- June 12, 2014
- 6 Comments
Business disruption sometimes happens very quickly, almost too fast to react. Consider what happened to Blockbuster as movie rentals shifted online. Other times it happens more slowly but is no less impactful. Case in point: how online, mobile and social channels are transforming the way we shop and make purchase decisions.
The industries most affected – retail and branded consumer products – possess entrenched business models that pre-date the video-rental industry by decades. With so much invested over so much time, changing direction is like a mile-long oil tanker making a 360 degree turn. It’s much more alluring to stay on course if at all possible. Waiting certainly seems possible with shelves clearing eventually in spite of changes to shopping behavior. It’s just not happening at a growing rate.
The Consumer Packaged Goods (CPG) industry is especially conflicted. Makers of brands in all segments – food, beverage, health and beauty, and household products – rely on retailers as their primary customer and sales channel. It’s the very definition of the oft-cited CPG industry “b-to-b-to-c” (b2b2c) model, where the supplier sells its products to retailers, who in turn sell to consumers. How can a CPG maker approach emergent changes in shopping behavior when physically fenced off from the last mile of the shopping journey?
Many CPGs are today claiming a new focus on consumer centricity; that it’s their consumer who matters, who they care about, and who they serve. It’s less a response to changes in consumer behavior as it is many other factors and complexities affecting the CPG industry that make consumer focus essential. For example, digital channels allow CPGs to communicate directly with their consumers in ways not possible in the past so the marketing mix is shifting accordingly.
At the same time, CPG investment in trade (retail) relationships via promotion (price buy downs to drive volume) is at an all-time high and continues to grow. Layer in consumer price sensitivity, retail private label competition, emerging e-commerce channels, SKU proliferation and a dearth of new product innovation, and the challenges begging for a greater focus on the consumer are many.
Are CPGs putting their money where their mouth is with respect to consumer focus? I’d argue that many CPGs are making moves in the right direction, but any action is still subject to the inherent restrictions of a model that places the consumer at the end of the equation.
From B2B2C to C2B2B
I’d like to suggest CPGs adopt a different view of their business, one that places the consumer first, followed by the CPG itself, and lastly the channels by which products are sold – in other words, a c-to-b-to-b (c2b2b) model.
How would this differ from a b-to-b-to-c model?
– Start with your consumers not the products you produce — who are they, what are their unmet needs, and how do they wish to transact with your brands? The concept of “transaction” expands from a product purchase to any interaction that facilitates a closer bond between brands and consumers. It’s nearly inarguable that the lack of new product innovation and slow growth is due to a lack of consumer focus in this way. CPG makers are still consumed with squeezing efficiency from their manufacturing supply chains – important, but completely insufficient to succeed into the future.
– Next is you, the manufacturer, not your retailers — how do you build the product assortment desired by your consumers, and from where and how do you source your inputs most cost efficiently? This forces the CPG to think like a retailer, but in terms of product experience.
– Lastly, through which channels do your consumers wish to acquire your products? In some cases it will be retail partners. In others, it may be direct from you. It could also be from a pure play e-commerce retailer like Amazon. Or most likely, some blend.
This approach differs from the traditional view of CPG manufacturing that prioritizes the manufacturing process first. From a technology perspective, it explains why ERP investment continues to dominate, while more consumer focused investments remain mostly outsourced. In the past this made sense, but today it places CPG brands at a disadvantage. Industry trends and consumer behavior are evolving quickly, maybe affecting a percentage point of growth at a time – slow compared to a paradigm shift like what affected Blockbuster – but still a very big number for billion dollar brands.
From a technology point of view, the status quo won’t suffice either. Although consumer facing technology and data solutions have been available on an outsourced basis for many years, most lack integration in a meaningful way with the core CPG business. By “meaningful” I mean that the sum and specifics of consumer activity is beyond the grasp of decision makers in a timely and cost effective way.
Many CPGs are finding their old ways of outsourcing consumer facing technology and data solutions can’t keep up with demands for more timely access to insight and actions. No matter whether it’s email campaigns, sales information, product launches or trade promotion, the latency and lack of detail associated with outsourcing lacks the timeliness and efficiency that a more integrated approach yields.
It’s gotten to the point where it’s not necessarily more cost effective to outsource. Instead, progressive CPGs are adopting a self-service approach that takes advantage of the latest cloud technology and data solutions in a way that integrates with the core business – without necessarily requiring IT support, large capital expenditures or lengthy payback time horizons. When it’s possible to stitch together a cloud solution with internal systems to facilitate more timely access to insights and actions is where things get exciting.
A CPG that adopts a c-to-b-to-b model views consumers as the “customer” who’s needs must be understood and uniquely met throughout the path to purchase, bases product development and launch decisions on direct consumer interactions that are perpetual and closed loop, and views sales channels as a function of consumer preferences, as opposed to a tried and true group of high volume retailers supported with trade promotion. Done well and based on analytics means everyone wins — the consumer, the CPG maker and retail partners. Done poorly, the status quo persists and that won’t turn out well for anyone.
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