The article talks about the use of co-op dollars ... situations where your product supplier pays you a fee in exchange for favorable placement of their product in your stores, online, or in print.
I had first-hand experience with co-op dollars at Nordstrom. We nuked our catalog program in 2005, replacing it with a print program that focused on store merchandise that was funded with co-op dollars. I recall that we set the price at $29,000 a spread (two pages) ... enough to offset printing/paper/postage costs.
This decision caused a whole series of interesting outcomes.
Creative (look and feel of a spread) was controlled by the vendor/supplier. Making these things look cohesive was a mess. The vendor/supplier had ideas on "branding", resulting in one product on a page (instead of the 5-6 that optimized sales/profit). What one vendor/supplier thought was "brand appropriate" was completely different than what another vendor/supplier thought was "brand appropriate". As a result, the catalogs looked like garbage ... now, having said that, the marketing/creative folks thought the catalogs looked "great" compared to the high-density catalogs we previously sent with merchandise optimized for catalog performance.
Taking all of these co-op dollars resulted in catalogs that performed 60% to 80% worse (yeah, worse) on a sales-per-square-inch basis. Woo-boy. If you want to watch catalog professionals melt-down in real time, imagine them trying to convince anybody that this was a bad thing ... because outside of about eleven catalog professionals, everybody was happy with all of those co-op dollars funding everything. "We saved $1.4 million, look at how that helps us exceed our budget goals" was something I heard weekly.
The analytically-minded professional might interject at this point and ask somebody to run a profit-and-loss statement. Good idea!
In this example, the normal catalog strategy generated $100,000 more profit. There were plenty of cases where the opposite happened. Each strategy yielded the same amount of profit over time.
Let me tell ya, this was INFURIATING!!
Catalog professionals love analyzing and optimizing - the co-op strategy eliminated all of that. The catalogs were equally profitable, we were forced to mail 2,000,000 names to please vendors/suppliers, and vendors/suppliers paid for the ad-cost, eliminating all analysis. There were two things we could still do.
- Rank-Order customers from best to worst ... a task completed by our model/algorithm.
- Set up the A/B Test to measure incremental results (#boring). Our holdout group was 200,000 customers, which allowed us to analyze performance at levels below a typical customer segment. Rich analysis ... but we were analyzing garbage because productivity was down by 63%.