Far and wide across the consumer packaged goods (CPG) and retail economy, digital disruption is forcing legacy brands to radically reevaluate how they view production, distribution, and consumption in the digital age. Distribution and sales models date back 100 years and incumbents are slowly adapting to the rise of “digital native” consumers. This consumer is a younger, more nuanced and tech-savvy demographic.
Unable to successfully employ the “mass-mass-mass” strategies of years past (mass production, mass distribution, mass advertising), the industry has fallen on tough times: Retailers and supermarkets are filing for bankruptcy at record rates. CPG legacy brands are reporting significant loses at the hands of fast-growing startups. Amazon and Walmart, in addition to their intensely bitter price wars, have transitioned from clients to competitors with their own private labels. Consumer preferences are continuing to shift as technology evolves.
If legacy brands want to survive, they must transform and adapt.
Emulate The Digital Natives
E-commerce is growing at a year-over-year rate of 16%, according to Mary Meeker’s annual Internet Trends report. From the Dollar Shave Club to Warby Parker, digital native CPG brands are setting customer expectations ablaze with their speed to market, agility, direct-to-consumer distribution models and personalization.
Through the use of CRM applications, social media, and analytics, digital native CPG disruptors have quickly mastered the art of leveraging technology while simultaneously focusing on the experience of the consumer. They are efficiently employing data as a mechanism to build long-term loyalty, and legacy brands are starting to notice. In fact, a recent industry survey found that those CPG legacy brands “winning” in the face of digital disruption are the ones most effectively using consumer data to set prices, analyze shopper attributes and generate more granular shopping insights.
While it may be a stretch, at least in the short term, expecting legacy CPG brands to successfully mimic their digitally committed counterparts is possible. Incumbents can easily replicate many aspects of the digital native business model. This means agility, creativity, tech know-how, etc. This develops internal startups and encourages corporate entrepreneurship and venture groups. As a catalyst for innovation, internal growth groups can concentrate on three strategies. Customer-driven strategies, practice growth hacking and develop innovative ways to collect data/meet customer expectations in the digital age.
Personalize The Customer Experience
Now to shift focus from digital native brands to digital native customers. A key component of digital disruption in 2018 is the consumer preference for personalized products and experiences.
A recent Deloitte study revealed that not only are one in four consumers willing to pay more to receive a personalized product or service, but 22% of consumers are in fact willing to share some data in return. Incumbent CPG brands, through the power of data and technology, are positioned to provide consumers with mass customization and personalization. Components of the purchasing experience (e.g., ordering, replenishing, upgrading, etc.), as well as the end product itself (e.g., packaging, contents, flavors, etc.), can all be enhanced through data analysis and technology.
Customizable and direct-to-consumer e-commerce is picking up steam. Some CPG brands are also experimenting with subscription services, including the “surprise me” subscription. This is a subscription service for “expertly curated products” that are automatically selected and delivered to an individual. This trend has taken on increased popularity in recent years. Accenture reports that almost half of all consumers would be inclined to use a “surprise me” subscription.
Another potential personalization evolution could come in the form of manufacturing technologies. Look for additive manufacturing and 3D printing to be the next frontier of CPG product and experience customization. Disruptive personalization is emerging in personalized nutrition. New players such as YouBar or ElementBars allow you to personalize the composition and nutrition to your needs. The future of personalized nutrition will come when companies incorporate quantified-self sensor data and merge areas of health and wellness with on-demand or subscription-based personalized food.
Back To Basics: The Omnichannel Approach
A final area of focus for legacy CPG brands to overcome digital disruption is perhaps the most important: channel diversification.
Putting it bluntly, if legacy brands aren’t employing an omnichannel strategy during the digital disruption, chances for success are slim. With retailers closing stores faster than they’re opening them, legacy brands cannot depend on the comparative advantages of before. These models are notably inflexible in responding to consumer demand. They also provide CPG brands with the minimal incentive for cross-channel collaboration and integration. In other words, these strategies are incapable of responding to consumer preferences in the digital age.
With more than 73% of consumers employing multiple channels throughout the course of a retail purchase, legacy brands cannot afford to limit themselves to operating within single channels and silos. For today’s tech-savvy digital natives, social media, smartphones and the traditional brick-and-mortar store are all in play as points of purchase.
As consumers are increasingly relying on e-commerce to meet their purchasing needs, industry incumbents should make a concerted effort to use and leverage digital channels while creating a seamless shopping experience for customers — one that utilizes the best aspects of both the physical and digital realms. CPG brands need to implement their e-commerce enabled websites with both mobile and social media as major channels of focus. With this, incumbent CPG brands can successfully meet and stay ahead of the channel preferences of today’s digital consumers.
In Conclusion of CPG’s
Adaptation and survival for CPG brands in 2018 depend on the implementation of a digital, consumer-centric, omnichannel approach. CPG brands need to go back to basics. They need to understand their shoppers and consumers, engage them across channels, and deliver sets of personalized goods and services. CPGs that continue to think “this must be a billion-dollar business” to launch any innovation attempt will face extinction.