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Interview

Interview: Establishing New Frameworks for Incrementality, with Russ Dieringer, Founder and CEO of Stratably

The question of incrementality is central for brands today - how can you be sure the additional investments in existing channels or new channels will drive net new business? It’s a difficult question to answer, but a new framework from Russ Dieringer, Founder and CEO of digital commerce consulting firm Stratably, caught my eye and we had to have him on the pod to walk us through it. 

Transcript:

Peter Crosby:
Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age.

Peter Crosby: 
Hey, everyone. Peter Crosby here from the Digital Shelf Institute. The question of incrementality is central for brands today. How can you be sure the additional investments in existing channels or new channels will drive net new business? It's a difficult question to answer, but a new framework from Russ Dieringer, founder and CEO of digital commerce consulting firm, Stratably, caught my eye and we had to have him on the pod to walk us through it.

Peter Crosby:
So Russ, thank you so much for bringing your expertise to the DSI podcast. Lauren and I have been looking forward to this conversation so much. Thank you.

Russ Dieringer:
Thanks, Peter and Lauren, for having me. Really excited to get the chance to talk with you both today.

Peter Crosby:
Oh my gosh, your newsletter from Stratably has become the new must-read in my inbox. The way you take issues that I've heard any number of executives ask at brands, "Boy, I wish there were answers to this," and then you actually give them, at least you organize a way of thinking about getting to those answers. And that's really powerful.

Peter Crosby
One of the questions that jumped out at me, you did a series on incrementality, and that's really what we'd love to dig into today. How does one measure incrementality in a new channel? How do you know if you're getting additional new consumer spend from that investment? Because it seems with more and more channels being available every day and brands deciding to take advantage of them or not, this question of incrementality is really important. And so I think probably the best place to start is maybe, just for our audience, have you define incrementality. I'm sure that's simple, right?

Russ Dieringer:
It is in some ways simple to define it, but difficult to answer it. And so I simply think of incrementality as a sale that otherwise would not have occurred. And so this could be looking at a particular retailer, like if we don't expand, we're not going to miss out, or if we do expand, we are going to get an incremental sale. Or you can apply it to things like advertising. That's often a big question around incrementality of should we be advertising if someone's searching for our brand, won't buy our product anyways?
So it's very simply just a sale that otherwise would not have occurred. And incrementality, by the way, is, I think that's just a word in our industry. I don't think you'd find it necessarily in the dictionary. But it's a very, very common question. And I've been in the E-commerce space since 2015 and I've personally gotten this question quite a bit doing talks or consulting projects or things of that nature where it's just a very common question, "Hey, E-commerce oftentimes requires a lot of additional investment. Is this going to ultimately result in additional revenue and/or profits for our business?" So it's a very understandable question. It's easy to define it, but it's more difficult to answer it.

Lauren Livak:
And Russ, why is it difficult to answer it? What are all the different angles to consider?

Russ Dieringer:
It's challenging to answer often because we have imperfect information. So what I mean by that is let's say you sell ice cream in convenience channels and you expand onto Gopuff, which is a newer entrant in the convenience channel space. Understanding of that sale is actually incremental or measuring that is very challenging. You don't necessarily know if an individual who bought ice cream at 10:00 p.m. on Gopuff is also going to buy their typical amount of ice cream during their weekly stock-up trip. You just don't have the sales and share information at that level to understand it.
You can obviously measure that at a market level, but very rarely does a brand have such an isolated set of characteristics that allows you to do that. They're doing new product introductions, they're having promotions across different channels, they're advertising, they might have supply chain issues. So it's just a very muddied picture when they try to assess that with a high degree of granularity. And in addition, a lot of the sales and share providers that these large consumer brands use don't track new retailers until they get to a certain size. So there's just a lot of, essentially, imperfect information that makes it challenging to measure with a high degree of precision.

Peter Crosby:
And that's what I liked, Russ, about the framework that you set out because it at least gives you a way to think about it. And even though you may not get the perfect answer, you're thinking of all the dimensions that add up to an assessment of whether or not you have incrementality, and then the humans have to do the last mile of work, I would imagine.
So maybe this is a great spot to just have you walk us through the elements of your framework. I think there are six core questions that you say that folks should ask. So can you share those with us?

Russ Dieringer:
Yeah, exactly. And the framework's useful because one, you can apply it to whatever brand you're in. So maybe for one type of brand, not to pick on Gopuff, but just to stick with that example, maybe for one brand Gopuff is very incremental, for another brand it isn't, but the framework is meant to be applicable to whatever products you're selling. And it also lends itself towards sort of getting you to a point where you can make a judgment, right? We're not saying these are clear yes or no answers. We're saying there's judgment involved, but the framework can help you get to a good decision.
So the six questions that are quite straightforward, the first one is does the channel enable net new assortment? And so Amazon's a good example of that with its marketplace model where you can create all sorts of different products, different bundle options, et cetera, on its marketplace. That's different from the assortment that you're offering inside of a store. So that offer allows you to create net new assortment, which can then drive different shopping behavior.
Number two is does the channel reduce friction in a meaningful way? A good example of this is with quick commerce, 15-minute type delivery. Very low friction when you can order an item and have it show up at your door 15 minutes later or 30 minutes later. That reduction in friction has the power to change shopping behavior. So instead of foregoing an order or an ingredient for a recipe because it's going to take a whole day to get to your doorstep, if you can get that immediately, then that might drive actual incremental consumption.
Number three is does the channel create new opportunities for consumption? So you can think about different day parts, or if you take the alcohol category as an example. If previously you couldn't order alcohol at 10:00 p.m. and now you can, well, that creates a new opportunity for consumption. And so because of that, you're unlikely to be ordering that alcohol at 8:00 a.m. the next day, but 10:00 p.m. the night before, that might actually happen.

Peter Crosby:
It depends on the alcohol, Russ.

Russ Dieringer:
That's true. That's true. Well, hopefully you're not ordering alcohol at 8 a.m., but you might be. Who knows what's going on?

Peter Crosby:
It's always 5:00 p.m. somewhere, but I take your point.

Russ Dieringer:
Exactly. Number four is does the channel reach a net new shopper demographic? So new accounts can be super aligned to certain demographics. So Gopuff, to stick again with that example, was really targeted at Millennials. And so if you're an incumbent brand, maybe you over-index to older demographics and you want to tap into that younger demographic to drive new consumption, there are certain accounts that allow you to do that. Or a similar example, say you have a strong D2C business. Well, if you expand into Walmart stores, that's going to expose your brand to more individuals, a different demographic.
Number five is does the channel speak to consumers in a different way? And so an example of this is live streaming or influencer-driven models sort of jump to mind. These are mediums that provide shoppers with just a different way to experience the brand. It adds more information about a product or a brand to a shopper. And that sort of different and additional information can drive consumption that otherwise wouldn't be there.
And then number six, and this is sort of like the overarching characteristic that brands seem to keep in mind, are competitors selling in the given channel? And so if competitors are in a new channel where you're not, and let's hold costs to serve constant for a moment, let's assume that the account isn't incredibly costly to serve. If your competitors are there, they're driving some sales, and so they're definitely taking share in the market for ice cream, to stick with that example.
So let's say you have 10% of the ice cream market absent this new channel, but then the new channel comes to market, your competitor shifts on there, you're not. You have 0% market share in that new channel. So you're losing share. So if your competitors are there, that's a very clear signal that, "Hey, we're losing out on shares. Let's definitely try to understand how big of a business that can be for us, but let's also acknowledge that we are losing share because our competitors are already there."

Lauren Livak:
And Russ, this almost sounds like a really great framework to use to assess if you should go into that channel. Would you agree? Not only is it incremental, but is it something that we should focus on and is it a channel that we should be going into?

Russ Dieringer:
Yes, I think those things go together. So if you come to the determination that yes, this is a channel that feels very incremental to us based on this framework, then we need to expand there. And it doesn't mean you bet the farm with the new account, but I think you want to take initial steps on things like, "Hey, is our brand showing up there?" If it's a marketplace model, you might not consciously be there, but your brand might be showing up there. Or what does a search engine result page look like for keywords that we want to win? Or what is happening from an in-stock perspective with our competitors there?
Just sort of start to evaluate and study the channel. Once you get a sense like, "Hey, this is probably incremental for us. Let's take some initial steps towards evaluating how big we ultimately want to go into that new account."

Peter Crosby:
So I just wanted to say to our listeners, I know that the list of the framework is really cool and I'm sure most of you are on a treadmill or walking your kids or something like that. So Russ has very generously opened up his incrementality newsletter content and we'll give you that link at the end of the show. So if you didn't remember every one of the six, you can read Russ's commentary in depth. So stick around for the end of the podcast and I'll give that link to you. Thank you for doing that, Russ, by the way.

Russ Dieringer:
Yeah, absolutely. Yeah. It'll be a little bit easier to follow the six-part framework when looking at it in concert with the podcast.

Lauren Livak:
And Russ, can you walk through an example of say, okay, here's a brand, they're identifying a channel, they're thinking it through, trying to identify if it's incremental to the business. Walk through how they might tackle that.

Russ Dieringer:
Yeah, sure. So if you think about it, we could stick with the Gopuff example. So Gopuff, does it offer net new assortment? Not really compared to a typical convenience channel. I mean, theoretically it could, but generally speaking they're looking for a convenience store type assortment. So it doesn't pass that test.
Does it reduce friction? I would say generally yes. Some of its digital competitors offer similar delivery speed, but this is certainly advantageous to a shopper having to get into their car or walk to a convenience store. So it does do a little bit of reducing friction.
Does it generate new consumption patterns? I think, yes. Late night delivery as an example. Does it reach new demographics? I would say yes. Younger demographics over-index to Gopuff. Doesn't really allow a brand to speak in a new or different way to the shopper per se. And are there competitors? Are our competitors there? It depends on the category, but for the most part, if you're selling shelf-stable items, your competitors are likely there already.
So on four of the six questions, Gopuff tends towards being an incremental account. And so I think for, again, if you're in the convenience channel, you're selling shelf-stable products, you're going to want to be there because it has the opportunity to drive incremental sales.

Lauren Livak:
Russ, that Gopuff example is great way of understanding the framework. I'm curious, do you have an example around social commerce? Because that is, I think, new and popular and a lot of brands are trying to figure out how to assess that.

Russ Dieringer:
It's a great question. And that's what's so interesting about this space because there are a lot of new models evolving and they generate a lot of excitement. Then you see the actual numbers come through, it's like, "Oh, that's not really the trajectory that we wanted to see." But a lot of these new models are very incremental.
So for social commerce as an example, it does pass the bar on several of the six questions. So again, to walk through it, net new assortment, social commerce? Possibly. It's sort of a marketplace model. So I think you have the opportunity to offer different assortment than what you do in store.
Does it reduce friction? Yes, in the sense of moving from discovery to purchase in terms of collapsing that funnel. So you see something on TikTok, you buy something immediately. So it does have the ability to reduce friction. Consumption patterns? I guess to a degree, right? Because we just talked about that collapsing funnel sort of makes any item an impulse item. So in some respect, it can drive new consumption patterns.
New demographics? Depends on the social network that we're talking about. But TikTok certainly over-indexes to younger generations. Speak in a new way? Definitely. If you're on TikTok and you've seen TikToks, you know that it's a very different type of experience than what consumers are going to see in other channels or other platforms. And are competitors there or not? I think it's sort of early days when it comes to TikTok. So the answer to that for a lot of brands actually might be no from a competition perspective. But again, that kind of depends on the category.
So you take a step back and you think about the answers to those questions. There's a lot of forces that make social commerce an incremental channel, and I think that's what is attracting or driving a lot of brands to making that a bigger focus, even if today the sales volume there isn't huge.

Peter Crosby:
Russ, I'm imagining that this question drives a lot of internal debate inside of brands. Let's take the ice cream example. I'm now getting really hungry for ice cream. So the 7-Eleven account manager says, "Wait a minute, Gopuff general manager, you're going to steal my lunch." Do you hear those kinds of conversations happening? And does your framework help with any of that sort of either calming people's fears or actually giving that answer?

Russ Dieringer:
Yeah. I don't think you hear it as directly as that, but I think that is what creates a lot of the tension inside of organizations when you start thinking about some of these new channels.
Inside of these organizations, there's always going to be some battle for resources. And so if you have a really strong established business with incumbent retailers, let's say in the convenience space, those people that are responsible and held to certain numbers for those accounts are going to want more investment. And they're going to say, "Why spend incremental sums in some of these other channels that are less proven? It's less clear whether they're going to be relevant. They're certainly not as big as these accounts that we've done business with for years."
So I think that tension is inherently there. I think this is why it's so important for leadership to sort of step in and referee those types of situations. And that's where I think the framework can be helpful is to say, "Well, let's walk through this. Does this lend itself or lean towards incrementality? If so, let's invest an appropriate amount."
Again, we're not betting the farm. We're not suggesting that companies bet the farm on new accounts, but it is saying that, look, the market is not static. The market is dynamic. And our brand is not bigger than the market. Our brand does not necessarily shape consumer behavior and shopping patterns. We have to go where the consumer is going, and if there's new channels that emerge, even if they threaten our incumbent accounts that we do business with, we have to be there because our ultimate goal is to grow the value of our firm. And sometimes that means diverting resources or finding incremental resources to pursue some of these new channels.
So that tension is there. I think that's why you got to get clearer conviction on, "Hey, is this going to be incremental for us or not?" Because otherwise the status quo is always going to win, which is like, "Ah, let's ignore that new thing and let's just keep going down the path that we're going down."

Lauren Livak:
And Russ, the first thing you think of when you think of incrementality is financial. How can it help grow the business, grow share? But in your report, you talk a lot about the X factors, which are the other things that can help brands think through incrementality. Can you talk through what those X factors are?

Russ Dieringer:
Yeah. When I was developing the framework, I got to the end of it and it was very sales oriented, which matters. I mean, that's ultimately what we can take to the bank. That's how we pay the bills. But there are other elements with certain accounts that I think are at least worth considering or might be the cherry on top towards getting conviction in terms of expanding.
And so a couple of those are, as an example, data. We all want more zero-party and first-party data. And that's primarily coming through D2C channels. And so you think about the D2C channel, it already offers opportunities to do net new assortment. You can speak in your own sort of original voice to the consumer. But the 1p data component is this additional X factor that's driving a lot of brands that only did wholesale before towards a D2C model.
So data is one of those X-factors. I would say engagement in community is another X factor. Community, every brand wants to build a community. That goes beyond having an email list of consumers. Very challenging to create that community and to create real engagement.
Selling on Amazon, Walmart, Instacart, that doesn't really do that for a brand. Even selling just D2C doesn't necessarily do that. But if you think about maybe developing a following inside a Roblox, sort of a new medium, that's sort of a chance to do it in a unique and different way. And thus, that should be accounted for when you think about incrementality and you think about whether a new medium or a new account is worth expanding to.
Another, just one more example is just faster feedback loops. So certain channels provide brands just a very tight feedback loop around whether products are working or not. Amazon's a great example of that just with the consumer reviews and all of the rich information that that can provide of whether these products are doing well, what are the opportunities to improve the products, et cetera. So I think feedback loops is another kind of X factor that needs to be taken into account.
So it's not always just about sales and profits. There's also these other sort of indirect benefits that need to be accounted for.

Peter Crosby:
Russ, this framework is really helpful in a really complicated question that's going to be continually important to our listeners in the next couple of years given the environment that we're in, making these decisions about where you're going to show up, where you're going to put your resources, how do you do it most efficiently, and how do you weigh these decisions. You've added all of these elements for our listeners to be able to do that in the case of existing and new channels, which is really helpful.
In addition, as I promised earlier, you did get us a really sweet URL for your incremental stuff. It's stratably.com/incremental. Pretty simple. Stratably is spelled stratably.com/incremental. So definitely go there and check out this content while it's in the free zone. And then, of course, Russ, you're, I imagine, on LinkedIn, et cetera. They can reach out to you through your website if they'd like, yeah?

Russ Dieringer:
Exactly. Yep. Listeners can find me on LinkedIn, or you can check out stratably.com and sign up for the newsletter. I'm publishing research multiple times a week. And in the case of the incremental post, hopefully it'll be applicable to whatever new models that arise in 2023, which hard to predict what's going to arise, but hopefully the framework stands up as new models come to market.

Peter Crosby:
Yeah. And Russ, I know you're building out a pretty robust content calendar for yourself in 2023. So I'd love it if you'd come back from time to time and bring us your best stuff.

Russ Dieringer:
Oh, absolutely. Yeah, absolutely would love to do that. Thanks for having me on today. But yeah, everything I create is really, it's pretty niche. This world that I write about, which is for large and mid-size consumer brands. If you're doing business with Amazon and its rivals, this is the research for you, very niche world. But in some ways, it's quite easy to create the research because it's such a dynamic space and there's a bunch of questions out there. And it's always evolving, and I think that's what makes it fun. And that's what gets me up and excited in the morning.

Peter Crosby:
Well, that's why we wanted to talk to you about it. So thank you so much, Russ.

Russ Dieringer:
Thank you, Peter and Lauren, for having me.

Lauren Livak:
Thanks, Russ.

Russ Dieringer:
Yep. Thank you both. Thanks.

Peter Crosby:
Thanks again to Russ for sharing his framework with us today. Make sure you stay up to date on all the new brain food coming out of the DSI by becoming a member at digitalshelfinstitute.org. Thanks for being part of our community.