Consumer packaged goods are changing faster than ever and master data is increasingly at the center of it all
Editors note: For the latests updates, jump to our coverage of trends impacting CPG in 2021 and prior to that in 2020.
Most industries have felt the winds of change for a while now. Digital commerce strategies, customer-centricity, and product innovation have all made their way to the heart of business. These winds are now blowing across the consumer packaged goods (CPG) space.
How do CPG companies prepare to benefit from these changes, along with the emerging trends and predictions surfacing in the industry right now? A good place to start is reviewing the seven most prominent mega-trends affecting CPG right now, the challenges and opportunities they bring and what CPG manufacturers and brands can do to leverage the synergies existing within them.
1. Barriers between retailers and CPG makers are breaking down
While retail has traditionally referred to the sale of products to end users, CPG has typically referred to a broad spectrum of manufacturers, brands and marketers of physical goods sold through retailers to end consumers.
These definitions have becoming more diluted as retailers are increasingly producing and selling their own private label consumer goods products. At the same time, more and more CPG companies have moved toward direct-to-consumer (D2C) models, setting up their own online and offline distribution channels, giving them immediate control of their consumer-facing presence.
For CPG manufacturers that continue to sell through distributors and retailers, the challenge, as always, is to create the best possible customer experience for the end user. But products are traditionally out of their hands, so to speak, once they leave the manufacturing plant and move through the supply/value chain. So how can companies address the challenge?
It’s all about being in control of the brand and being consistent, offering the same brand and product experience, whether a consumer buys a product in a physical supermarket/grocery store, through an online supermarket app, or calls/contacts your customer service center to ask about a specific product.
CPG brands can do this with:
- Consistent, up-to-date product information and content, readily available to distributors, retailers, sales points and end consumers, on all your platforms and through all digital and in-store distribution channels.
- Knowledge/insight into your customers to create a consistent product/brand experience that appeals to their evolving interests, tastes and values.
On the second point, a full and detailed view of each customer is not necessarily the solution for traditional CPG companies. You only need to know your customers’ overall habits, preferences and buying journeys. But for CPG makers that are moving into D2C, it opens a new world of opportunities where customer data is increasingly important.
The break-down of barriers can be challenging in more than one way to those manufacturers that bypass retailers and sell directly to consumers, as they on one hand are moving into the retail domain and on the other, they are closely collaborating with them, as retailers continue to be significant long-term partners to most CPG companies. Manufacturers need to tread this path carefully by considering whether the products they offer D2C should supplement the existing retail assortment rather than compete with it.
Another way to avoid alienating retail partners is to share data with them. How small or big a percentage is actually moving through the manufacturer's own distribution channels compared to the retailer's? What are the consumer patterns telling you about your product and how can retailers use that information to improve their sales?
2. Rapid growth of online channels
Online sales are booming and that includes CPG. A few years back, McKinsey estimated “as much as 30%, or $50 billion, of the CPG industry’s sales growth in the next five years will come from online.” And the actual growth has been much larger than that.
Those who have already moved grocery shopping online enjoy the ability to build their grocery list online or build a basic list of products they regularly consume such as toilet paper, diapers, milk, flour, etc, that are pre-added to your basket. That’s why getting a place on consumers’ digital shopping lists has become a top priority for CPG brands.
Tthe way to get there is by combining excellent, fit-for-purpose product data with a customer-centric brand experience.
While retailers have been fully aware having excellent fit-for-purpose product information is key to ensure customer retention and high conversion rates in online sales, this has also become a key consideration for manufacturers and brands selling directly online. Traditionally, manufacturers were good at providing data for product distribution through retailers where the retailers excelled in attributing the product data with selling information, up-sell, cross-sell, etc. Manufacturers now acknowledge they will need a strong digital business strategy to support those efforts.
3. Product customization
Understanding customer needs allows CPG brands to respond to them. Traditional CPG production lines were set up to mass-produce, heavily contrasting today’s need for not only customized, personalized marketing, but also customized, personalized products. Therein lies a huge industry need to adapt production lines to trends and market happenings.
However, research on the topic showed many CPG organizations were unable to respond quickly to market trends and consumer needs, especially with regard to category management.
To win, companies need to quickly predict upcoming trends and adjust production and supply chain accordingly. Say, for example, there’s a major sporting event, where two nations – both big CPG markets - are set to face off in the finals. There’s a golden opportunity for a manufacturer to make customized products for those markets. Special editions of chocolate candy, created in national colors, for instance.
If the manufacturer wants to do that, it has to manage data differently. They need agile and fast time to market and supply chain processes. Both can be achieved through having product, supplier and distributor data readily available, as well as strict workflows around that data. When you have the correct data available, you can also quickly translate content to new markets, meaning you won’t waste precious time.
Another factor for process optimization, and thereby succeeding with product customization, is digitizing the production: Fully digital factories capable of this type of customization have seen savings of up to 30%.
4. The Internet of Things (IoT)
We’ve already seen the CPG industry use IoT technology to streamline manufacturing processes. Some are also exploring using it to deliver better customer experiences, by incorporating technology into their products or collaborating with other that do.
For example, inexpensive sensors on perishable goods that can measure temperature and placement and send a warning if the products are not being stored at the correct temperature. With sensors attached on the supermarket shelves or the product itself, companies can also identify if products are correctly placed on the shelf and how they move around the store to find the best placement.
IoT data in itself, however, is not always useful. Only when combined with other data, such as product master data, customer master data or location master data, can a better understanding of how products are being used ascend, paving the way for improvements.
Consumers want personalized experiences when they engage with a brand. CPG makers need to understand how their products add value to our consumers' lives and how they can add even more value. For example what other products and services they can offer to supplement their existing products to make consumers' lives better?
This is the idea behind Amazon Go, where customers can skip the line and cash register and just leave the store with their goods automatically registered and paid for, putting the customer squarely at the center of the experience. It creates value by saving time and effort for the busy consumer.
6. Selling experiences, not just products
Brand loyalty in CPG industry always been essential but with today’s younger generation steadily becoming the consumer of tomorrow, it’s become a bigger challenge. One way to deal with that is to think of products in a totally new way. As experiences.
One CPG brand that had great success creating a unique product experience is coffee specialist Nespresso, an operating unit of the Nestlé Group. Nespresso has taken an entirely new approach to brand building using lifestyle marketing.
The company sells high-value niche products and a unique brand experience – an elegant universe that turns coffee drinking into a lifestyle - making the brand competitive with not just coffee and coffee machine manufacturers, but also with coffee shops and cafes.
It’s not just their “boutiques”, their exclusive customer club or insanely user-friendly app. It’s also customer-centricity that allows Nespresso to anticipate the needs of their customers. Almost December? Let’s offer a Christmas edition coffee capsule with notes of hazelnut. Consumers demanding sustainability? Let’s create an ecollaboration and make it easy for consumers to send their capsules for recycling.
Nespresso is a good example of a successful niche-market company, a trend on the rise in the CPG space. The challenge with niche markets is that they often require customization. To support these business models, it is critical to have confidence in data, supported by a strong master data foundation. This should support easily adopting customer feedback, a complete view of the customer, as well as building the foundation for supporting product development in product lifecycle management to build new product styles.
7. Strategize and market your CSR initiatives
Consumers are increasingly moving toward less processed, more health-conscious and sustainable consumer products.
It is important in CPG to be aware of this and to use it to the brand's advantage. Thus, part of the brand experience is telling a good story of your product and your brand, using data transparency, especially as it relates to your organizations corporate social responsibility (CSR) initiatives. Examples might include helping farmers in developing nations get an education for their kids. Replacing a portion of your production line with sustainable manufacturing that minimizes environmental impact, or earmarking certain jobs to people with disabilities or using biodegradable packaging.
These kinds of CSR strategies are something to transparently share and document for consumers. It requires strict control with your organization's products, their origin, and supply chain flow as well as being able to document your initiatives with reliable product and supplier information.
Ben & Jerry’s, a sub-brand of Unilever is a great example of making this work. The brand makes a virtue of using Fair Trade and non-GMO ingredients as well as engaging in community-based development projects and giving their employees wages that are considerably higher than average – just to mention a few. Thanks to this strategy, Ben & Jerry’s has some of the most loyal customers.
Conclusion: A world of data needs to be conquered
The consumer packaged goods industry stands, like so many others, on the verge of a revolution in which new collaborations arise, products and services find new uses thanks to technology and companies must adapt to consumers who are always in search of the next great experience.
Now, CPG’s too find themselves chasing that 360-degree view of their customers.
If there is one thing all the trends we've discussed share, it’s data. Good product, customer, and supplier data makes for an efficient, smooth and agile information workflow, ensuring that customers can trust your company and your products.