Retail Media Power - Incrementality as the wrong criteria

Retail Media a Retail Marketing Iteration – Part 2 of the Alignment series

Previous: Retail Media, alignment introduction

Let me explain why.

Imagine you have a small coin; what will happen if you throw it in the air and check which side is showing? Easy, inherently, you’ll have a solution with two possible outcomes.

Imagine the ripples that would spread if you didn’t just drop a small coin but temporarily slashed your product price by a whopping 50 percent. It’s no simple feat—this single action could ignite a cascade of diverse outcomes, from an increase in sales volume to shopper stocking-up to availabilities issues to alienating other customers who felt the price reduction destroyed their perception of brand exclusivity, to trigger a competitive price war from achieving your promotion to meet this quarter’s target, to learn at the end of the year that ~70% (including this one) of promotions are not profitable.

Picture this: not just a mere coin drop, but a bold 50 percent slash in your product price. The consequences? A symphony of possibilities. Sometimes, that price reduction orchestrates a crescendo of increased sales volume. Other times, it conducts a melancholic dip in sales. And then there’s the enigmatic silence—no change at all.

Now, imagine an external advisor stepping onto the stage. He scrutinizes the performance. Could it be that the sales volume is not in any way associated with a price change? Perhaps buyers pirouetted towards your product due to other factors—the elegant architecture of price packs, the spotlight placement in search results, or the harmonious assortment, whether in-store or through your online storefront. Or, statistically speaking, there’s a one-in-four chance that those who orchestrated the price reduction might soon ascend the corporate ladder.

This difference between flipping a small coin and dropping your price is straightforward in the context in which a coin is flipped, whereas the context in which a price drops is highly complex, a complexity mainly driven by connectedness.

Flipping a coin? Only you, the coin, and the gravity occur in a very bounded context.

But when you drop a price, the situation is very different; many entities, stakeholders, and processes are involved and connected in one form or another. Your consumers are connected with the price by virtue of their memories of your brand; when they are on a mission as a shopper, they are connected with your price by virtue of their buying habits; your competitors, your market, and teams are connected.

A bias for exploit rather than explore

Below is an extract from - Strategy of Small Wins and Small Bets - Typical Mistakes and How to Get it Right (leadingsapiens.com)

People and organizations go through phases during their life cycle, each of them dominated by a bias for explore or exploit strategies.

The basic problem confronting an organization is to engage in sufficient exploitation to ensure its current viability and, at the same time, to devote enough energy to exploration to ensure its future viability. Survival requires a balance, and the precise mix of exploitation and exploration that is optimal is hard to specify.- James G March in The Myopia of Learning

In exploit mode, the focus is maximizing efficiency, minimizing failures, maximizing output, and perfecting predictability and repeatability. The domain, its problems, and solutions are well-defined and proven. The focus is on production and maximizing the "find.”

In contrast, explore situations demands a completely different skill set: an openness and willingness to experiment and fail, pushing the boundaries, innovating, and being prone to errors. The explore approach is unpredictable, with no guaranteed returns.

In mature organizations, the tendency is often to lean towards exploitation rather than exploration. This can be fatal in the long run.

Why do you need to think about Retail Media as a system?

Imagine you want to lower the price of a product to boost sales. How can you predict the outcome of this decision?

It is much more complex and uncertain than flipping a coin. Why? Because many factors affect the outcome, such as customer behaviors, competitor actions, market trends, etc. These factors are all connected and influence each other in ways that are hard to foresee. These factors are what we call complexity.

Complexity can be confusing and overwhelming. We often try to deal with it by breaking it down into smaller pieces, such as online vs. offline, in-store vs. e-commerce, performance vs. brand building, in-store vs online vs offsite retail media, and so on.

We hope that by understanding the pieces, we can understand the whole. However, this approach can be misleading and ineffective. It can make us lose sight of the big picture and miss meaningful connections and interactions that shape the outcome.

Peter Senge makes this point in “The Fifth Discipline” by observing that “dividing an elephant in half does not produce two small elephants.” Suppose your objective is to use and leverage retail media. In that case, you first need to understand how the retail media systems work, and if you decide to achieve this by cutting this “elephant” up to examine the properties of the parts (digital retail media will be led by TeamA, in-store retail media will be led by TeamB, offsite retail media led by TeamC, with some level of cross-collaborations: brand team, performance team and agencies here, sales and trade team there, digital commerce and digital shelf team there, analytics for causals there, consumer and shopper journey elsewhere; and so on), you are likely to be disappointed, for the act of cutting the system in parts results in the transformation of the system.

We need to look at the system as a whole, not just the parts. We need to identify the key factors and how they are connected. We need to understand the cause-and-effect relationships and how they can be influenced.

Retail media is a system that involves many players, such as retailers, brands, agencies, consumers, shoppers, and tech. platforms. They all interact and collaborate with each other in different ways (or not at all!), creating a complex and dynamic situation.

The Most important criteria

How can you understand and influence this system? How can you leverage its capabilities and benefits? How can you control the factors that drive the outcomes?

To apply systems thinking to retail media, the exhibit above identifies the key players and their roles in the system.

My point link to the provocative title is to create your own baselines first; for instance:

• What source of truth is between you and your retailer?
• What are the cause-effect relationships of digital activation on store (the famous digitally-influenced sales or engagement) shoppers, consumers' future occasions, or unmet consumer needs at this retailer partner?
• Are you sharing your CA[PA]² (see exhibit above), any scorecard attached with incentives to both?
• If you are a brand partner, could retailer data potentially be augmented with your data as a brand for meaningful program-long innovations and conversations?

Map them out to the retail media system; how are they connected, and how do they influence each other?

• In what way might you influence or control certain variables?
• Whether on the brand, retail or while collaborating, are there any feedback loops and delays existing in the system?

You need to identify the commercial and operational points and the interventions that can make a difference in the system, then leverage capabilities to test your assumptions and your actions and learn from the results quicker using the power of the connectedness within the system, and this is the power of retail media.

By doing this, you can gain a deeper and more holistic understanding of retail media as a system and how you can influence and leverage its capabilities. You can also avoid focusing too much on the parts or the initial wrong criterias, leading to incomplete or counterproductive outcomes.

• Are you having partnering discussions already?
• Are there any shared outcomes learning agenda on both sides in preparation?
• Are you already integrated, starting, or finishing your prioritized Retail Media collaboration through Joint-Value Investments?

 “What will you do starting tomorrow that would make a difference? The major step to progress? Get excited over your ability to make yourself and your team do the necessary things!” Jim Rhon