Profitero Blog
A Q&A with Alex McCord of Compass Marketing

In our continuing Podcast series, Profitero’s Keith Anderson interviewed Alex McCord, VP of eCommerce for Compass Marketing, an agency that works with some of the world’s largest CPGs to grow their fair share, or greater, of eCommerce sales.

Keith and Alex discuss the growing need for cross-functional teams at CPGs, Amazon’s expanding portfolio of formats like Pantry, Fresh and Prime Now, as well as the role that private-label may play in CPG categories at Amazon.

Q: To start, why don’t you tell us a little bit about your background and what you do with Compass?

I serve as the VP of eCommerce at Compass Marketing, an alternate channel sales and marketing brokerage that’s been around for about 16 years. I lead a staff of dedicated heads that just focus on eCommerce, so all the big players here: Amazon.com, walmart.com, jet.com etc. We help translate for large CPG companies how they can take their fair share and more in the eCommerce space. So we heavily focus on CPG, that’s where we live and breathe, and I’m excited to talk to you guys today about what we do and where we see the industry going.

Q: When you say translate, tell me a little bit more about the nature of the work itself. 

A lot of what we try to do is help to educate internally about how a CPG manufacturer should think about the eCommerce channel, and then of course execute, so all of the very basic tactical stuff, from setting up new items and images, into acquiring, developing, and executing on-demand generation plans, and then also working with supply chains to make sure that we’re optimized. Again, CPG, in my opinion, is not necessarily optimized for this channel. It won’t be overnight, but Compass’s role is to try to help large CPG manufacturers understand and then take more than their fair share in this space.

It’s a totally different world in many instances. I think it’s really exciting work and I think that as consumer adoption and even basic stuff like millennial spending power for CPG increases, this is only going to become a bigger area of focus for CPG manufacturers. As large retailers like Amazon and Amazon Prime Now continue to solve that supply chain aspect of it, where all of a sudden the barrier to entry around convenience goes away because you can get your items delivered in an hour, that’s a fundamental shift that’s coming. If we see the percent share of CPG purchasing power to go from low single digits to even something like ten percent, that’s going to be an enormous effect on the entire industry. It’s exciting to be here. I still think it’s very much day one, and I’m looking forward to what the next three to five years look like in this space.

Q: We see so many big CPG companies starting to explicitly prioritize eCommerce at the executive level, but to your point, there’s so much work that still needs to be done inside those companies to develop a strategy, build an organization, and actually go do the work.

We always advocate for external help because there’s nothing like a team of experts that live and breathe this every day, but internal structure is also incredibly important. You have to be set up in order to work cross- functionally and quickly and again, take a totally different lens to this business.

There needs to be cross-functional teams. Digital marketing specialists are really, really important, kind of that liaison between brand and sales. Sales of course is always important but you need to tie into that some level of supply chain. You need to have talented supply chain people that can help solve complex problems because anyone that’s worked with a large CPG knows that there’s always going to be new and exciting challenges everyday.

There are also different challenges depending on who you’re dealing with. Even just thinking about Amazon as Amazon isn’t the right way to go about it. Between Amazon Fresh, Amazon.com, and Amazon Pantry, you can have up to three totally different selling environments, three different assortments altogether, that all need to be treated differently.

Q: In the case of Amazon’s portfolio of eCommerce formats, what should CPG companies do differently with each?

I think that Pantry is really exciting for CPG. I think that moving early and often on Pantry should be a must for any CPG manufacturer. I think that the penetration rates of consumers that are on Prime that are willing to go through that box-building exercise and purchase in Pantry is much higher than anybody expected, so I think that that’s a key plan and really should be your lead items, your hero SKUs, and you should then heavily promote those SKUs.

I think Amazon.com is going to be more of a loading-up exercise, a stock-up exercise. We represent a bunch of different candy manufacturers, and while we are now trying to crack impulse in a bigger way due to self-service AMS and Amazon Prime Now, realistically the bread and butter of our business is still in larger format items, because consumers that are already brand advocates are just looking to buy your product. If you go into the larger format, you get into that minimally viable option of $17 to $20, all of a sudden you can make a really nice business without having to worry about pure profit margins that are in the cent range or the low $1 range.

The third one is Fresh, which is still only in key markets, but which they’re starting to integrate into Amazon.com, and I think that’ll be a huge step for them, simply because it opens up recommendation engines, it keeps the consumer-facing part of it all together. I think that that business model, especially as they tie in Prime Now from a back-end perspective, will become super interesting. It hasn’t been a huge piece of business for the brands that we represent yet, but I do think it’s something to keep an eye on in the coming months or so.

When Pantry launched, I think it was actually 20 percent of all the SKUs that were launched into Pantry were launched by Compass. We decided that this was a big bet for us, we worked back and we launched a ton of SKUs into there and we promoted them really early on. The rank that we now hold in unbranded search terms there, to earn that placement now would cost so many more dollars from a marketing perspective because we were the first mover.

That’s not to say that every single thing that Amazon or any e-retailer launches is going to be a success, but if you think that there’s a chance, there is a law of diminishing returns from the bang for your buck perspective. So I’m always a big proponent of testing and learning. Again, going back to the internal flexibility point. You need to make sure that, when an opportunity arises, something like Prime Pantry or something like Dash or now Echo, are you positioned to be able to jump on those opportunities as they arise. I think that’s a big question that CPG manufacturers need to think when they’re planning out how to approach the channel.

We’re now seeing the advent of what I’ll call eCommerce native companies. Companies that come into Amazon and other e-retailers and sell under, as a third party, and they are able to gain a ton of traction by getting a ton of recent reviews, to work the algorithm by using key words and their own algorithms to figure out where is their softness, and then launch products that, from a traditional food drug mass perspective, have as low as zero share, but in the world of unbranded search on Amazon and other retailers, they’re enormous players.

But you have to continuously be mining because these eCommerce native companies are always looking to optimize. They’ve got algorithms and they’ve got very smart people looking to find ways to usurp the number one, two, three, and four brands for any CPG category. Figuring out how to hold your own once you do make it to the top is just as important as it is making it to the top of unbranded search.

Q: What do you think about the role that private label might play in CPG categories at Amazon?

I think it’s going to come. I don’t know this definitively but I’m of the mind that if Amazon can find a way to make the economics work on their end, why would they not? They then no longer have to worry about dealing with manufacturers and they can do it themselves and unlike traditional brick and mortar store, because this is all online, they can then prioritize their own products in a way that would be the equivalent in-store of buying 12 feet of space at eye level within any platform. They can rise immediately to the top of search, they’re going to have better content, they’re going to have better detailed pages, more cross-linking across the site, so I think it would be naïve to think that it’s not coming.

I think that every CPG should welcome them there and just figure out a way that they continually differentiate their own offerings, whether that’s through content, through variety packs, through price, but find a way to turn all of your brand advocates that I’m sure every large CPG has through their national media campaigns and continue to convert, while understanding that there’s likely a chance you’ll be competing with third parties.

Q: So there’s another big challenge that we often encounter and you and I have spoken about before, which is the increasing competitive dynamic pricing among some of the big retailers you named earlier. What are you seeing and how do folks manage some of that competition?

Dynamic pricing is obviously the topic du jour for any CPG that’s dealing at the enterprise level. So you’ve got Amazon, Walmart, and others that have all, at least at some point in their life cycle, used dynamic pricing algorithms.

Dealing with dynamic pricing is a huge topic that is much longer than we have today to talk, but I think the key things for me are just diligence around what your pricing model is for the channel. Making sure that there is some level of diligence around what your minimum advertised price is, making sure that you’re not using disruptive high-low tactics. It’s okay to promote. Everyone should promote in the channel, but promotions that are not scrapeable by other algorithms is key, because you don’t want to get into this infinite mirror situation, because again, then everyone loses.

Q: Well Alex, thank you for joining us. If people want to reach you or learn more, how should they find you?

You can reach me directly at my e-mail address, which is amccord@compassmarketinginc.com. Or you can go to the Compass website and send a line to the information there.

To hear other industry thought leaders discuss the key eCommerce trends impacting the CPG and retail sector today, including our latest podcast with Patrick Miller of Flywheel Digital, visit our brand new Profitero Podcast Series.