CPG: Promotion, Digital and Branding

The CPG story starts further back CPG companies have always invested about 5X as much in promotion as in advertising Promotion means sales stimulation by price incentives Some of it is saving the consumer money consumer promotion some of it is giving a bigger share to the stores trade promotionThe love affair of CPG and promotion goes way back Advertising effects were not impossible to read but promotion effects spiked visibly to any observerStarting from the checkerboard matched market experimentation devised by Grey and adopted widely agencies were telling advertisers that promotions were losing money and that advertising was more profitable Sounding selfserving this advice was ignoredBehaviorscan reported that 40 of all heavyup advertising tests paid out but only 20 of all promotions The other 80 of promotions lost money both short and longtermThis had very little effect on the system CPG companies were happy with what they did and with the way things were going They had their ways of doing things maybe imperfect but working reliably and they themselves had created those ways and were being rewarded so why mess with itIn the more recent past the shift to executive compensation publicly tied to quarterly sales and EBITDA and the concomitant focus on the shortterm did nothing to undermine the use of promotionMarketing experimentation expert Jim Donius wondered to us the other day about the way CPG uses digitalamp160maybe they are finding it to be a superior form of promotion He means that many CPG digital ads either contain explicit price promotions or incentivize a clickthrough by implying an economic incentive quotMaybe they should take that kind of digital out of their promotion budgetquot Jim mused quotnot out of their advertising budgetquotJim39s insights definitely seem to have a bearing when one looks at the most recent CPG media spending trends more digital is being piled on Yet as we shall see below the actual brand sales and market share trends point in the other direction a seeming disconnect except if Jim is right the ability to see fast sales lifts for digital especially for ads involving price may be the yardstick that most high media managers are using Market share trends show the reverse as we shall see belowFirst the topline trendsOverall ad spend was pretty close to flat since 2017 until the pandemic in 2020 CPG ad spend in the US increased 102 YOYDigital up 301TV down 13Radio up 31Newspapers down 62Out of Home OOH down 144Magazines down 323First quarter 2021 vs first quarter 2020 YOYTotal ad spend up 133Digital up 44Everything else is downTV down 3Magazines down 38Radio down 34OOH down 58Newspapers down 71Media Type Share of Total Ad Spend First Quarter 2021Digital 515TV 450Magazines 16Radio 12OOH 07Newspapers 00One media sub type worth mentioning is Local TV in which CPG ad spend is up YOY 428 in Q1 2021 after three years of declines year to yearCertainly this shows that the whole CPG industry has evidence that digital is working for them The evidence may be mostly marketing mix modeling MMM or perhaps the ability to track priceoffs in digital has enabled CPG advertisers to see that digital is really a more cost effective form of promotionHowever when one considers other important value measures such as longterm brand equity and such as share of market measures one sees a completely different picture of the world The Foxamp160BHC SMI ROAS studyamp160which measured 22 trillion in sales against 48 billion in ad spend SMI to detect correlations of media types with brand share changes IRI in the CPG category we saw more losses of brand share than gains for the CPG advertisers during the months in which they used more digital less TVMarginal utility analysis to determine where to spend the next million dollars on advertising this is how the picture came outSo what are our conclusionsEven those who consider sales more than branding need to start to use both The last time the industry got carried away by promotion was in the 3980s when Maxwell House lost half its market share before brands backed off promotion a bit and shifted back into media moreCPG high media managers should look at more different types of successfailure metrics not just one set and with a more skeptical eye so as to get a more certain picture of reality by assimilating all of the what may or may not be consilient metrics by which to judge a campaign39s effectSeparate out that class of digital which is really promotion and have that come out of the promotion budgetGive consideration to the use of random control trialsGive consideration to our independent industry effort continuing the series of transparent multiple regression studies using SMI and the best industry sales data from which came the bar chart above for exampleThese appear to be good times for CPG They are now also embarked on eCommerce Direct To Consumer DTC development a major systemic change which itself may be the simplest explanation for why such a big CPG shift to digitalClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNetamp160

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