How Big Data is Changing the Consumer Packaged Goods (CPG) Industry: 3 Strategic Business Priorities
Here’s a hard truth: The business processes consumer packaged goods (CPG) companies have used for decades aren’t going to “cut it” in the age of big data analytics. New — digitally native — competitors are using this transformative technology to better understand consumer activity and deliver what shoppers really want. It’s a key differentiator in a market where consumers are more demanding, more selective and less brand loyal.
To stay competitive, established CPG brands must become Intelligent Enterprises that leverage their data to quickly pivot with changing consumer buying and engagement preferences. As businesses work toward this goal, I see
3 Strategic Priorities in the Consumer Goods Industry:
1. Delivering personalized outcomes
CPG companies need to shift their focus from “selling” consumers to providing experiences they love. Today’s shoppers are making purchasing decisions based on the value the product will contribute to their quality of life. The most effective way to engage consumers is not to tout the product, but rather the focus on the outcomes it will produce.
Determining desirable outcomes that will inspire a purchase, however, takes a deep understanding of who consumers are. Consumer packaged goods companies must find ways to overcome their data challenges by breaking down silos, analyzing experience and operational data, and learning how to deliver consumers’ preferred outcomes. For example, Chobani engaged consumers directly to understand what it would take to consume their products “on the go” as a breakfast option. Through this engagement, they learned what consumers are looking for and leveraged that experience to launch a new, innovative product. Learn more about it in the following video.
The businesses that I see excelling in this area are those that “listen” to consumers. They may use social listening, payment data analysis, or direct consumer feedback. Others are employing next-gen market research with technologies, including artificial intelligence (AI) and machine learning. In addition to fueling new product development, this research also allows brands to market directly to segments of their audience, delivering relevant — and effective — messaging and promotions.
2. Enabling new business models
The traditional business model in the consumer goods industry can no longer guarantee reliable growth. Shipping products at scale to distribution centers is giving way to new business models that include direct-to-consumer and subscription sales. These new models can make consumers’ lives easier. They no longer have to go shopping to replenish fast-moving consumer goods (FCMG) or other products they routinely use. CPG companies’ distributed order management systems or omnichannel ordering systems ensure that consumers can order the items they need for pickup or have the next shipment automatically arrive at their doors. I believe it’s also pivotal for businesses in the consumer goods industry to recognize the difference between “buyers” and “shoppers.” Some commonly used household product categories are automatically purchased or bought as a replenishment item and can be put on a subscription schedule for convenience and ease whereas others are truly shopped due to consumer’s changing preferences, new categories or innovation in the market.
For the CPG company, new business models can keep their customer base from eroding and increase sales, but they can also give brands a way to connect directly with consumers to collect vital data for product development and marketing.
SAP research reveals that direct-to-consumer sales grew by 34% in 2017, but businesses still have a long way to go. Only 20% of CPG companies say they are capable of presenting offers to consumers aligned with their preferences at the moment of need.
The consumer packaged goods industry must acknowledge that some consumers want to research their products, their organizations, and their practices. It’s vital for brands traditionally distributed via brick-and-mortar stores to have a digital presence to enable consumer research. Likewise, e-commerce-only brands are beginning to establish a physical presence to give consumers the ability to see, feel, and try their products. Accommodating consumers shopping for products as well as those who routinely purchase them is key to sustained growth.
3. Competing as an ecosystem
While consumer packaged goods companies are evaluating technologies that will provide their businesses with new capabilities, they are also building strategic relationships. I see companies taking a step back, examining their operations and their goals, and partnering for co-manufacturing, packaging, or logistics in order to provide flexibility, speed and agility in meeting customer and consumer demands. This approach also aligns with the values of environmentally conscious consumers, as it minimizes waste and energy consumption.
Additionally, CPG companies are working to build trust among consumers with track-and-trace solutions that provide transparency to their processes from raw material supplier or farm through to production and distribution. These solutions document that the products consumers are buying are responsibly sourced, free from harmful chemicals, and high quality. Blockchain technology is emerging as a valuable tool for confirming product authenticity through unalterable transactional data.
Data is the Foundation for Successful CPG Companies
Each of these strategic priorities depends on analysis of consumer information and operational data trends. The days when intuition and guesswork influenced decisions about what to put on shelves, which promotions to run, and which price points to set are now past. To compete, consumer packaged goods companies need a 360-degree data-based view of their operation and supply chain and a deep understanding of their customers and the products they will buy.
As businesses make progress in their evolution to intelligent enterprises, they will gain those insights, discover new business opportunities, and find ways to maintain their market position in the digital world.
Download the latest SAP white paper “The Intelligent Enterprise for the Consumer Products Industry”, and discover how technologies like big data, machine learning and blockchain are reshaping the consumer goods industry.
— written by Harris Fogel, Global Vice President, Consumer Products at SAP