Saturday, April 25, 2009

Google interview, part two

A few weeks ago, I was interviewed by Brett Goffin of Google. The video from that interview is now available on the Google Retail Blog, in two parts. The first part, dealing with general trade promo issues and background matter, is here. Part two, dealing more specifically with trade promotion online, is here.

I’ll wait a few moments, while you click the links and watch the interviews … Okay, now that you’re back, I’ll expand a bit on what I said there.

I’m astonished, frankly, that online promotion has not yet attained a much higher percentage of trade spending. Our survey several weeks back indicated that it is under 5% for most programs. While our surveys are not scientific, the results comport with my observations. Given that online promotion offers both immediate sales opportunities at e-commerce sites (equivalent to in-store promotion), as well as brand-building opportunities (equivalent to print or broadcast advertising), and also customer education opportunities (equivalent to collateral material) – often serving these functions simultaneously – it seems retailers and their suppliers should be doing far more online promotion this many years into the internet age.

So why hasn’t it happened? There probably are multiple explanations, but it seems that the most likely reason is the usual one – money. Retailers make money off circulars and they make money off endcaps. They’re not going to get excited about online promotions until they can make equivalent amounts of money there.

When the internet first emerged, most of us looked upon it, in terms of trade promotion, as being analogous to broadcast or print, and therefore we tended to think of payment for it as being cost-based, as payment for those media (other than circulars) was traditionally arranged. But if we change the analogy to in-store promotion, then it is easier to think of payment as value-based.

The internet, of course, is both advertising medium and store (and more), and therefore both analogies are apt. But more to the point, there is no reason why retailers cannot charge what they see fit for online trade promotions, just as they do for an endcap in their store.

(A caveat: There are Robinson-Patman considerations concerning any trade promo payment that is not strictly cost-based – but value-based payments for internet promotions should be no more nor less questionable legally than value-based payments for in-store promotions. A second caveat: I am not a lawyer).

So what is needed for online trade promotion to advance beyond the level it is at today? Retailers need to see the opportunity to use it as a profit center, and then to present the value proposition to their suppliers; and/or, suppliers need to approach their channel partners with proposals to use online trade promotion that offer incentives comparable to in-store promotion; and/or, online media need to broker the deal.

The means exist to create online promotions that tie together search, banners, and “virtual endcaps”; promotions that build the brand, that sell, and that provide information to facilitate in-store sales. Retailers and their suppliers need to cut their ties to old models and move forward.

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