Platt Retail Institute: It’s Always About the Numbers

Discussion
Jan 21, 2010

Commentary
by Adrian Weidmann, Founder, Storestream Metrics, LLC

Through a special arrangement,
presented here for discussion, is a summary of a current article from the Platt
Retail Institute’s Journal
of Retail Analytics
.

Having been immersed in the ever-evolving industry
we call "digital signage" for the past 11 years, focused on the retail sector,
I am continually confounded by the number of times I’ve observed the same failed
strategies and implementations being repeated. I remember meeting with a media
buying agency executive in 1999 and he dismissed digital signage as a "fad."
It is clearly not a fad, but the digital signage industry has not yet generated
the revenue streams, with several notable exceptions, that have been anticipated
for the past 10 years.

The reason digital signage has not flourished
financially is because the justifications to implement these networks are not
founded upon business fundamentals.

Most digital signage projects begin as
an exercise in technical curiosity instead of being founded on serious economic
considerations. How many Requests-for- Proposal (RFPs) for a digital signage
implementation have been authored by the financial department of an enterprise?
I have yet to read one. All too often, these RFPs are issued by organizations
that require insight and education on the features, functions and capabilities
of the various technologies along with a spreadsheet that contains four core
columns: the product/service description, unit price, quantity, and extended
price. This exercise inevitably leads to some form of the following response:
"It’s too expensive." All too often this response is a convenient excuse.

Is a $10 million
investment "too much" if that investment is shown to bring a $55 million annualized
reward within 18 months? The answer is: it depends. It depends on where and
how you got your numbers and the associated risks. Anyone can determine and
manage costs; it’s the revenue side of the ledger that is far more difficult
to assess. Revenue projections, whether factored as advertising dollars, units
sold, incremental margin, etc., are always bridled by risk assessment. A solid
business model will minimize those risks while optimizing both sides of the
ledger. Any business assessment will be made based upon the client’s acceptance
and ownership of these figures.

I once worked for a CEO who, despite efforts
to focus and discover the underlying business substantiated by the sales numbers
of a pilot program, insisted that the purchase decision was going to be "an
emotional decision." The project never went beyond the pilot. Decisions that
involve this much money and directly affect careers will not be made solely
on emotions. It didn’t in this case and it won’t in others.

Business decisions
have always been based upon risk/reward. "If I invest $X will I make $5X?"
This is usually followed by "How fast can I make $5X?" These questions are
the cornerstones to making informed and educated business decisions, no matter
how many zeros come before the decimal point. With all the complexities associated
with a digital media network, answering these basic business questions should
be a priority because the answers are vital to securing the funding necessary
for these systems.

Discussion
Questions: Beyond sales lift, what’s the biggest area where retailers
can justify a return on investment from digital signage? Will adoption
ultimately occur/fail to occur, despite a positive return, because ‘everyone
else is doing it’? What are the particular challenges in making a financial
case for digital signage?

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10 Comments on "Platt Retail Institute: It’s Always About the Numbers"

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Michael L. Howatt
Guest
Michael L. Howatt
7 years 9 months ago

The problem is not vision as much as it is disposable capital. Most retailers just don’t have that kind of cash. Albeit they are still operating under 20th century assumptions. The manufacturers who can afford to help the retailers usually are operating under their own agenda and not for the greater good.

This situation is not new or confined to digital media alone as we all well know. It’s just another example of the disconnect between the two. I’ll also throw out that another factor why digital media doesn’t really seem to work is the consumer attention factor. Most shoppers are focused and in a hurry, so slowing them down has always been a challenge.

Bob Phibbs
BrainTrust

Digital signage is a vast category here. Some would call it the billboards along the freeways which can show movie clips–blaring their neon signs across homeowners for miles, some would say they are the the new intelligent design seen from Intel/Microsoft at NRF10 that scans the person in front of it and customizes content. Others could say hanging a plasma screen over the checkouts is digital signage.

Any advertising has to help lift sales, period. The days of “image” regardless of ability to move merch–like several of the flagship stores in SOHO–are over.

A client of mine was the subject of a study by Cal State, Long Beach on the effectiveness of our marketing. When they asked me, “How do you know it’s working?” I said, “Sales are up 50%.” One of the team countered, “But without coupons, how do you quantify the results?” Sales are up is the holy grail, coupon redemptions just prove there are plenty of cheap people in the world.

For digital signage to gain respect, examples must show how an integrated use delivers higher sales per square foot–not just be used to showcase what’s on sale.

Steve Montgomery
BrainTrust
I have participated in many, many discussions regarding digital media. Part of the sales pitch was, not only would it add sales, but could be a source of advertising revenue. However, the issue was, in most cases the supplier community stated there is a defined amount of funding we will provide you for marketing/merchandising, etc. How you spend it is up to you. In order words, there is no “extra” money that will be provided for your foray into digital media. That being said, I know there have been instances where some additional funds have been generated, but in most instances it came from non-related businesses that wanted to reach the retailer’s traffic. The other business model is where the digital media company developed networks where they sell the advertising and the retailers get the system for “free.” In these cases the retailer gets a limited number of slots on the media to advertise their products and in a few cases, they get a small percentage of the external advertising revenues generated. Some of these have been small local/regional players and others have a large footprint across the country. Selling digital media via the second business model is certainly less… Read more »
Roger Saunders
BrainTrust

The Digital Signage Industry has to provide substantiated evidence to marketers that the consumer is engaged by their in-store medium. They have a great value proposition in that the consumer is at the final decision point.

What the industry has to remember, because the retail industry is weighing in on it, and the consumer knows, is that many pre-store media and in-store experiences influence their decisions. In the in-store space, there are over 20 different, legitimate media that influence decisions–e.g. special displays, shelf coupons, reading product labels, product samples, in-store signage, television, events, flyers, and more.

The consumer sees it holistically. Smart retailers see it holistically. The digital signage industry would serve its purpose by demonstrating how its application plays a role in influencing consumers and supports moving product/services.

Ben Sprecher
Guest
Ben Sprecher
7 years 9 months ago

Sales lift is important, but given many retailers’ low margins, you need to generate a huge amount of incremental sales to justify an in-store installation that can run into the tens of thousands of dollars per store. I’m going to sound like a broken record here, but I see the key area where digital signage needs to demonstrate value is in its impact on shopper behavior.

Does the presence of digital signage increase the basket size of a chain’s best shoppers? Does it increase or decrease trip frequency? Does it shift purchases towards higher margin items or departments for the retailer? Or does it drive away some of the retailer’s top shoppers and replace their volume with larger numbers of worse shoppers?

Only once the digital signage vendors can answer these questions convincingly, and demonstrate measurable results at the shopper level, will the value proposition become truly convincing.

Gene Detroyer
BrainTrust

This discussion has been going on since the late ’80s. With a very crude system by today’s standards and with capital cost that today would be considered outrageous, on a store by store, item by item basis, the system paid out.

So what was the problem? The problem was the reluctance of the advertisers. They wanted to measure the medium in terms of impressions, awareness and other ethereal numbers. They would not consider product movement as a defining parameter.

They would agree with all the movement research and agree that in fact the system did deliver an excellent return on investment, but they “did not measure advertising” that way.

Yes, it sounds bizarre.

Bob Phipps example is parallel on the promotion side.

I would have expected over the years for the advertisers to become enlightened. Clearly, they are not. If in-store signage is going to be successful, it will not be because the financial numbers get better. It will be because there is a change in mindset of the advertisers.

Carol Spieckerman
BrainTrust

To me, the biggest challenge is determining who controls the content and to what degree. Should suppliers defray the cost when retailers control the content? Should retailers give suppliers free reign over content and expect full payment?

While Walmart’s Smart Network is setting a new standard for organizing and quantifying in-store digital media, I’m watching Best Buy. Its plans to begin selling advertising on all in-store screens big and small will be a game-changer…particularly given Best Buy’s reputation for controlling everything associated with their brand. Others will follow.

Ken Goldberg
Guest
Ken Goldberg
7 years 9 months ago
The discussion regarding digital signage reminds me of POS and scanning back in the day. When the industry evolved to advanced POS in the ’80s and beyond, spreadsheets and payback models were everywhere. In the end, it was very difficult to justify the capital expenditure based on the tangible numbers around accuracy, speed, etc. But the leap of faith was made, because the intangibles related to the customer experience were just as valuable as the quantified spreadsheet items, most of which were a swag anyway. And no one sweats the ROI of POS today. Certainly, most estimates of advertising revenue have been far too optimistic, at least so far…and it is still early. That revenue will become more easily projectable in environments where it is appropriate. Retailers will get benefits beyond quantifiable sales lift and ad revenue by using digital signage networks for corporate communications, training and branding. Becoming an integrated part of the customer experience will also provide the same intangible benefits that scanning and POS ultimately did. Digital signage should not exist in a vacuum; it needs to be considered along with traditional and emerging mobile marketing strategies to reach its full potential. Many retailers have looked at… Read more »
Jonathan Marek
Guest

Two thoughts on digital signage:
1) For some types of signage (notably price signage) there are cost efficiencies or even pricing advantages. The sales lift, if any, is simply gravy. If the benefits from this type of digital signage are as strong as the vendors maintain, then I don’t know why they can’t get greater penetration more quickly.
2) For tricky decisions, where sales lift is part of the picture, case studies aren’t enough. Each retailer has to see the value for themselves, in their own stores. It’s a perfect candidate for a well-designed test, to enable the retailer to see the exact attributable lift (which won’t be a huge percentage of sales but could definitely be economically material), and also to see the basket effects, repeat customer effects, etc.

Dave Haynes
Guest
Dave Haynes
7 years 9 months ago
Great discussion. As was noted in one comment, even clunky, crazily-expensive systems from many years ago were able to demonstrate substantial sales lifts that could not be attributed to anything but the screens. The industry has gone through more than a decade of test after test, but it’s only very recently that the evidence of sales impacts and impacts on shopping behavior and perceptions are starting to be shared around. Walmart told the In-store Marketing Institute last fall, for example, that its Smart Network digital endcaps generated a 64 percent lift, for example. THAT raised eyebrows. The slow adoption of digital signage owes a lot to the high costs of technology (now a relative non-issue), technology people who knew little to nothing about retail trying to sell into the retail sector, the highly-flawed, third-party ad-based model many retailers have allowed into their stores (and seen fail), and the general perception that this technology is a “nice to have,” but not a “need to have.” Where that’s really starting to change is in the fast food sector, with a lot of companies cutting their printed menu boards over to digital screens. They’ve seen the results, analyzed the efficiencies, and turned the… Read more »
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