The CPG Industry is Going Digital. Here’s Why – and Why Now.
The store shelf was once the mainstay of the consumer packaged goods (CPG) industry, a crucial brick and mortar spotlight for tangible product. Marketing and R&D spends aimed to influence the pivotal moment a consumer would pause in the aisle, remember branding claims made through traditional advertising vehicles and (drumroll, please) choose that item. But the days of straightforward storefront selections are dwindling, especially with the increased popularity of online shopping.
Today, the consumer experience increasingly skews digital; COVID-19 alone accelerated e-commerce by 10 years in 10 months. For an industry that spent some 30 years utilizing a limited toolset for distributing products and information, the new market landscape demands a major pivot to ensure success.
The digital transformation of CPG is on the docket for multiple reasons. Marketing channels have become hyper targeted, favoring technically savvy, agile brands. Properly marketing and delivering rapidly consumed items—such as packaged foods, toiletries, over-the-counter drugs and cosmetics—in this heavily digital age demands a major strategy shift. Traditionally, consumer packaged goods companies planned for long product lifecycles with lengthy new product development processes. Today, such development must be turbo-charged to compete.
The winners of the next generation of CPG will think differently. They will change the brand-consumer relationship from a transactional dynamic that emphasizes cost, product placement and mass advertisement to a new model that offers a radically improved, personalized user experience.
Connected consumers are bombarded with choices, it’s true, but more significantly, their entire decision-making and purchasing process has transformed as it increasingly moves online. Imagine what some of the following changes may mean for your brand:
- Niche products with precisely positioned value propositions abound thanks to lowered barriers for new manufacturers.
- A targeted ad or an influencer’s product recommendation might send consumers to a completely new product website. Re-targeting ensures constant reminders of a product they may have briefly considered.
- When the consumer searches for a product category, what they see first will be determined by an opaque and ever-changing algorithm rather than a brand’s deliberate collaboration with a major retailer. User reviews loom larger than brand messaging when perusing product pages through major online retailers.
- When the consumer finally does purchase a product, they are more likely to be invited to join a subscription plan to get fully locked in with one brand.
CPG companies that wish to defend or capture new market share must reignite their connection with the consumer in this radically changed environment, a challenge that demands strategic and organizational change.
Customer acquisition and retention now demand a multilayered strategy that must incorporate value, convenience and environmentally friendly aspects such as sustainable packaging. Auto-replenishment, direct-to-consumer communications and predictive home inventory management are just a few aspects of the new reality of consumer packaged goods.
Here is a look at the digital twists and turns the CPG industry is taking in order to transform the consumer experience:
1. Convenience and Personalization
Convenience is paramount for busy consumers. Though attitudes for shopping in-person and online are similar, Jabil’s Connected Packaging Consumer Survey revealed that 85% of survey participants purchase household staples online. Survey results indicate that many people do not miss the trip to the grocery store. It was found that millennials, men in general, smart speaker owners and city dwellers enjoy online shopping for household staples more than in-person visits.
While purchasing can now be done with a single click, the mental overhead of tracking a household’s inventory and subscriptions is a tedious and thankless task. But when fast-moving consumer goods are in short supply, the household knows it – as the pandemic has thrown into sharp relief. The presence of toilet paper, baby formula, dog food or coffee are routine – but their absence can completely disrupt a family’s routine. Thanks to connected packaging, such instances can be relegated to distant memory, in much the same way that indoor plumbing has eliminated the need to collect water from the well. Sensing scarcity even before we do, connected packaging looks to whittle down the household “to do” list through auto-replenishment.
Auto-replenishment is enabled by the accelerating uptake of the Internet of Things (IoT) systems. Inexpensive devices can now be outfitted with sensors and wireless internet connectivity, allowing ordinary containers and dispensers to automatically order their own refills. Today, more than 10 billion devices connect to the cloud. Within the next decade, estimates raise that number astronomically high.
Consumers seem eager to invite this technology into daily life. 84% of survey respondents believed that at least one product category was a good fit for auto-replenishment services in their own lives. The survey indicates that the most promising categories are infant care, home care, personal care and pet care, forecasting that the days of last-minute runs to the store for formula or dog food are numbered. Estimates show that by 2024, 14.5 billion packages in the consumer goods market will feature electronic functionality.
Auto-replenishment is a more precise way of keeping supply constant than the subscription service model, in which consumers opt for delivery of a product at a certain time-based interval (every three months, for example). Think Amazon “subscribe and save,” which often offers a discount if the consumer makes a commitment to subscribe. This fulfillment strategy is already embraced, with 46% of survey respondents using a subscription to keep household staples arriving at a steady rate.
But subscriptions don’t account for how people actually use consumable products, resulting in a “feast or famine” dynamic when goods arrive too quickly and accumulate in storage (a nuisance for bulky goods like toilet paper), or too late after a household has already run out (a straight-up crisis when it comes to coffee). The reality is that subscriptions require active management, with consumers supplementing, delaying or cancelling as needed. Auto-replenishment, by contrast, senses user needs in real-time, and refills only as appropriate—with no intervention needed.
In addition to subscription and auto-replenishment, quick fulfillment capabilities such as “one-click ordering” mean that CPG items can be restocked at the touch of a button, and increasingly, they are.
Convenience now trumps the need to reach out and touch an item before purchase. Yes, the physical storefront still exists, but the integration of the subscription model and auto-replenishment is more than a dream for the future: it is well underway. Fast-moving consumer goods companies must move their attention now to where the growth is – the digital space.
2. Connecting Beyond the Shelf
Picture this: A consumer purchases a connected diffuser for mosquito repellant. The device cannot literally see the pond behind the home where mosquitos lay their eggs. But it connects with a cloud service that fuses device level data with location-based weather data. After a recent rainstorm, with repellant levels running low and warm weather predicted over the next week, it places a re-order for delivery before the new mosquito eggs get a chance to hatch, along with tips on how to most effectively use the product to nip that infestation in the bud.
Digital marketing capabilities have transformed the CPG industry, bringing threats from agile new upstarts, as well as opportunities to connect with end-users like never before. The ability to deliver targeted coupons, product tips and more based on product usage and other data sources brings specificity to marketing in a way that can benefit both brands and consumers.
This is the age of products that “see” inside the home, assessing product use in real-time. The insights collected by this packaging translate to better product development, more efficient fulfillment, and more relevant and useful marketing content. The need for fast-moving consumer goods has not changed; what will continue to evolve is the consumer experience triggered by actual product usage. Connected packaging, as well as access to third-party data sources such as geographic and demographic information, take this a step further.
The ability to customize messaging based on usage patterns means meeting the consumer where they are – not where a brand assumes them to be. Consider the oatmeal consumer who mainly dips into the bin in the late afternoon on weekends. This is a baker, not a breakfaster. Therefore, she would receive curated recipes for cookies or cakes, for example, instead of an article entitled Seven Ways to Top Your Oatmeal.
Improving the customer experience in such a helpful manner increases brand stickiness. In this age of choices galore, brand loyalty is highly coveted. When it comes to direct-to-consumer communications and the digital transformation of CPG, specificity and personalization are the keys to connection beyond the shelf.
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3. The Customer Experience: Sustainability
The world produces about 380 million tons of plastic annually, and 50% of that goes towards single-used plastics, according to Plastic Oceans. Auto-replenishment, home inventory management and easy to use device and consumable systems can help decrease that percentage. Companies can produce a durable container built to last years, while substantially reducing plastic in consumable refill packaging for a better overall sustainability profile.
Connected packaging can lead to greater convenience and consumer stewardship in the CPG space. Purchase a durable bottle of all-purpose cleaner or detergent, and that container could feature smart technology to indicate when a refill is required. A paper-based or post-consumer resin (PCR) packaged concentrate subsequently delivered to the doorstep represents ultimate convenience in an environmentally friendly package. Without the need for romance packaging to draw consumers’ gaze on the shelf, CPG companies can create more efficient e-commerce packaging, and even compact concentrates for refills, reducing overall carbon footprint by declining to ship air and water.
In addition, when households receive sustainably packaged product in only when it is needed, overall product and packaging wasted can be reduced. Sustainability becomes an automatic daily practice. And CPG companies see fulfillment in a whole new light.
4. Market Differentiation and Ecosystem Lock-in
Global CPG brands have faced decades of eroding market share and declining profitability. Why is this? Reduced barriers to entry for manufacturing, and availability of stock packaging, have made it easier for agile upstarts to launch competing products quickly. At the same time, e-commerce gives us an infinite store shelf on the internet – brick and mortar retailers can gatekeep their in-store displays, but anyone can set up an online shopping cart. And most importantly, these quick moving digital natives can effectively target market niches and forge a dynamic, even intimate, relationship with their consumers by addressing needs and desire that may have been ignored by the big brands.
CPG companies will not reverse these trends, but they can learn to seize the same opportunities that their small, quick-moving competitors have, to differentiate their brands and cultivate loyal customers.
Early indications show that connected packaging provides a truly unique value proposition for consumers. Brands who are early adopters of connected packaging technologies will leverage solutions such as auto-replenishment, direct-to-consumer communication, and home inventory management to create consumer experiences that are superior to the traditional options.
Marketing teams of connected products will be flush with new engagement opportunities that can be used to truly differentiate from the rest. Due to the nature of these digital solutions, these brands will inherently be stickier.
The following factors will contribute to ecosystem stickiness, driving improved market share and profitability for CPG brands:
- Reduced purchase friction – Make repurchase of your product the clear path of least resistance and, voila! You have undoubtedly reduced customer churn. Auto-replenishment entirely removes the friction from repurchase, making spur-of-the-moment product switches less likely.
- Improved consumer experience – Auto-replenishment, direct-to-consumer communications and home inventory management will improve the experience a consumer has with fast-moving consumer goods. Brands that use these tools to create an outstanding experience will create a relationship with consumers that outweighs price.
- Reduced packaging costs – With a change in emphasis to lightweight refill packaging, brands can shave down the cost of product packaging while still providing excellent premium customer experiences.
By embracing digital transformation in market strategy and development, companies can stay at the forefront of purchasing decisions. The basic need for CPG products remains the same; it is up to the companies presenting their option to the world to make sure their product becomes a favorite and continues as such. Those that transform accordingly as the digital world continues to evolve will win the ultimate prize: the sale.
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Insights from over 1,000 U.S. consumers on their perceptions and attitudes on connected packaging, subscription services, auto-replenishment, data privacy and more.