You don’t read a lot about how technology adoption differs based on the way various industries operate. For example, in services sectors like retail or banking, a high priority is placed on acquiring market and customer-facing technology because that’s their primary business — winning over consumers at the point of transaction.
Manufacturers, by comparison, have to “make things” first and foremost, and so managing and automating plant and factory processes have instead driven technology investments – think of the well-established stranglehold that Enterprise Resource Planning (ERP) software vendors have on manufacturers.
That’s an important distinction given the way consumers are today so mobile, social and digital in their behaviors and what it all means to being a successful business-to-consumer company. This has caught consumer goods manufacturers off guard and places them at a significant disadvantage relative to their retail partners.
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Institutional Outsourcing
Precisely because technology budgets have to fund the “making of things,” little monies have been available to support marketing and sales functions. It’s led to the fairly much institutional outsourcing of marketing to agencies and sales insight to syndicated data providers. It’s also resulted in growing investment by all business functions in “shadow IT” — technology acquisition done without the Chief Information Officer (CIO) organization’s involvement.
Fast moving consumer products (or FMCP) companies are especially exposed because of their reliance on retailers, or trading partners, as their largest selling channel. Even as many FMCP companies collaborate with retail partners to move product at the shelf level – something they’ve done for many years – there are macro issues happening that lend a more competitive feel to these relationships than one of cooperation.
Co-Opetition with Retail
First, retail trading partners depend on significant promotional consideration to spur in-store demand (tactics like displays, coupons and lower prices). It’s reportedly growing, and even today is the second greatest expense to cost of goods sold in many Consumer Packaged Goods (CPG) companies. It cuts into the relatively high margins that national brands enjoy.
Second, retailers are now behaving like brands themselves — researching and launching innovative new products, then marketing them aggressively as value-based, quality alternatives to national brands. It offers a growth path for what is otherwise a lower margin business than manufacturing.
These dual conditions make consumer insights essential for any business-to-consumer company. Such competency used to be an industry-wide advantage CPG companies held over retailers, but is declining as digital connections provide retailers with a wealth of data and insights about their shoppers. With market share under attack by private labels, while margin-killing and unsustainable trade promotion grows, the future looks bleak for consumer products companies.
New Products The Key
It doesn’t need to be. Consider what it is exactly that consumer goods brands have done so well (at least in the past) — create brands consumers love and want to buy over and over again. That used to be a function of branding and mass media, but today it’s a lot more about understanding consumers and shoppers on a one to one basis.
Never before possible for manufacturers, it is now of course reality given nearly universal consumer adoption of mobile, social media, web and email channels. The agencies hired by brands to push product messages employ many of these approaches in their campaigns. Unfortunately, the resulting data created, such as communication preferences and permissions, demographics, location, social media profiles and more remain outside the “institutional memory” of the CPG organization. It’s this insight which represents such an enormous opportunity for CPG companies to compete and win even as they face a dire future.
Unlocking New Data
For most national brands, this amounts to a challenge not worth the pursuit – how do you get every agency to play by the rules, provide their data, then work off a single consumer and shopper profile record to create any successive campaign? It’s possible, but takes a data-first approach, process and governance that becomes fundamental to the business — just like quality or on-time-delivery.
This same universal consumer and shopper profile offers the basis for uncovering, testing, launching and if necessary adapting, the next big new product idea. Less than one% of new products launched within the past few years yielded cumulative two year sales of greater than $50 million, yet took an average of $15 million to launch and untold added costs in R&D, sourcing, tooling, production and packaging.
Then consider that less than two% of shoppers account for 80% of sales within the first year of a new product launch, and you can see how having direct consumer insights and connections has nearly reached the table stakes level for any viable consumer products company. To underscore the point, virtually every respected researcher and consultancy that follows the consumer products industry identifies innovative new products as the path to growth above all other possible means.
Create To Consume Visibility
The effort to build an integrated consumer insight foundation makes a strong case for taking the next step and adding downstream point of sale data now available from nearly every retailer. A view into monthly, weekly or even daily detail transactions, by outlet, for your products or categories supports a “fail fast, adapt and win” approach to new product launches. It also supports the development of rapid price changes to maximize volume and margin. As with agency-generated information, obtaining and making sense of this data with analytics takes a commitment to leveraging data as fundamental to the viability of the entire manufacturing business.
Carried forward to the production and factory environment, a complete “create to consume” view of the CPG organization results which supports a much tighter linkage spanning sourcing to the consumer. An agile production and distribution function is more strategic to the business and continues to receive the critical budget it needs to maintain superior efficiency and quality — to say nothing of also supporting probable government regulations related to food safety and traceability.
Marketing agencies are then able to create more measurable and higher return campaigns based on a single consumer and shopper record that spans brands. Meanwhile, sales teams possess the insights needed to maximize retail sales channel performance just as direct to consumer e-Commerce comes online for many CPG companies.
Should CPG manufacturers embrace the data within and outside their four walls, and put it to work against the many challenges posed by the retail industry, the battle for consumer mind- and wallet-share promises to intensify.
Gib Bassett is the Global Program Director for Consumer Goods at Teradata Corporation, provider of analytic data platforms, applications, and services. He is responsible for consumer goods industry marketing worldwide for the company. Contact him at gib.bassett@teradata.com or follow him on Twitter @gibbassett.
