Transcript
Peter Crosby:
Welcome to Unpacking the Digital Shelf, where we explore brand manufacturing in the digital age.
Peter Crosby:
Hey everyone. Peter Crosby here from the Digital Shelf Institute. More than ever, we are in an era of wanting to squeeze maximum omnichannel results out of every dollar spent and saved. That requires leaders in commerce to become a general manager of the area they manage, driving incrementality across every level in the business. The team at Commerce IQ spends time with a lot of customers who are focused on the Great Squeeze. And Samir Bhavnani, VP of Sales, and Gopal Shah, head of Product Marketing, Commerce IQ, join Lauren Livak and me to share some valuable insights and case studies to inspire your journey in this next decade of the digital shelf. Samir and Gopal, thank you so much for joining us on the podcast today. We're excited to have you both here.
Samir Bhavnani:
Thanks for having us. We couldn't be more excited to be here.
Peter Crosby:
So a big theme for 2023 for the DSI and, well, the whole industry, let's just call it, is profitability. And I don't think that's going away anytime soon. So everyone's trying to figure out level set, what is e-commerce path, what does that look like today? How does it fit into the overall omni-channel business results that the people are looking for and how to look at a P&L. And as you guys know, our folks, our listeners are in the role of educator, cheerleader, bully, whatever they need to be to sort of help shift the business in new ways. And I find them often in the place of doing that, even in consideration, not just of e-commerce, but of the business as a whole, largely because they're innovators and driving towards that overall omni-channel performance. So I'd love for you... And maybe, Samir, we start with you just how are you seeing e-commerce leads who you work with a lot as well? How are you seeing their roles or their focus changed during this time?
Samir Bhavnani:
Well, I think there's been a couple of things. So the huge sort of growth spurt that we saw during COVID, that was this sort of rising tide that lifted all boats. And everybody was able to benefit from it, even if you weren't necessarily all that great at running a P&L or growing a business profitably. And what we're finding now is businesses really need to have this sort of, what I call, it's like a return to adulthood. We need to really look at this business in a serious manner. And we need to do things that maybe you didn't concern yourself with when everything was growing 40, 50, 60%. Things like preventing leakage. What can you do to make sure that your products are ready to buy, that you're not getting charged fees and fines? And we're out of this sort of this crazy growth arena that we're in and we're moving into a little bit more of a recessionary time. So it's time to put on our big boy pants again.
Peter Crosby:
Or big gal pants.
Samir Bhavnani:
Or big gal pants.
Lauren Livak:
Thank you, Peter.
Peter Crosby:
So Samir, when you think of this kind of maturing of the business and... Are you finding that what's happening is the KPIs are changing to be able to do that? Or what is it that when it comes down to figuring that out, what is the shift that's happening to get better at that? What are you seeing?
Samir Bhavnani:
So it all comes down to kind of this brass tacks. So it comes down to tactics. It comes down to executing. It comes down to making sure that you are measuring the KPIs that matter for your business or your subcategory, whatever that may be. And there's a much larger, what I would call, spotlight on performance by everybody from the board to investors. Because like I said, a couple of years ago, you were growing without doing a lot of work. It didn't take a lot of effort. The customers were there. And now, you're in a spot where things are very, very competitive. So it's very important to understand not only how do I prevent what we call leakage events, but then how do I shift that and go play offense and take advantage of things when my competitors may be falling apart?
Lauren Livak:
And when we look at how brands are changing the way they look at their marketing mix model, what has really changed over time, Gopal? What have you seen shifting? How are brands thinking about it differently across the entire marketing mix?
Gopal Shah:
Yeah, yeah. I think it kind of builds on what Samir was saying, which is the people that are running retail media for example, they're taking on a general manager mindset. It's not about running my KPIs and isolation. It is how do I think about the total business? One, obviously, to be a steward of the business, but two, selfishly, it's what's going to improve the cost to serve for their channel? And so, one of the big things that they're seeing is you're no longer looking at ROAS as your true north. That's a good overall metric, but instead, how do I drive the right marketing mix that's improving contribution profit, that's improving both my paid and my organic halo. And really understand which SKUs should I actively promote, knowing that I can get much more surgical with retail media, and which one should I maybe deprioritize even if at the expense of volume. Again, it's a very, very different game now where growth is not a given, and so you have to make sure you're driving profitable growth instead of growth at all costs.
Lauren Livak:
And how are you seeing organizations do that? Excuse me. Is there a resistance from different functions to think about it more holistically? Because when we think about larger scale CPG companies, they naturally have silos, they naturally have multiple different functions that are running towards their own metrics. So is this a big internal shift and do you feel that people are ready for it?
Gopal Shah:
Yeah, it's a little bit of an internal shift, but it's not met with much resistance. I think that the big challenge is just the fear of the unknown. So the one big challenge out there is most retailers are going to really provide just ROAS. Just to add attributed sales. And so to cut through that the next level of how do I make sure I'm driving true incrementality, it's really the data gap that's holding people back. But we're seeing more and more people really, really double down on things like iROAS as an example. So that combination of measuring both my paid activity and my organic halo and understanding which bids, which keywords, which SKUs are actually most incremental. Once they have that data, we're finding brands are adopting it like crazy. That we actually had a case study very recently where a food brand we worked with, they switched over on Walmart to a completely iROAS based model and within roughly the same budget, they were able to see a 33% decline in cost per click.
And so that leaves brands with one of two paths they can take. They can either take the savings and drop down to the bottom line and sustain top line, or they can take those cost savings and reinvest them back into that incrementality-based optimization and actually drive growth in an era where many other brands are pulling back. So it's kind of a step change we're going to see across every channel, across every industry. I think now it's just a focus on who can activate against that soonest and then those that do are going to see a share benefit.
Lauren Livak:
iROAS is such an interesting metric because I think it speaks so well to how organic and paid are complimentary. And I think we sometimes forget those two pieces where organic is an amazing driver, especially for brands that might already have market share and they're the big name brand in that category. You can really do a lot with organic and supplement it with paid. And so I really like that those two things are coming together in that metric because you need both in order to be successful. And sometimes, and I don't know if you see this, but sometimes those people sit on different teams, and that's a huge issue. Where the people who own organic search might sit on, let's say, an e-commerce team and the people who own paid search might sit on a retail media team or a shopper marketing team. And I think that convergence needs to happen and it needs to happen soon because they're so connected in terms of your overarching strategy. And I don't know if you've seen that with working with some of your clients.
Gopal Shah:
Yeah. Yeah, and you're totally right. I mean, it's the 80/20 rule. I mean, roughly 80% of your traffic is coming from organic, 20% from paid. But the way this works in terms of driving the flywheel is to make sure your paid is driving organic. And not just from a search relevancy side, but even from an insight side as well. We found that brands that look at their retail media, for example, and find the right keywords that they use to optimize their content are going to see that benefit from paid and drive that to organic. But to your point, they often sit on different sides of the house. Brand teams might own the organic side, the content, and then the shopper marketing teams might own the retail. What I think has sort worked the best is having one unified data set and making sure everybody's optimizing against that single source of truth. And then there's no question around what needs to be done that's best for the business. And obviously depending on how the org is, who owns which parts of retail, media, content, et cetera, everybody's marching in the same direction.
Peter Crosby:
Yeah. We really are starting to see orgs reshuffle in this period to try and bring all those pieces together. And it seems like it's working. People are getting the results that you need, and the incentive was much easier to align when you have one boss. And I didn't know if you were seeing that kind of org redesign happening among the folks you work with.
Gopal Shah:
Yeah, I think we're seeing a mix out there. I think the most definitive thing that's happened so far is from a P&L side, at least the clear delineation of demand generation and demand capture and how that aligns between the brand or business unit and the sales team. So demand capture would be more performance marketing, more paid search, and unfortunately as a result, counting more of that towards trade. In terms of the actual org structure, we've seen a mix across the board. Some brands have kind of a unified end-to-end e-commerce group. Others are really intentionally trying to embed e-commerce and performance marketing within the brand teams themselves.
Peter Crosby:
Yeah, Lauren, I think you've done a fair amount of thinking about the org structure and we're starting to see some of the more mature organizations push it back into the business, trying to get more of that omnichannel approach. Is that what you've been seeing, Lauren?
Lauren Livak:
Yes. I think the big theme to your point, the more mature organization, is the democratization of e-commerce across the business. But that's no easy task, right? So I think it's a key element in order to be successful to have the unified metric and to have an end-to-end strategy, but not every brand is really there yet. And what I've seen is that a lot of the brands that are building out their models and really trying to figure it out or moving towards just centralizing e-commerce first, using that to have a center of excellence to educate the rest of the organization. And then that next step is the democratization where you don't have a digital marketer, you just have a marketer and they know digital. Or you don't have a digital salesperson, you just have a salesperson and they understand digital. And at the end of the day, I think that really is the goal for every organization to get to. And it's just about what are the steps and how long is it going to take to do that.
Peter Crosby:
Yeah. And it's happening on the retailer side too. I was reading a great newsletter edition from Russ Dieringer at Stratably today about Walmart and their results. And part of what he was talking about is that Walmart is really investing in trying to get their merchants to be more digitally savvy and aware in order to be able to centralize that conversation. And so I think we're seeing that happen on both sides of the equation. Samir, do you agree?
Samir Bhavnani:
100%. And what you're getting to is if you have a dollar, where are you spending it? And so as ways of working change and some of these silos get broken down, should that dollar be spent on an end cap or should that dollar be spent on an organic term, a DSP, where should that go? And previously, and it's just starting to happen now, we have that ability, I think, now to say this is the best way to spend your money to get the most out of the existing budget as opposed to just the old way of working would just be throw more money at it. You're going to grow, your ROAS will be better, you grow your sales. Now you need to think about it from the lens of the profitability lens, which is making sure that each dollar, that none of that dollar is wasted and it's all going towards something that's maximizing those pennies.
Lauren Livak:
And I think you make such a good point about an end cap versus a paid search ad because it's no longer the in-store team has X budget and they're driving X percent of growth or profitability, and the e-commerce team is separate. Everybody's together, and we're all marching towards the same metric at the end. So how are we using all of the tools in our toolkit along the strategy path to get to where we want to go, whether that's an in-store promotion or an online promotion and mixing in between. So I think that's truly where omnichannel comes in and how organizations need to think about their budget and need to think about profitability, and that's really the big shift. So I'm really glad that you made that point.
Peter Crosby:
Yeah. Another area, Gopal, compared to sort of the shiny pennies of running retail media, et cetera, but really ordering and payment terms are an incredibly important part of running the business well and of having predictable cashflow, et cetera. Are you seeing any shifts in this current period about how brands are handling that?
Gopal Shah:
Yeah. Yeah. This one's coming up a lot. I think this is a good example where it's another conclusion of having that general manager mindset. And I think it's an area where a lot of brands are not really thinking about order to cash and cash conversion as unified as they need to, but it's huge. I mean, I guess two of the macro themes I'm seeing, one is that intense focus on inventory carrying costs and how can I convert my inventory to cash and carry less from both the brands and the retailers. The second is that cash conversion cycle. Payment terms are coming up left and right. Retailers are pushing to delay them. I mean, rule of thumb every 30 days is roughly 1.5 to 2% of value. And so we're seeing a lot of brands focus on how do I improve and tighten that order cash cycle? How do I take inefficiencies out there as well? Shortages and retailer operational fees are also a really, really big focus.
And what's nice is a couple of years ago, this used to be kind of buried in the backend where somebody from supply chain or finance had to dig through things and now these are legitimate top priority number one and priority number two ways to drive extra profit for a brand. And so they're spending a ton of time fixing their operational issues and improving that overall order to cash cycle.
Lauren Livak:
Are you seeing that connected to in stock versus out of stock and how the supply chain teams and the sales teams and the marketing teams need to work together to get a better picture of that, where I feel like a lot of brands didn't necessarily have a great grasp on that.
Gopal Shah:
Yeah, this is the perfect example of having that true integration is going to drive the best results for both brand and retailer. Because again, historically you could just say, I want to make sure I have maximum in stock, so let me load up with as much inventory as I can. And now you have the two things. One is going to be you're in a supply constrained world for the most part. It's getting better, but it's still a challenge. And two, every extra week or even extra day of carrying costs is legitimate money you can be reinvesting the business elsewhere.
So what we're seeing is kind of best practice is making sure those two things are tied together and not just from a people and a data side, but even programmatically. Every single retail media activation should be tied back to every single purchase order. Brands should have some sort of almost self-healing inventory position. Where your inventory is too low, make sure that you're pulling back on spend. And conversely, if your inventory's too high, have a mechanism to overspend to drive that consumption. But again, we're going to see that brands that really do that well and that partner with their retailers to properly forecast are going to succeed.
Peter Crosby:
Such a fascinating, complex part of the business. And I can imagine the data that's necessary in order to be able to do what you're talking about. Does that exist in the world today?
Gopal Shah:
It does. I think the challenge for a lot of brands is how do they tap into that and how do they make sure they can activate against it? Because you're right. You might have your ERP that's looking at all of your purchase orders, all of your inventory. You'll have different portals with your retailers where there's the order management and you usually do have a totally separate portal where you're running your retail media, your trade promotion, et cetera. So having a platform where those teams can connect, can all reference the same data. And of course where you can influence either the forecasting and supply side or of course the demand side with retail media, that's the sweet spot.
Lauren Livak:
And you were talking about making sure your retail media ads are driving to the right place with the right content. And when we think about the digital shelf content is so critical in that. And how are you seeing brands connect content back to sales and profitability? And I'll throw in in stock versus out of stock because we know that's such a critical element in looking at the digital shelf. So what are you seeing in that space?
Gopal Shah:
Yeah, actually, and this goes back to that 80/20 book beginning. If you have finite dollars, you're going to want to focus on the 80%, which is the organic traffic. And that's going to be... The big buckets are going to be obviously content and in stocks. We actually had a really good example of a customer of ours in the alcohol category, and they were actually to drive about a 700 to 800 basis point improvement in conversion rate just by identifying some very, very low hanging fruit with relevant keywords, relevant description content, that was missing from their niche retailers that were actually pretty relevant for those SKUs.
So I think to kind of broadly answer your question, they're prioritizing where they can improve the most with organic share of voice and organic impact. And then obviously with finite time of the day, they're making sure that they're dedicating specific time, and in many cases, even specific teams to improving both organic content and of course early warning signals of out of stocks. So for example, if you're scraping a detail page and you're finding out that it says only five left in stock, use that as a signal to inform your demand planning side of it, and of course your retail media and trade, instead of waiting until, proactively or reactively, something runs out of stock.
Lauren Livak:
And that requires all of the correct teams to be talking to each other, cross functionally. As you were saying that, in my head, I was like, okay, so that takes this function and this function and this function to get that right. And I think that's probably one of the biggest challenges for brands, especially when you think about just content in retail media. I've seen so many times where a retail media ad might be running and they might be directing to a PDP that doesn't have enough imagery and doesn't have complete content. So how are you seeing... And maybe who are you seeing get involved in those conversations to make sure that you have the cross-functional team together to be able to actually execute something like that?
Gopal Shah:
Yeah, I'll take a stab at this, and Samir, I'd love your thoughts as well. I think the broader theme I'm seeing is that it's no longer e-commerce, it's just commerce. It's no longer this ancillary group you used to have. It is an intentional goal of every organization to embed that within your total team. You're not going to be a Walmart national account manager and have a separate focus on e-commerce. That's going to be part of your daily job.
So I'm seeing this across every single org where it's usually the VPV commerce. One of their other core objectives besides driving net sales and profitability is actually driving operational excellence and integrating their activity in the rest of the org. Some functions, like let's say e-commerce channel management, success for them would be not having a job in five years, or at least not having that job, to make sure that they've instilled their capabilities throughout the org. And that's a function of the people, the processes, and to your point earlier, the technology, because much of that tech connecting back your ERPs, your purchase orders, your retail media, that doesn't fully exist, at least not embedded with the orgs.
Samir Bhavnani:
One of the things that I've seen is this whole concept of do your job and stay in your lane doesn't exist anymore. It is imperative now that someone on the marketing team has a relationship with someone in supply, has a relationship with someone in finance. If a certain product starts trending, let's say, on TikTok, that retail media team needs to be aware of this, right? And they need to be aware how much inventory is remaining in stock, for example. And so we're starting to see the ways of working and all of these organizations are rapidly changing where all of these walls that existed are being broken down. And the ability to impact or act upon some of the data that's available really varies based upon who that merchant is. So the data availability, let's say, from an Amazon or a Walmart retail link compared to an up and comer, like a DoorDash or an Instacart, may be drastically different. Ulta Beauty might not have as rich a data as Walmart. So the types of things that I can impact may vary based upon that exact merchant.
Peter Crosby:
That makes sense. One of the groups that you mentioned when you were listing them off is finance. And clearly at the end of the day, in some ways, where the biggest shift almost needs to happen if we're actually going to drive towards... Because incentives need to line up for behavior. And so if people are not incented towards that omni-channel goal, towards these things very clearly, and if positions aren't getting credit for the broader business impact that they're having, then nobody's going to behave in the appropriate way to have. How are you seeing the finance and business connection change.
Samir Bhavnani:
It's a great question. So what's happening is this concept of no stone left unturned. And what we're seeing now is for the last couple of years, companies would treat fees and fines as just that. Like, "Oh, it's a cost of doing business." It's like Target talking about someone stealing razor blades or something like that. Now what we're seeing is these finance organizations are looking at ways to bring in technology to help solve these problems. And so a great example of that is... So let's say you're a consumer brand, two to 3% of your sales are probably dealing with some sort of fees and fine structure, which is shortage, a chargeback, et cetera.
And typically what you do is you'll get into Excel, you'll reverse sort by the largest dollar amount issue that you have. You'll go gather all the necessary information, and this information's coming from eight different places. And then you'll go and you'll dispute some of these, you'll get some money back, et cetera. And what some of the more advanced businesses or forward-thinking businesses are doing is they're saying, "Hey, how do we take things like automation and just use force and let's dispute everything. Let's dispute every penny because every penny that I recover that I wouldn't have recovered before is a bottom line dollar." And it's a huge deal. If you can impact half a percent or 1%, you're going to be happy when it comes bonus time.
Peter Crosby:
I love that. Just dispute everything because we can do it automatically. And are you seeing customers actually win some of those battles?
Samir Bhavnani:
Yeah, yeah. We see it a lot, right? Because you're really fundamentally shifting the way people are doing things and instead of doing things manually, you're doing it in an automated way providing the information that the retailer, whether it's an Amazon or Walmart, whomever, needs to give them factual information so that if the fee or the fine was not valid, then the brand will get their money back. And if it was valid, then we'll find that out quicker.
Peter Crosby:
And you also can start maybe to trace more. If you're digging into each one, you're starting to see patterns that you may not see if you just sort of pay the bill.
Samir Bhavnani:
You nailed it, Peter. So the whole concept of this is what's the root cause? Is there a specific sort of product packaging that this always occurs with? Is there a fulfillment center that I can isolate and say this is always happening here? And then what the goal ends up being is you reduce the number of these things that come in in the first place.
Peter Crosby:
Makes a ton of sense. Gopal, I mean from your vantage point at Commerce IQ, you are really trying to drive the innovation that will help your customers in this time. What is that sort of... Of all the things that we're talking about... Or is it all the things we've been talking about? That you are focused on to be able to help in... Because we say people process technology. That's totally true. What we've seen sometimes is that sometimes the process, sometimes painful process, of putting technology in place can drive those conversations that have been avoided so far. Because you bought this thing that's going to help you do this thing, but you realize there's other parts standing in the way. Are you finding that and are you sort of building towards that in some way?
Gopal Shah:
In some way, yeah. I think you're right. It is a combination of all those things that the sweet spot for us is where one plus one equals three. I think the brands that are most successful are the ones that acknowledge the old way of doing things. The old people process technology way is it's going to be 10X better if you can use the technology to take over the processes and then, to Samir's point, uplevel the people to focus on the root cause. You don't want to be a person in accounting that's going to go back and manually dispute every shortage claim one by one. And so you actually want to openly adopt and embrace this technology so then you can focus on fixing the root cause and actually then finding out how you can integrate your profitability at a SKU level back with your retail media team. And so inevitably this is going to be the future. There's not going to be these silo data sets, but again, the brands that can openly embrace that and again integrate that into their processes, they're going to be the ones that are most successful.
Peter Crosby:
And I love the idea that now the one plus one equals three, the three is actually an omni-channel number, is a total performance number. Which I think is the exciting moment that we're finally getting to now that... I'm not saying the experimentation with digital is done by any means or even the experimentation in store, but I think people are now seeing the value when you put these things together and those experiments need to turn into practice, into operational excellence, right?
Gopal Shah:
Yeah, 100%. And what's exciting too is that there's the cost to serve overlay as well, right? The digital is no longer just shipped to home, it is omnichannel. And with that, the unit economics in some categories are so much better with that. So actually trying to integrate that true omnichannel mentality with the best practices and the operational rigor from e-commerce. Or I guess what used to be pure play e-commerce back in the day, I think that's really exciting. I think, again, going back to I think the comment earlier, even the retailers themselves are not going to be viewing digital and e-commerce as separate silos. They're a core part of what retail looks like in the future.
Peter Crosby:
The next decade of the digital shelf is all shelves. It's super exciting and thank you so much for coming on, both of you, to really describe what this new general manager kind of mindset looks like in this next decade of the digital shelf. We really appreciate it.
Speaker X:
Thank you so much, guys. It's been great.
Peter Crosby:
Thanks again to Gopal and Samir for joining us. Speaking of the great squeeze, how about squeezing out a few seconds of your day to become a member of digitalshelfinstitute.org? You'll be glad you did. Thanks for being part of our community.
