August 13, 2007

How the Availability of Information Impacts Marketing Spending

Gian M. Fulgoni Gian M. Fulgoni
Chairman Emeritus

With comScore’s IPO successfully completed and our company now well established as the leading supplier of digital marketing intelligence to more than 700 clients, I occasionally find myself thinking nostalgically back to August 1999, when Magid Abraham and I founded comScore.

Magid and I had previously worked together for some ten years at Information Resources (IRI), the innovative provider of market research scanner data, and we had seen first hand how technological dislocations can create challenges for the incumbents in any industry, while simultaneously creating exciting opportunities for new entrants that are innovative and fleet of foot.

In mid-1999, the Internet bubble was in a full expansion mode. The challenge we faced was how to best take advantage of this in starting a new market research company. At the time, many emerging Internet companies were based on advertising business models, and as a result there was a vibrant market for data on the size and demographic characteristics of site audiences. There were two research companies (Media Metrix and NetRatings) already supplying site audience ratings – and both had already gone public. There was so much demand for their data, that I recall at one point the combined market value of the two companies approached $2 Billion – even though their combined revenues didn’t exceed $30 million annually.

So, where, we asked ourselves, was the business opportunity for a new research company?

We found the answer in the offline world. A quick back of the envelope calculation showed us that offline companies were spending five times as much money measuring consumers’ buying behavior as they spent on TV, radio, print and outdoor ratings data combined. However, on the Internet neither Media Metrix nor NetRatings were measuring e-commerce. So, that’s what we set out to accomplish. Believing that this type of data would soon become vital to Internet marketers – and likely help shape the future of the Internet – we decided that comScore’s mission would be to measure the digital world in every sense of the word – and we set about building the proprietary data collection technology and recruiting the massive samples of panelists that were needed to make our vision a reality.

Our confidence in the importance and value of accurate data on consumers’ buying behavior was grounded in our offline experience at IRI, where we had seen first hand the value that companies attached to insights into consumers buying activities and the impact that such data could have on marketers’ spending patterns.

IRI pioneered the use of retail UPC scanning data. Before scanners, marketers had to rely on so-called “store audit data” to understand the trends in how consumers bought their products. These data were obtained through a field force of auditors who visited a sample of stores to count in-store inventories and collect the invoices showing what was ordered by each store. From these data, store sales could be computed. The problem was that the amount of manual work involved meant that sales data points could only be produced every two months and the data simply didn’t have the granularity to show the impact of the price reductions and promotions that were running on a week-to-week basis. As a result, in the absence of insights into weekly sales trends, CPG marketers had tended to invest in longer-term marketing strategies such as TV advertising rather than trade or consumer promotions. When weekly scanning data became available, marketers were quite astonished to see that sales of their products could increase up to ten times or more their normal level in the weeks when retail price reductions and promotions were running.

The shift to trade promotion spending was on!

As weekly scanning data replaced the now-obsolete bi-monthly audit data, IRI used the scanner data to build mathematical models that measured the ROI from trade promotion spending, helping guide CPG marketers as to the efficiency and effectiveness of their trade marketing dollars.

Armed with the results of the IRI research, CPG marketers were able to more confidently increase their reliance on trade promotion and, by the time scanning had rolled out into all the CPG distribution channels, $40 billion of incremental money was being spent by CPG manufacturers on trade promotions every year:

Having seen first hand the huge impact of information on how the CPG industry allocated its marketing dollars helped us at comScore envision the types of new measurement databases that were going to be needed in the digital marketing world and the role that comScore could play in providing them.

So, here we are today – some eight years after comScore’s founding – providing Internet marketers with the data they need to better understand consumers’ online behavior in all of its many manifestations, along with the tools necessary to determine how they can best deploy their corporate assets so as to maximize ROI. And, one of the most important things we are doing in that regard is helping our clients clearly understand the incremental return they can expect if they shift marketing dollars from traditional media to the Internet.

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