CPG Trends From CAGNY For Ad Industry
Packaged Goods Companies Talked About RGM, ROI, Personalization and More At Key Conference
As I’ve written previously, I pay more attention to packaged goods marketers than most other categories not only because of their absolute size but because they are disproportionately influential within the advertising industry. Moreover, unlike many other categories, advertising is disproportionately important as a cost center and driver of revenue to these individual marketers, and so more information is disclosed by them relative to others.
As a key event that’s useful for following this sector, the annual CAGNY (Consumer Analyst Group of New York) conference took place last week. The event is typically an opportunity for companies’ CEOs and CFOs to provide overviews on the current state and future trajectories of their businesses.
The focus by companies on ROIs (returns on investment), personalization and efficiency more generally illustrate some of the key issues which CEOs and CFOs emphasize in their communications with investors and analysts.
More specifically, claims made about improved returns on investment associated with advertising budgets included:
Clorox: 45% increase in advertising return on investment (as they define it) in 2022 over 2019 levels
Coca-Coca: 9% increase in gross profit per dollar of advertising spend in 2022 over 2019
Colgate: Total media was shown visually in a presentation document to have produced a significantly higher ROI (defined as incremental net sales divided by media investment) in 2022 over 2021 and 2020 levels, with digital media described as having a 1.3x higher return vs. traditional media.
Mondelez: 36% increase in what they define as media ROI (defined as dollars of revenue returned per dollar invested in media) in 2022 vs. 2019 levels
As an important caveat, I believe that assessing an ROI properly requires key assumptions or modelling related to incrementality. Put differently, without necessarily intending to deceive, a company may ascribe “returns” to revenues that might have occurred anyways (for example, if an algorithm used to target consumers was designed to reach the consumer was already predisposed to buy a product, or if attribution is ascribed on a last-click basis while a greater share of media spending is allocated to media owners who have retail sales channels). Regardless of definitions, the focus on ROIs or performance-based metrics illustrates a critical area of focus for management teams.
On the topic of personalization in the sphere of marketing, the following comments were made:
Clorox: “We set a goal to know in the U.S., 100 million consumers. The reason we want to do this is we want to personalize to them. We want to give them more personalized experiences. And when they share information with us, we can share a value exchange back with them. We're 75% of the way to that goal.”
Mondelez: “Close to 40% of our digital media is personalized, with an ROI which is 30% higher than non-personalized assets.”
General comments related to marketing and media efficiency were also made, such as:
Coca-Cola: “We have made tremendous progress in resetting the marketing investment equation. That's allowed us to both invest as our brands and businesses need, but by the same token to do it with less. And we believe that, that is an ongoing advantage that we can and we will enjoy. And we've talked a lot about productivity as not an event (but) a habit
Kellogg’s: “Today, more than half of our media spend is through digital, and we have improved our effectiveness in addition to cost efficiency.”
Pepsico: “We're being very diligent on improving the ROI on our brands, making sure that working (advertising and marketing spending, i.e. paid media) is…getting larger every year against nonworking A&M (i.e. related servies) and all the efficiency metrics that you can expect from a company like ours.”
P&G: “We're increasingly looking at reach, which I mentioned, as the measure of efficiency. We want to achieve -- we want to increase reach, in part, by reducing investment in frequency and the tools we have increasingly available allows us to do that much better than they ever have in the past.”
At a more strategic level, the topic of Revenue Growth Management (“RGM,” also known as revenue management or strategic revenue management among other names) – essentially the collection of yield management strategies pursued at the enterprise’s portfolio level such as the establishment of optimal pricing, packaging, promotional and distribution choices – came up regularly, much as it does on companies’ earnings calls and investor events.
For the advertising industry, RGM should be important to understand, if only to understand a key issue for a critical group of clients. From my interactions with practitioners within the media industry, there are elements of these activities which tie to media strategies. However, with few advertising professionals aware of RGM as a concept, it seems like there should be opportunities for participants in marketers’ supply chains (i.e. agencies, media owners, data and advertising technology providers) to more explicitly account for these strategies as part of their own product roadmaps. This could be especially true in areas such as the development of custom algorithms and in retail media-related activities.
More specifically, some of the descriptions and commentary of RGM activities made during last week’s presentations follow:
General Mills: “Strategic revenue management (SRM) is another capability whose impact has grown dramatically in recent years as we've enhanced our use of data and analytics. We've developed a full suite of strategic revenue management levers, including list pricing, promotion optimization, mix management and price pack architecture as we've built three-year pipelines of actions across our brands, enabling us to adapt our approach and continue to achieve net price realization in a rapidly evolving cost environment. We've demonstrated this adaptability over the past two years and we stepped up our strategic revenue management activity to help offset the unprecedented level of cost inflation that we faced. With robust data sets and granular analytics, we varied our SRM approach at the category and even item level to address relative price points and cliffs while maintaining our overall competitiveness.”
Kellogg: “(Our) RGM capability has produced carefully implemented price realization, an important complement to our productivity initiatives in our effort to cover the dollar impact of this input cost inflation. And its disciplined approach is a big reason we continue to have constructive collaboration with our retail partners…We'll also continue to leverage revenue growth management, not just in the areas of pricing, but also in the promotions we execute, the price architecture of our products, accretive innovation and then our mix and our channel market has been really intentional around all of that.”
Kraft Heinz: “(Revenue management) encompasses pricing strategy, price stack architecture, mix management and promotion optimization, and we're evolving in all these areas. We have created a dedicated structure at our global center of excellence and in each zone to be fully focused on this critical lever. In North America, for example, we have about 50 people 100% dedicated to revenue management. At the same time, we have been investing in digital solutions, including a proprietary trade management system. Let me give you one example of what we have been working on. Our proprietary trade management system gives us real-time access to detailed information on approximately 100,000 promotional events in the United States alone. We then created digital tools that leverage the large amounts of data to provide insights and recommendations in a simple way.”
Mondelez: “We continue investing in increased RGM expertise, tools and training to equip our teams to use all the levers available to drive top and bottom line, including price pack architecture, promotion management, driving structure and managing mix. We're excited about the promise of these increased capabilities. You will recall from our Investor Day that RGM has become a fundamental part of our strategy. We are seeing strong results in markets like Brazil, where the net revenue per kilo continues growing and where RGM plays a central role in unlocking value. Building upon that success, we continue investing in increased RGM expertise, tools and training to equip our teams to use all the levers available to drive top and bottom line, including price pack architecture, promotion management, driving trust terms and managing mix. We're excited about the promise of these increased capabilities. And finally, to deliver all the above and be future ready, we are continuing our investments to build our capabilities and infrastructure and drive the opportunities of digitalization in all the key areas that can accelerate demand.”