How the consumer goods industry can take the digital challenge head-on

Marketers from the Consumer Goods industry have traditionally defined the avant-garde in marketing & brand building for decades. They were the gold standard in using traditional ATL media to communicate their brand proposition directly to current & potential consumers.  However, this bastion is now under significant threat.  This is driven primarily by three forces:

1. The decline of Traditional media: ATL (TV, print etc.) audiences have declined in importance & have fragmented and no longer hold consumers in thrall, in the manner that they used to. They, hence, are not a dependable medium to get a brand’s message across to the end consumer
2. Evolving consumer influence: A slew of technologies have led to consumers having increased access to product information & reviews. This is further impacted by the fragmentation of consumer bases, multiple online social networks, and the advent of myriad online influencers.
3. The rise of new online driven Go-To-Market routes:  New models of go-to-market online allow new-age brands to curate, engage with & sell to niche audiences through online marketplaces & specialized last-mile fulfillment partners.

What seemed like minor shifts in consumer behavior within this techno-world now appear permanent – consumers increasingly search, shop, pay and interact with brands online. These  trends drive the adoption of digital marketing strategies by Consumer Goods firms. 

Mobile-first and Social-first is the future

We live in a world where over half the population, a staggering 3.6 bn, is interconnected online and 68% of them (5.1 bn) are unique mobile users.  2.95 bn (39% penetration) use social on the mobile, making it clear that social-first and mobile-first strategies are the way forward for successful marketing strategies for CG firms. 

The Global Digital Reports of 2018 by Hootsuite and WeAreSocial show that the ME is a key region where this strategy will play out prominently for consumer-facing industries. The region sees a high penetration of mobiles at 128%, with 46% of the population using social on mobiles.  Active social media users and social media use on mobile grew at a clipping 39% each in 2018, the highest growth across global regions, and about 3 times above the global average.

According to GlobalWebIndex, in 2018, almost 50% of people who bought snack foods, cleaning products and hair care products researched them online before buying. For CPG firms, social-first strategies ensure that content is specifically generated for social media. Research has indicated that the growth of social will propel brands to increasingly use color-rich and video content in a social-first publishing model. Catchy content, in the right place served up at the right time is going to be the driver for success of campaigns.

By combining social media data, sentiment analysis, and marketing analytics, CPG firms stand to gain insights into purchase behavior, brand equity and allow personalized brand interactions.

Online Driving Consumer’s Path-to-Purchase

Consumer preferences to search, buy and pay online is one of the most disruptive changes that CPG firms have had to contend with. With 1 bn users on Facebook, 100 Mn on Instagram each month and 150 Mn daily on Snapchat, these three platforms dominate the world’s social audience reach. In China, WeChat dominates with over 1 bn users, and Weibo and Youku Tudou are also large networks with over 430 Mn and 580 Mn respectively.

Consumer search has transformed from being an ‘active-search’ approach by the consumer to a ‘discovery-driven’ approach. Feeds are personalized through data-driven analytics due to the increasing use of social networks in the consumer’s digital path-to-purchase. 

In digitally mature markets like the US, Amazon has changed the way consumers search. Over 49% of product searches now start with Amazon as compared to 36% that start on a search engine.  This has significant implication to the Total Channel Cost (TCO) of online marketplaces as well as influence on the choices of digital marketing channels.

Digital payment options are transforming the ability of customers to shop online, especially in markets where credit card penetration is low. Mobile payments grew from 26% of online population penetration in 2016 to 37% in 2017 driven by growth in products such as M-Pesa in Kenya and AliPay in China. 

E-commerce in Consumer Goods is an Imperative 

In 2017, the steady world of Consumer Goods and Retail was changed indelibly - Amazon’s 13.7bn $ takeover of Whole Foods sent tremors across the retail and CG industries. This move was indicative of a giant responding to changes in consumer purchase behavior and it shifted the landscape dramatically. It challenged CG incumbents to think digital, think omnichannel, and to experiment with new models. 

In 2018, the global consumer goods e-commerce market was valued at $1.474 Tn (+16% y-o-y growth), driven by 1.77 bn people (+8% y-o-y growth), 23% of global population, who bought consumer goods via e-commerce. The largest packaged good categories in e-commerce were Fashion & Beauty at $408 bn and Food & Personal Care at $139 bn. The Food Marketing Institute predict that by 2022, 70% of US consumers could be spending on consumer-packaged goods online.

What is clear is that e-commerce and an online presence to engage with consumers can no longer be an option for CG firms. 2017 and 2018 data for consumer goods shows a clear trend of a shift to e-commerce for CG purchases across categories. As per a Nielsen 2017 report, almost 90% of the increase in sales across CPG categories came from online sales in the year ended April 2017. F&B category, at $2.4 bn increase in online sales, was nearly four times that of in-store increases. In the beauty category, online saw additional sales of $1.6 bn, while in-store sales de-grew by $0.2 bn. 

Low involvement categories like food, personal care and household products are convenient to replenish as required with the click of a button, without the hassle of visiting the store. This has immense possibilities for the future of CPG sales through the Internet of Things and voice commerce. 

 The following chart illustrates the purchasing habits for various categories of consumer goods.

CPG firms face a double challenge. Not only do they have to deal with & retain shoppers who are increasingly comfortable with buying online but they also face competition from new online models such as Dollar Shave Club (DSC) whose strategic use of subscription models has tapped into consumers buying patterns & ensured continual loyalty. DSC held 60% of the fast-growing online razor market in 2017. The $1 bn take-over of Dollar Shave Club by Unilever gave it 16% of the razor cartridge market.  The success of these models prompted P&G to experiment with D2C sales with ‘Tide Wash Club’ in 2016. 

To meet these challenges, winning propositions for CG firms must necessarily include e-commerce and omni-channel strategies. CPG firms and retailers had best collaborate to mine shopper data for insights into shopping behavior to drive growth. 

I3 Consulting specifically works on customer data to profile the consumer journey to set up a single view of the consumer. I3C uses advanced analytics to leverage the strength of the consumer engagement through segmentations, customer life cycle management and social media analytics. This improves the consumer experience through better targeting and personalized messaging, leading to higher marketing ROI.

Digital Marketing in Consumer Goods sees an increase in Budget Allocations

Marketing budgets of CPG firms are currently estimated to be over $225bn. The trend of advertising budgets moving to digital is seen across industries. Advertising revenue on FB, Google ad Amazon have seen strong increases in 2018 – Amazon at 4b $ shows 42% y-o-y growth, FB at $16 Bn shows 23% y-o-y growth.  

CG firms are reallocating marketing budgets to increase the share of spend on digital marketing. A study in 2017 showed that CPG digital advertising was getting a larger share of the marketing mix with estimated 19.9% allocation– receiving 3x more dollars in budget allocations in 2017 over 2012, while allocations to traditional advertising continued to fall from 25.4% in 2012 to 13.3% in 2017

The first contact with the brand or product is increasingly online, especially in markets that are well penetrated by the internet, mobile and social media. In China, online ad exposure dominates ad channels, with 49% of internet users being exposed to online ads for a product/service that they subsequently bought. According to PwC, 79% of Chinese customers use social to search for purchases and 25% purchase through a social channel itself.

I3 Consulting has used Market mix modelling for leading organizations in GCC to analyze trends and help maximize marketing ROI. The fact that online ad exposure outstrips that of other channels like in-store, TV, email etc. is bound to drive advertising strategy for CG and retail firms.  Market Mix modelling will help re-allocate budgets to digital effectively. 

Consumer Goods giants drive content change and online transparency

 The large digital advertising budgets of CG giants like P&G and Unilever have placed them in pole position to force tech platforms, media and ad agencies to provide transparency in viewership and ad performance metrics. 

Strong concerns existed around how unchecked, inappropriate content, bots etc. could attack brand image and brand safety. For e.g., in 2017, P&G cut $200 Mn on digital ad spends on several large platforms due to these concerns. In addition, there were questions around the actual ad consumption data not being made available to the companies by the tech platforms. To address these, FB, YouTube and other tech platforms fine-tuned their algorithms to allow more transparency in metrics, and content quality checks for ads on their platforms.  

The use of AI to prevent fraud and text analytics to capture sentiment around brands in real time is an effective way to combat brand safety concerns and threats posed by irresponsible social content to consumers and brands. 

Marketing Analytics drives Martech Investments in Consumer Packaged Goods 

The challenge of being with the consumer across touchpoints and the need to gain consumer insights has spurred CPG firms to invest in best-in-breed integrated Marketing Technology stacks. The Gartner 2016-2017 CMO Spend Surveyfound that the CPG industry was investing more in marketing technology than other industry respondents. 

Specifically, CPG firms lead investment in Marketing Analytics technologies, building capabilities across categories like data and analytics, web analytics solutions, customer relationship management and direct marketing solutions. A marketing automation platform is the backbone of the firm’s digital marketing strategy, and is integrated with the CRM solution, social media and web solutions. 

As search moves online, web analytics solutions assume greater significance to measure and optimize digital advertising spends and strategies. The adage of ‘Content is King’ holds true even today for CG firms - Martech, combined with AI and predictive analytics, is helping CG firms in complex one on one engagements with customers through highly personalized and content-rich creatives. 

I3 Consulting has seen that predictive analytics and campaign management strategy has helped multiple organizations generate insights to target the most profitable segments of consumers. This approach ensures that marketers not only invest in the best-in-breed martech for their firms but also leverage the power of martech to keep pace with rapidly changing consumer behavior and derive the best value for their marketing monies.  

In conclusion, the rapid adoption of the internet across geographies, mobile-first and social-first has modified consumer journeys for CG firms. Online CG product and brand discovery followed by subsequent online purchases has fueled a move towards digital marketing, social-media, e-commerce and omni-channel strategies. 

Through all of this, it is imperative that CG marketers remain focused on ensuring the best use of the data flowing into their companies.  The smart deployment of analytics would harness the power of investments in digital marketing and marketing technologies to derive higher ROIs.

To know more about our experience, feel free to contact us at www.i3c.in

About the author

Viji Balasundaram 

Viji has 13+ years of global experience in consulting, research & analytics. She has built research programs and provided strategic business insights to Fortune 500 companies across CPG, Retail and Professional Services industries - in North America, Europe and Asia.