“Half the money (CPG companies) spend is wasted; the trouble is…” - Why only CPG companies that adopt AI analytics will thrive?
Few CPG companies may admit that this century-old “Half the money” quote (from John Wanamaker) still depicts their marketing reality. Yet, more than 60 percent of Fortune 1000 Chief Marketing Officers cannot quantify the impact of marketing in both the short and long term, despite investing in data and analytics.
With CPG companies being the highest marketing spenders from all sectors (24% of their budget, and nearly 11% of their revenue), this is particularly damaging, as:
- There is fierce competition and decreasing growth.
- Marketing budgets are often a primary target for cost savings.
- Their RoI should be significantly higher; and their competitors are implementing more advanced solutions.
More advanced solutions are, specifically, AI-powered analytics and decision-making tools: they are a game changer for marketing, sales, and supply management. They could make or break CPG manufacturers and retailers.
The number of challenges faced by marketing teams is ever increasing, leading to an unprecedented level of complexity:
- Consumers segments are more fragmented than ever.
- Pricing and promotions, a hugely complex area, are intertwined with all the other marketing decisions, and can’t be considered in isolation.
- Marketing budget allocation is increasingly complex. Where is your overall budget best spend, in which media, which campaigns? Amongst such a large array of fragmented marketing and media channels (traditional ATL media - like TV and radio, traditional BTL touch points – point of sales, and the broad digital media), which are generating more content and campaigns, marketing budget decisions are hardly optimised.
The shift of budgets are often marginal adjustments to previous budgets allocation, rather than a fresh assessment of optimal decisions that will maximise the expected outcomes (think zero-based budgeting in marketing).
How are companies translating their goals (sales and market share, revenue and profit, client satisfaction, brand equity, etc.) into the most effective commercial decisions?
To maximise the expected outcomes, the challenges lies at many levels:
- Assessing the marketing budgets level that will maximise outcomes and RoI.
- Allocating this budget in the most effective manner.
- Optimising other commercial decisions, like pricing and promotions (and simultaneously optimising price and promotions with other marketing decisions.
- Choosing the best set of commercial decisions (marketing, pricing and promotions) within a product line or a category.
- Even more complex (and a necessity for companies), making optimised decisions across product lines or categories (or even products portfolio), that will maximise goals achievement? For example, how would you shift budget from high share and low growth to low share but high growth categories?
In an ideal world of Zero-Based Budgeting, to assess the right level of marketing investment, its allocation or reallocation (between categories/products, media, campaigns), every spending should be linked to the set of drivers that triggers and justifies the investment.
In reality, companies are struggling with the analysis and assessment of marketing activities (both overall and specific), and commercial decision-making (both strategic and tactical), which are highly complex. And too inefficient.
Companies are struggling as they face the limits of traditional data analytics and BI systems, which we will expose in our next article.