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Incrementality Goes Beyond Assortment, Pricing, and Merchandising

The overwhelming majority of our work at Middlegame focuses on Assortment, Pricing, and Merchandising to provide what we call Shopper Response Analytics. The significance of these three to overall brand performance is enough to keep us busy and is often at the heart of enormous opportunities we see for our clients in emerging markets. However, this obviously isn’t the only place where marketers focus their efforts. We are often asked to apply our ideas of transferred demand and incrementality to media and advertising initiatives. The key is thinking of the brands as a portfolio within the company just like we think of the SKUs as a portfolio within the brand.

Like most things in marketing, we should look back to Cincinnati and Procter & Gamble Way to see where things started. In 1931, a junior executive named Neil McElroy wrote a famous P&G memo that spelled out the principles of modern brand management. The memo argued that separate marketing teams for each P&G brand should be allowed to operate as completely separate business units. This approach paid off big time for McElroy. He became CEO of P&G. While being interviewed for a Time Magazine cover story in 1953 McElroy went so far as to relish the idea that P&G brands “dispute the claims of each other to keep the sales force on their toes”. To this day, his system of brand management remains the overwhelming structure of FMCG companies across the globe.

Eventually, senior management within FMCG organizations began to understand that brands are powerful intangible assets. This led to the glut of mergers and acquisitions across FMCG in the last twenty years. Often, these mergers and acquisitions have offered growth for both income statements and balance sheets as the subsequent economies of scale in manufacturing and distribution resources provided immediate benefits. However, in McElroy’s time, brand managers suddenly had way more internal competitors vying for relatively less total marketing resources. At the same time, the brands in these portfolios often overlapped and produced a lot of confusion for both customers and consumers. Many initiatives that were most attractive for overall company growth and return on investment were, and can still be, easily lost in the shuffle.

In 2002, Mercer Management Consulting published a paper called “Brand Portfolio Economics: Harnessing a Group of Brands to Drive Profitable Growth” that predicted the FMCG issues on FMCG that have come to be. The article points out that an overlapping and undifferentiated brand portfolio weakens the manufacturer brands to the point where they converge in on themselves. As this happens they begin to address a shrinking portion of the market which puts even more extreme pressure on manufacturing and distribution economies of scale. The consequence of this is an overreliance on price and price-driven promotions.

Brands are still very important. Given the fragmentation of the market, maybe they are more important than ever. A great example is the reaction of the large multinational brewers to the growing craft beer segment. Their answer has been mergers and acquisitions. Regardless, it is really apparent that analytics focused on supporting the decisions for a brand-like marketing mix modeling (MMM) needs to evolve into more of a portfolio analytics or even category analytics solution like Middlegame offers with the CIA® platform. The only way to do this is to look at the marketing mix in the context of both “absolute value” relating to the ongoing formation of brand equity and “relative value” offering a full understand of reasons for competitive interaction.

Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario-planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Similar to the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.