Turning the Internet Into a Test Market:
A Conversation with Peapod's Tim Dorgan
by Neal Heffernan
As Managing Director of Peapod Interactive, Tim Dorgan is playing a pivotal role in the online grocer's growth as a powerful marketing and testing platform for manufacturers. For the past two years, Knowledge Networks and Peapod have been collaborating to offer a variety of research services, with proven success in projects with major CPG companies.
Recently, KN's Senior Vice President and director of behavioral research, Neal Heffernan, talked to Dorgan about the online grocery space and Peapod's evolving relationships with both consumers and the manufacturer community.
Neal: Tim, let's start at the beginning – which, to me, is Peapod's mission.
Well, Peapod has been around since 1989, which makes us much more experienced than the typical Internet company; and we have always marched under the banner of smart shopping for busy people. That is our consumer mission. In addition, as you know, Peapod has a mission to create a state-of-the-art environment for doing marketing services testing; and one goal obviously enables the other. The larger our grocery business, the more viable the marketing services business becomes.
Neal: How do you see the online grocery space evolving, and how is Peapod staying a step ahead?
Over the last couple of years, online grocery has really heated up again, spurred in great measure by the interest of companies like Amazon and Walmart. In the meantime, Peapod has been growing very steadily, and we remain the number one full-line Internet grocer in the U.S.
I think one of the keys to staying ahead is to remain entrepreneurial – always trying new things, never being comfortable with what you've got. Peapod is testing, testing, testing – new ways to merchandise items online, expanded assortments, alternative fulfillment models. It's like painting a moving car; but you need to always be innovating, especially when the competition has become as rigorous as it has.
Neal: What do you see as the future of this space? What is its growth potential?
In the U.K., online represents a significant portion of the overall grocery business, and I don't think there's any reason that won't happen here. Ten percent of the U.S. grocery business…which is conceivable – that's a huge channel. We're working with our parent company, Ahold, to come up with the best assortment of options for bringing this service to consumers who so badly need to save time and money.
We think a big part of the future is about multiple fulfillment models; a consumer wakes up in the morning and might ask, “How do I want to shop today? Do I want to go to the store? Do I want to order online and get it delivered? Or do I want to order online and pick up those groceries at a convenient location?” I think that's what this online grocery business is going to look like.
Talk about, if you could, some misconceptions that you have to deal with in terms of online groceries and Peapod specifically.
There's a perception in some circles that our shoppers are atypical; but the truth is that, while they may have just been early adopters back in the mid-90s, now our large, and growing universe of shoppers is fairly typical of their demographic. They're busy people who consume all kinds of products.
I also think that people believe the average shopper will not buy produce and meat through a service like Peapod. But those items actually represent a larger portion of our orders than the typical brick-and-mortar basket.
Neal: Tell us about some of the benefits that Peapod offers to manufacturers, in terms of service enhancements.
That is the reason we're working with you and Knowledge Networks; we feel Peapod offers a terrific environment for testing. We have a full toolkit of marketing services that we make available to manufacturers – from electronic coupons to targeted banner ads to samples that go out in our orders. Everything is targeted based on previous purchase behavior – not just claimed behavior; if you want a sample to go to the heavy Tide users, we know who they are.
Over the last year or so, we've been expanding our promotional toolkit to include things like targeted recommendations and social couponing; and we now have mobile platforms that will offer marketers even more effective tools for targeting specific shoppers via iPhone, iPad and Android.
Neal: What role does KN play in this testing?
Well, Peapod is not a research company. We provide the raw materials, as it were, and Knowledge Networks forms that into offerings that make sense for the packaged goods community. KN has great relationships and a great track record of providing panel-type testing services to that community.
Neal: What types of testing can really benefit from the services that Knowledge Networks and Peapod are offering?
I think they fall into two buckets – new product testing, and what I would call stimulus response testing. For new products, we can put commercially appearing samples, or even test samples, into the orders of targeted shoppers. Then we can track their behavior to see whether they repeat purchase, and also go back to them with a survey to find out why they did what they did. That is a sweet spot for the Peapod panel.
The other is response testing for different marketing stimuli – pick a target, carve out a control, give them different messages, and see how they respond with their dollars. That can also include a survey, or not. The appeal here is to be able to do testing without the participants knowing they're in a test...assuming there is no survey component.
Neal: I would add that two other advantages we see resonating with manufacturers are speed and economics; it's faster and cheaper than testing in a brick and mortar. Manufacturers can be in distribution in an online world in probably a third of the time it would take to physically go out and stock and distribute product into a market area. And most new product tests can be done within a 12- to 20-week timeframe.
Knowledge Networks being interested in working with Peapod shows that we've made a major step forward. Other packaged goods companies are coming to us directly, or through KN, because they want something real in their testing portfolio – something that has real shoppers buying real products and responding to real stimuli. It's a major change in how the research innovation community is looking at testing, and I think we're in the right place at the right time.