Bridging the gap between Marketing and Merchandising

Some may call the concept of the 4Ps of Marketing – Product, Price, Place, Promotion – outdated, but every iteration that adds more complexity to the Marketing concept just reinforces how crucial it is that these four elements work together.

However, what the 4Ps comprehensively describe as Marketing goes way beyond what your typical operational ‘marketing’ department covers. Most everyday marketing teams focus on the Promotion-P, be it media buys or digital advertising or something similar.

The CMO’s task then is to bring together the other three Ps into a holistic approach to Marketing. Two Ps that have stratified out into their own distinct departments are Merchandising (Placement) and Buying (Pricing). The final P – Product – is generally determined by your company, though in market-oriented companies the CMO would have a say on the product-market-fit.

Merchandisers – guardians of the Placement-P, ensure that products appear in the right store/website, at the appropriate time and in the correct quantities. Similarly, the Pricing-P is typically covered by a specialized buying department, sourcing and pricing goods in close cooperation with merchandisers.

Because of these silos, Marketing is not as homogeneous on the working level as the CMO’s overall responsibility might require and the usual communication letdowns and friction losses that happen between any two departments will inevitably occur.

In this post, we’ll discuss the steps CMOs can take to help bridge the rift between everyday Promotional Marketing and Merchandising/Pricing.

Why it’s important to bridge the gap

Communication letdowns and friction losses are never a good thing, but in the CMO’s realm, they have the potential to seriously harm his/her ability to deliver the desired results and efficiency targets.

When we mentioned above that the buying department relies on frontline input from the Merchandiser to source the right products and quantities, that exchange has established because of the significant working capital involved with stocking a season’s worth of merchandise.

Media budgets are the second most significant cost chunk in the marketing operation, but often no similar exchange is in place between Merchandising and Promotion.

In a 2016 qualitative survey, Crealytics found that many companies’ Merchandising and Promotion departments had no formal way of aligning on goals and attributing results. Even worse, most had not even realized the value that can be gained from exchanging data with the other function in the first place.

Even just two data points from the Merchandisers’ domain – stock levels and competition prices – have a vast potential to make media buying so much more effective.

  • Why would any promotion department spend media budget on products that will soon go out of stock – even without further assistance?
  • In the age of almost total price transparency on the Internet (and Google’s price bias), why would any promotion department face the uphill battle of promoting products that can be bought cheaper just one click to the right?

What can be gained from data sharing and cooperation

Stock level and competition prices are textbook examples of how sharing information between Marketing Promotion and Merchandising can produce more effective strategies and efficient promotions.

For example, when the promotion department has access to stock levels, advertising budgets can go exclusively to products that are actually in-stock. Our research has shown again and again that a surprisingly high amount of budget is spent on products that are out of stock or very low.

On price, Crealytics research found that the Google ranking algorithm anticipates user preference for cheaper prices and massively favors cheaper-than-competition-offers in terms of AdRank – resulting in lower cost and better search result page positions of competitively priced offerings. If promotion departments had the consumer’s perspective of price transparency (as most merchandising teams do), they might decide to allocate budgets to products that are most competitive in the marketplace.

Conversely, understanding how much the Promotion department needs to push a product to get it to sell will offer the Buying department a new data point to consider when determining product prices. Competitive pricing can usually produce a better margin for the business – given the lower advertising costs – than promoting the hell out of an overpriced product.

If Marketers see that their products are noncompetitively priced, they can either

  • Take the product out of being advertised in Google Shopping (if CRs are low) or
  • Find out from merchandising colleagues whether that product line sells well anyway and whether it makes sense to lower prices

While the benefits of cooperation are clear and logical, organizational implementation challenges and entrenched work habits provide significant barriers to adoption.

How to bridge the gap effectively

For some time now, we have been working with our clients on taking the data we get as part of Marketing Promotion and applying it towards achieving wider business objectives. In doing so, we have struggled with organizational barriers, just like everyone else.

Rather than further trying to break up silos within marketing organizations, we decided to launch a beta feature in our sphere of influence – the Promotion space. Our feed-based product advertising management platform now features Price Advisor, a tool that automatically researches your price position compared to the competition in Google Shopping. It thus empowers PPC-managers to begin implementing and experimenting with competition-based pricing based strategies.

Beyond the operational impact in PPC, we hope this step might get the ball rolling in internal communication. PPC managers now have a powerful justification for underperforming campaigns – which, if used, will lead to further probing from the business. By demonstrating how overall margins can be improved, PPC managers can get buy-in from senior management leading to increased cooperation across teams.

Re-pricing might run counter to conventional marketing wisdom and even stoke fears of a price race to the bottom. But as always in life, it is not so much about the tool, but about the strategies of using it. To that end, we regularly share our latest insights and experimentation results with our clients to come up with practices that will work for them.

If you are interested in using stock level data and take the next step in unlocking value from Merchandising data to drive up your margins, we would be happy to discuss our new Price Advisor feature with you.

Additional resources

The role of price on Google Shopping performance

A study into Google Shopping’s low price bias (and 4 ways to overcome it)

How to determine price competitiveness in Product Advertising

ABOUT THE AUTHOR


Jörn Seiler

Jörn is a consultant in the Business Intelligence team at crealytics with 15y+ experience in Media, Marketing Research and Digital Analytics. Jörn is an insights specialist with international experience on the agency side as well as the client side.

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