The Javits Center in New York City is currently being used as a 2,500-bed field hospital run by the National Guard.

Just 12 short weeks ago it was the venue for NRF 2020, packed with people discussing the future of the global retail industry. It’s a stark contrast that shows just how dramatically and quickly our reality has changed.

No one at NRF could have anticipated the scale and speed of the retail shutdown. But one moment from this year’s event is highly relevant to the crisis that many retailers now face.

Microsoft chief executive Satya Nadella aimed a shot across the bows of online advertising platforms when he said: “Let’s face it, today, when you look at online advertising it is a monopoly or an oligopoly, pick your word – the concentration is clear, the digital networks are clear.

“You know there is death, taxes and ever-increasing online advertising spend. There is not much we can do about the first two, but depending on the decisions we make now there is something we can do about number three.

“We have to change the dynamic. You have the real data here. You have, as retailers, the most valuable asset, which is the commercial intent and consumer behaviour data.

“Retailers find themselves paying ever more for the privilege of speaking (marketing) to their own customers and spending a fortune to acquire new ones”

“The question is, how can you convert that through your marketing efforts and into effectively new online advertising channels … This, for me, is what is going to reshape retail business models.”

That message struck home powerfully to me as a former chief marketing officer. For too long, retailers have had customer data and insights but lacked the tools to join and use the data and insight effectively.

Instead, they have become overly dependent on the online advertising platforms and digital agencies. The result is that retailers find themselves paying ever more for the privilege of speaking (marketing) to their own customers and spending a fortune to acquire new ones.

Retailers need to harness the primary customer data set, reassert control of their customer relationships and make every pound of marketing expenditure work harder than ever.

It’s a rallying cry that’s never been more urgent. And many are responding, with Covid-19 action plans that include reducing marketing spend in order to conserve cash. The question is, how should they do it? I see three key areas of opportunity.

1. Incrementality

Each pound of marketing spend has to drive incremental revenue and profit. To gauge incrementality, and the return on investment from every additional pound, a retailer has to know how much revenue they would have generated by spending nothing.

Under business as usual, that’s pretty hard to do, but these are abnormal times. So five weeks ago, in a bid to conserve cash, one fast-fashion retailer turned off all of its multi-million-pound digital channel marketing spend overnight.

The result of this catastrophe-driven, radical A/B test? Five weeks on, the retailer has retained 85% of its revenue. What’s more, it has a bold new approach to reducing future digital spend, confident that customers still want what it offers.

2. Profitability

Retailers need to interrogate the profitability of their marketing spend. Is it driving profitable transactions in the short term that will lead to healthy, profitable longer-term customers? Or are they paying to engage with customers who have no loyalty and will disappear after the first transaction?

One retailer was bidding on the search term for a popular computer game it was selling at a loss-leading price. The marketing justification was twofold: the overall ‘basket of goods’ would be profitable and it would acquire new customers.

It didn’t quite work out like that. In the short term, one customer bought 1,500 copies to sell on ebay. And the longer term? After 12 months, none of the customers acquired through the promotion were shopping profitably. Not only had the retailer paid the digital advertising platform to sell the game at a loss, it also acquired a cohort of loss-making customers.

3. Efficiency

Are marketing efforts aligned with merchandising teams’ objectives to drive in-season trading of overstocked SKUs? Is activity and investment coordinated to drive sell-through of the right products at the right time?

Merchandising strategies can be amplified by taking marketing actions to direct customers to the specific overstocked SKU-level inventory. But all too often, the metrics used to reward or incentivise digital marketing agencies fail to pass that efficiency test.

One fashion retailer wanted its marketing spend to target these overstocked, seasonal products, but it quickly discovered that the agency was hitting its targets simply by directing traffic to core lines that would have sold anyway.

To prevent similar results, marketing, merchandising and agencies must all work hand in hand and have complementary success metrics. Digital agencies’ focus on return on ad spend is wildly unhelpful here, as it typically bears no relationship to profit.

The simple ratio of gross demand to advertising spend gives an inflated view of performance. As every retailer knows, once deductions for VAT, cancellations, cost of goods, returns, picking, packing, delivery costs, etc, are made, it’s quite common to find that every pound spent returns slightly less than a pound.

Where next?

Tackling these three areas is going to be essential for retailers to bring digital marketing costs right down and at the same time make sure that every pound they do spend generates real value.

Retailers have to take control and start linking transaction data to cost-to-serve and cost-to-market data, in order to take action at the level of an individual customer and marketing interaction.

Doing so will help create the fast, flexible customer intelligence they need at their fingertips to weather the current crisis and prepare to prosper in what comes next.