| By Chuck Schaeffer
A Change in Consumer Empowerment Calls for a Change in CPG Growth Strategy
There's a lot of business imperatives on the Consumer Product CEO's agenda—things like improved demand forecasting, better performing supply chains, optimized inventory and making omni-channel work to name a few—but I think the top two imperatives for most consumer product goods (CPG) companies are making the needed shift to their business growth strategies in order to accommodate the shift in consumer behaviors and improving their supply chains to accommodate more fluid market demand.
The CPG (aka Fast Moving Consumer Goods or FMCG) industry’s history of small incremental change occurring over years or decades is now being replaced by rapid disruption – driven in largest part by shifts in consumer technologies, consumer behaviors and a significant change in how consumers make purchase decisions. Consumers are more connected, informed, empowered and demanding, which is fundamentally changing their purchase behaviors and their propensity to switch brands which fail to meet their rising expectations.
Historically, a CPG company’s success was based in largest part upon their brand and was most often not influenced by their ability to deliver personalized customer experiences or apply Business Intelligence (BI) and analytics. This is no longer the case.
Brands are far from worthless, but they are increasingly worth less to consumers who often distrust or otherwise remain highly skeptical of what product companies say about themselves and give much more weight to what other consumers say about them.
It's important to recognize that the long time practice of building brands through repeated mass advertising is in decline. Repetitive self-promotion is no longer as effective in building a brand and its effectiveness will continue to lessen. Research shows that the high majority of consumers don't trust vendor advertising and instead develop their impression of the brand from social media—be it the comments of friends, the commentary of complete strangers or the countless brand and product reviews on websites and social networks.
To adapt, CPG companies must leverage business intelligence in order to develop more precise consumer segments and more mature consumer profiles. CPG companies collect vast amounts of customer data, however, it often languishes in disintegrated data siloes. The consumer product company that can consolidate, append and apply data to create differentiating customer experiences and figure out how to deliver better information to the resources and customer engagement touch points that can use it to improve a customer transaction, decision or experience will satisfy rising consumer expectations and create competitive advantage in a shifting competitive arena.
More Empowered Consumers = More Fluid Consumer Demand
CPG companies — whether food and beverage, footwear and apparel, health and beauty, or other branded products — are struggling to adapt their relatively steady supply with much more variable demand. The challenge is exacerbated when working with retail partners to respond to the increased complexities of aligning inventory with market demand.
These challenges include the difficulty in managing more inventory over more channels; but more so, managing a more dynamic and real-time supply chain – where a more fluid consumer-driven demand side is accelerating business process cycles while the supply side is actually increasing its global reach, sourcing and complexity, and the longer lead times and process cycles inherent with these changes.
And then fold these challenges into teaming with retail partners who must get more precise with their retail merchandising processes, even getting to micro-merchandising. As retailers get better at finding more exact inventory equilibrium points – that is the balance between stock-outs and overstocks – by more dimensions, such as geography, channel, time, category, assortment and store – consumer product companies have to adapt to the more dynamic and precise demand and fulfillment in shorter process cycles.
So to respond, CPG companies are improving their demand forecasting by using techniques such as social business strategies and big data analytics. They are also making their supply chain networks less complicated, more productive and more attentive to fluid market demand. A simple example of this is consolidating multiple inventories organized by channel into a single, enterprise-wide inventory management with multi-channel operations. No more managing one inventory for stores and another for ecommerce. They're also improving collaboration with retail partners.
CPG & Retail Collaboration
Consumer product companies and retailers have a direct and symbiotic relationship in achieving mutual business success. When both organizations successfully collaborate from demand forecasting, to retail merchandising, to supply chain, to fulfillment and replenishment, both organizations improve their most important performance measures, such as higher inventory turns, increased sales of higher margin products and high customer satisfaction. But on the flip side, when not synchronized, it results in inaccurate plans which either underinvest in inventory and thereby result in lost sales and frustrated consumers (who can’t get what they want), or overspend in inventory which results in slow moving stock, accelerated markdowns and big hits to margins and profits.
To make this needed collaboration successful, CPG companies are using traditional tools such as EDI and extranet portals, but more so turning to newer and more innovative tools such as enterprise social networks (such as Microsoft Yammer or Salesforce.com Chatter). These internal social networks are gaining a lot of adoption because they are easy to use, designed from consumer technologies which deliver an enjoyable user experience, designed for a mobile first delivery, can be embedded within ERP or Supply Chain Management systems and operate on a push-based subscription basis so that each user can determine what information should flow to what people in real-time.
The Balance of Power Has Changed
Consumer Product Goods companies tend to focus on cost challenges such as increased costs to serve, higher penalties for both overstocks and stock-outs, and the push to lower logistics cycles and expense. While these challenges are real and must be managed, they must also be balanced with shifts to business growth strategies which reflect more empowered and demanding consumers. The balance of power has shifted from the vendor to the consumer, and as such CPG companies must do a better job in Customer Relationship Management, customer loyalty, delivering rewarding customer experiences and forecasting a more fluid customer demand.