CPG Companies Need to Double Down on Digital Interventions to Deliver Growth
It has been a rough few years for the Consumer Packaged Goods (CPG) industry in the United States. Especially so if your organization is one of the traditionally larger and more entrenched companies in this space. As a business leader in this industry, you probably agree that your mandate to deliver growth for your organization is a battle you are trying to fight on two key fronts.
The first is the declining growth delivered by measured retail channels i.e. multi-outlet retailers and convenience stores. This previously reliable channel channel has been contracting. According to a joint study by BCG and IRI from 2018, the revenue growth from measured channels was 1.2%. Now if that’s not bad enough already, consider that the volume growth in fact was a negative 0.2%. Put another way, the growth in 2017 from measured retail channels relied wholly on price hikes.
The second thing to consider is that as a business leader at a large CPG corporation, you are increasingly challenged by smaller, upstart CPG companies are gaining an edge over your organization. According to a report from IRI in 2018, sales in the extra-small CPG category (i.e. annual revenue < $100mn) grew by 4.9%, whereas larger CPG companies (i.e. annual revenue > $5.5.bn) grew by a paltry 0.6%. Put another way, since 2013, smaller companies have taken $17bn in CPG revenue dollars from larger companies.
Embracing the Digital Disruption in CPG
One would assume that the larger CPG companies had created a significant competitive moat around their business. This moat — manifested through their massive brand value as well as their well-orchestrated distribution network honed over years of being in the business — should continue to create an unsurmountable strategic advantage over smaller competitors. CPG companies have invested millions of dollars making their production leaner, their supply network robust, their relationships with retailers more entrenched and their visibility with buyers almost omnipresent. Why then is delivering growth such a challenge?
This is where the digital disruption we are seeing in the CPG space really hits.
Achieve Go-to-Market Success through eCommerce Excellence
As I mentioned in my introduction, traditional retail channels have been underperforming in their quest to deliver growth to CPG companies. The digital channel on the other hand is booming. eCommerce has been an important driver for growth for CPG business big and small. Over the past decade or so, buyers have become more ‘digital-native’, gravitating towards shopping online, charmed by its convenience and price competitiveness. However, this channel has undercut the competitive advantage of larger companies in terms of supply network and evened the playing field for the Davids against the Goliaths in the CPG industry. Smaller companies, unable to compete on measured retail channels with their larger counterparts, built significant expertise in online commerce which is now paying off handsomely. eCommerce companies not only provide convenience to their shoppers, they also provide deep insights for sales, marketing, price elasticity for their products and buyer preferences.
eCommerce is now a significant part of the equation for “where to play?” question that product and brand strategists typically ask themselves. While distribution networks provided a significant competitive moat for larger players, that landscape has been hugely disruptive with smaller companies refining the art of leveraging digital platforms to spur their growth.
Drive Meaningful Customer Engagement through Data-Driven Digital Marketing
The second key competitive moat for the CPG industry was the massive and ubiquitous brands within their portfolio. This too is fast being disrupted through alternative marketing channels. While big brands could afford larger budgets and get better airtime and prime slots for ATL marketing, smaller brands have had to rely on relatively cheaper avenues such as marketing on social media and search engines.
And once again, as buyers increasingly become “digital native”, what larger CPG organizations found after a painful or half-hearted marketing pivot was smaller competitors with a much more sophisticated understanding of how to leverage new platforms to attract and retain audiences. Digital marketing was not only cost effective — by providing the ability to segment and target audiences much better — it is also hugely insightful. By employing advanced analytics and artificial intelligence technqiues, it became possible to understand a ‘Customer360’ — a detailed, step-by-step journey of each buyer on their path to purchase. Through these personalized insights for customers, digital marketing provided companies the ability to micro-target interventions that accelerated the possibility of purchase at every step of the way.
Smaller brands, by incorporating digital marketing into their “how to win?” equation were able to really get into the mind of their buyer. This has hugely informed their product development efforts, as well as their ability to create improved resonance and recall in the minds of their buyers.
Ensuring Success of your Digital Go-To-Market Initiatives
To achieve continued success in your new digital playground, it is imperative that you track your business performance on a continuous basis. To that end, meaningful implementation of Advanced Analytics and Artificial Intelligence can help CPG companies, irrespective of size, address the rapidly changing landscape of “where to play” and “how to win”. Let’s assume that your organization has set up a much-vaunted eCommerce sales channel to drive growth over digital channels. Can you double down on their ability and provide them the tools to help them succeed?
According to McKinsey, highly evolved implementation of digital and analytics in tandem can help improve sales by 5–10%, without compromising on margins. In most cases however, sales technology and sales analytics continues to be riddled with low adoption and therefore low value realization. This is because most analytics platforms are not built for the non-technical user. They are built for the highly advanced analyst or data scientist and then haphazardly adapted in the sales context. Today, we can incorporate advances in artificial intelligence to build a sales performance monitoring and alerting platform that is almost akin to giving your eCommerce channel teams their daily intelligence briefing. But we also need it to be designed for the non-technical persona. Designed by taking inferences from how our stickiest personal-life applications work and almost replicating that experience in the context of sales.
Double-clicking on that idea further — if your eCommerce channel is expected to deliver the next phase of growth for your organization it is imperative for you to empower them with accessible analytics platforms that helps them make better decisions. Analytics to understand their pricing, margins, discounts and customer ratings, as well as mitigate the LBBs and out-of-stock instances. Analytics that can fetch the data that your teams need as easily as performing a Google Search. And finally, proactive analytics that will alert them when a business area needs their attention.
In conclusion, if large CPGs are to see a reversal in their fortunes and witness the next phase of growth, they need to pivot towards the digital technologies that can bring out the best of from their growth drivers. To power up your eCommerce and digital marketing engine you need to give your people the tools that they need to succeed. Analytics platforms that can help them discover their data and identify key actions that they can take every day that help them succeed. And to ensure stickiness of the analytics platform, ensure that it takes inferences from personal world applications and uses AI in a way that makes analytics more accessible to enable the success of your people.