the shopper along the path to purchase is outdated when the paths to purchase have multiplied exponentially. The very notion of a path to purchase itself is being obliterated since a consumer can become a customer within seconds, enabled by the ability to transact nearly anywhere at any time. Through marketplace chaos one truth remains: Marketing must be relevant to the individual customer.

Clayton Christensen, author of the Innovator’s Dilemma, speaks of the need, and the challenge, for large companies to disrupt themselves if they wish to continue success. Its time for big CPG manufacturers to reassess the marketplace and transform their traditional marketing practices.