For many CPGs, digital is a brave new world. While some have proven successful at creating and executing on a digital strategy, many find that juggling supply chain, multiple brands, multiple initiatives, and a wide range of consumers can be both confounding and frustrating.
As in most consumer-facing industries, CPG companies — perhaps more than any other — have been greatly affected the economic downturn of the aughts. Competition from store brands and small brands, the rise of social media, and a shift in consumer demographics have produced a steep learning curve for CPGs, requiring them to think, adjust, and act more quickly than ever.
Millennials, who at 80M are the largest demographic group in North America, are the main drivers of these changes (as they are across all industries). In contrast to their Baby Boomer parents, content to receive and absorb messages from brands, these Millennials expect that brands can and should “change based on consumer opinion and feedback” (Adroit, 2014). While Baby Boomers still represent significant buying power, their behaviours are a known entity driven by traditional media and marketing. The digitally native Millennial, on the other hand, are ciphers that CPGs are still trying to crack.
New Competition: The Rise of the Store Brand & “The Little Guy”
A major challenge facing large CPGs is the rise of the store brand. It’s no secret that cost conscious consumers have been shopping wholesalers like Sam’s Club, Costco, and BJ’s for some time. For Baby Boomers, the generation who drove the massive popularity of these wholesale clubs, these stores were a way for them to buy the brands they loved for less. Their Millennial kids, the first wave of whom are in the workforce and starting families of their own, are proving to be equally cost conscious, but in a markedly different way. They seek affordable quality, period. They don’t especially care where it comes from and it shows. In 2013, $1 in $5 spent went toward store brands, fuelling a staggering $112B in sales1. The store brand, too, has changed. No longer the ill-packaged item sitting on the bottom shelf screaming ‘Generic,’ the new store brand (see Target’s Up, Whole Foods 365, and Trader Joe’s store brand) is tailored to the design-conscious, environmentally and ethically-aware Millennial.
Another challenge facing CPGs is consumer interest in the artisanal. Small brands touting products that are “small batch” and “handmade,” that use locally sourced ingredients and materials, and employ best labour practices align with the ideals of today. Consumers are far more interested in charming brand narratives than they are about the uniform shape of a cracker produced by a flawless assembly line … and they are willing to pay for the privilege.
As Strategy + Business points out:
A market segment known as “selectionists,” who constitute 30 percent of consumers, are seeking greater variety and new tastes in the food and drinks they buy—and sometimes care deeply about factors such as the origins of a product and how far it has been shipped. Small players are increasingly able to outsource invoicing, HR systems, and logistics, as well as other back-office SG&A functions. Retail consolidation is further chipping away at scale advantage. The preference among bigger retailers is to work with a broad range of manufacturers—both large and small—to keep large consumer packaged goods companies from gaining too much leverage.
Ultimately, Millennials are a combination of the idealistic and the pragmatic. Large CPGs have addressed the former in a variety of ways, some by acquiring smaller companies and others by imitating their tactics to give them more niche appeal. Unfortunately, some CPGs think this is where the challenge ends, failing to address the latter. A solid digital product strategy presents an incredible opportunity to appeal to Millennials and their expectations of and need for efficiency and flawless digital experiences. This can be accomplished at a single brand level — an app that gamifies a new mom’s experience, augmented by product suggestions and offers, for example. It can also be accomplished at a multi-brand level — perhaps an app that owns the kitchen by offering smart shopping lists and coupons, allowing shoppers to get in and out of the grocery store as quickly as possible. The immediate value of such digital products to the consumer is obvious, but they also offer long term value in that they are repositories of progress, memories, and information. If brands can provide rich, utility-based experiences that offer long-term value as opposed to campaigns that provide short term value, consumers will not only flock, they’ll stay.
Re-imagined consumer spaces
As KPCB points out in their 2014 Internet Trends Report, mobile technology is disrupting nearly every industry by “re-imagining” experiences. Brick and mortar stores — traditionally the major touchpoints for CPG companies to reach out to consumers — are certainly one of the most re-imagined experiences out there. In an effort to increase foot traffic and in-store dollars spent, many retailers are turning to technology and omni-channel opportunities. For example, stores are implementing technology like iBeacons, QueVision, and SmartCarts to improve in-store shopping. There are many opportunities for CPG companies to form partnerships with these forward-thinking stores to target the right customers at the right time and offer enhanced customer experiences.
The Amazon Effect
Another disruption to the brick and mortar store is eCommerce and mCommerce, notably Amazon, whose Prime, AmazonFresh, and other subscription services for automatic shipping of products lets consumers shop from their laptops and phones, eliminating the need to go to the store at all. These programs not only offer value and utility to their multi-tasking customers, but also provide Amazon with an invaluable bank of consumer data, allowing them to build a truly three dimensional view of their customer, which in turn allows them to offer spot-on product and content recommendations.
Online retailers like Amazon present not only new partnership opportunities for CPGs, but also clearly show opportunities for direct to consumer sales; however, with the bulk of digital budgets being spent on marketing–as opposed to products–CPGs may be letting such opportunities slip through their fingers. Without clear digital strategies in place, CPG companies have been left to scratch their heads and play a seemingly endless game of catchup. As a recent survey of CPG executives and consumers recently discovered, “CPG executives are underestimating the potential for e-commerce to drive completely new or incremental sale” (Deloitte, 2014).
While most major CPG brands have a social presence, opportunities are being missed to further engage with and convert the customer. According to McKinsey, social has been broadly undervalued as a path to conversion, with an annual value of $900B – $1.3T that could be unlocked by social technologies.
Marketing is an obvious area that CPG companies are deriving a lot of value from, but social can also be leveraged for product development. Insights gleaned from online forums are just as valuable, less expensive, and faster than traditional focus groups. The response is also more organic since tweets and Facebook posts are written in a real life context rather than in a sterile environment.
Companies are also only beginning to see the true value of social data. Data science tools such as Natural Language Processing (NLP), Markov Models, Fourier Transforms, and Similarity Algorithms are giving companies unprecedented insight, helping them to build a unified view of their customer and create appropriate solutions and messaging.
Loyalty and Engagement Products: If you build it, they will come
As Baby Boomers continue to make up less and less of the consumer market, CPG brands must take actions that will resonate with a younger audience. Mobile is certainly one way to do so. While most brands are on the mobile advertising train, many find themselves struggling with mobile apps. Perhaps this is because their approach to apps thus far has been to use them as marketing tools rather than engagement tools. By and large, when it comes to creating mobile products, CPGs may be thinking too much like marketers rather than thinking like their consumers, resulting in over-branded, under-useful products. This is unfortunate since providing utility to users is a great way to build brand-consumer trust and affinity. Consider Proctor and Gamble’s SitorSquat Restroom Finder. While certainly related to bathroom tissue, it is not a product finder nor a product selection tool–it just helps users find a decent public washroom in their vicinity, all thanks to Charmin.
Loyalty programs, too, have become another channel on which to engage consumers and gain invaluable consumer data in the process. And, if brands can successfully build a mobile experience around that, all the better. Unfortunately, many CPGs may find themselves faced with internal logistic challenges that preclude them from doing either. As an interim solution, CPGs may take a third party partner, such as Checkout 51 or ibotta, to offer discounts and special offers through; however, while this practice may get products into the hands of the consumer, it doesn’t necessarily do anything to build a relationship with the brand itself. Without such relationships, CPG brands’ hopes for lifelong customers become greatly diminished. CPG brands must think beyond quarter sales and immediate conversions and consider the long game.