How Manufacturers Can Quantify Marketing, Gain Retailers’ Trust
Twenty years ago, grocery stores had an average of 7,000 items for sale. That number now stands at over 40,000. For consumers who embrace choice, this has been a welcome development. For manufacturers, it's been more of a mixed bag.
Manufacturers in grocery, consumer packaged goods (CPG), and other industries have steadily lost power to retailers in recent years. Two key factors have conspired to make retailers gatekeepers for millions of consumers — the aforementioned explosion in the number of products and the growth of superstores. Consider: Walmart offers 142,000 products in its superstores (with another 70 million SKUs online).
More and more, manufacturers have found themselves at the mercy of retailers. Securing prized shelf space in retail outlets is a highly competitive contest in which manufacturers, distributors, and wholesalers vie for supremacy. Manufacturers with high-performing product lines may start off with the best locations. However, they must constantly contend with upstart brands looking to work their way up from the lower shelves.
A key to success in the battle for shelf space is to earn retailer trust. Manufacturers must show that they are investing in their brands and driving sales. By providing metrics that quantify the impact of their marketing campaigns on sales, marketers can effectively convey the strength of their support.
Feeling the Crunch
In addition to the quest for more shelf space, manufacturers are facing a number of complex challenges:
- Retail distribution is the top challenge for any product, whether it involves a direct distribution channel or a longer pathway comprising wholesalers, distributors, and/or other intermediaries.
- Online shopping accounts for 11% of all retail sales in the United States, and e-commerce giants like Amazon, Alibaba, eBay, and Shopify aren't going away anytime soon. Plus, in order to reduce or eliminate their dependence on retailers, many CPG manufacturers (e.g. Harry's, Casper, Graze, Blue Bottle Coffee) have prospered by launching their own shopping sites for direct-to-consumer sales.
- Another trend shifting the power of manufacturers to retailers has been the influx of private-label brands. A 2019 Private Label Manufacturers Association analysis of Nielsen data found that "private label dollar volume in the mass retail channel surged +41% over the last five years, compared to a gain of only +7.4% for national brands." Furthermore, Nielsen reported in 2019 that over 19% of sales is now comprised of premium tiers of private-label products.
Then there is the rapidly changing media landscape. The growing number of channels, platforms, and devices has given manufacturers opportunities to reach audiences in more ways. But it’s also made customer journeys much more complex.
These days, it's more difficult not only to find target audiences, but also to execute an effective plan to reach, engage, and convert them. The concept of "delivering the right offer at the right time" has never been more critical for boosting trips to the store, increasing basket size, and driving sales.
Success requires that marketers test new campaigns and tactics, as well as gauge ROI. By taking a thoughtful, data-driven approach, marketers can determine what they are doing right, and how best to allocate their budgets moving forward.
Measuring Incremental Lift
Marketers bear the burden of proving to leadership that they persuaded buyers to take some desired action, whether that is purchasing an item or registering for a trial. Manufacturers must go a step further and prove to retailers that they are adequately supporting a brand and driving sales — and thus, deserve to be granted more shelf space for their products.
One way to check off this box is to measure incrementality through a short-term test of campaigns. Incremental lift shows the impact of a particular advertising channel, campaign, or tactic on sales. By analyzing changes in consumer buying behaviors (e.g. brand penetration, basket size, share of category, purchase frequency, and size), manufacturers can measure the lift that marketing and advertising deliver above native demand.
Lift analyses can also answer critical questions about campaign performance, such as the impact on existing buyers vs. new buyers, changes in share of overall category sales, the exposure frequency that drives the greatest sales impact, and more.
With these insights, manufacturers can not only draw a direct connection between marketing activities and sales, but also optimize their future efforts based on actual sales metrics. Perhaps most importantly, manufacturers can strengthen their case with retailers to win more of that precious shelf space, while generating more revenue for their organization and the retailer, alike. Talk about a win-win.
Related story: Incremental Lift: The Key to Proving Campaign Performance
Zhelko Genev is a solutions consultant director for Nielsen’s Marketing Effectiveness group, where he is responsible for building technical understanding and credibility with prospective clients, scoping client engagements, and showcasing Nielsen’s Campaign Lift suite of testing solutions. Reach him at firstname.lastname@example.org.