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DIGITAL TRANSFORMATION OF CONSUMER GOODS

After four successful decades in a row, trends have begun to change in the consumer goods industry in recent years. Consumer goods companies had to make further changes to how they operate due to the effects of COVID-19 worldwide. Since the trends have changed, FMCG companies are rushing to digitize across all functions.

Their supply chains are under tremendous pressure as next-generation consumers pose new challenges and reshape the marketplace. Consumer goods companies now need new-age technologies to be embraced in their businesses, supported by digital Route-to-Market (RTM) to succeed.

Let's look at the changing industry dynamics pushing consumer goods companies toward digital transformation.

Sales vs. Growth

CPG's leading brands in different categories, such as food and beverage, home care, and health and beauty care, contribute more than 50% of total sales. However, data provided by US-Nielson from 2016 to 2020 shows that these consumer goods brands have experienced only 25% of the growth in this sector, implying that the big players in the industry need to grow as expected.

Furthermore, these companies' size and non-digitized operations are causing revenue losses. Gaining operational efficiencies to drive better growth year-over-year is becoming one of the top reasons consumer goods companies are turning to digital.

  • Mobile and Data
    The drastic increase in the use of mobile phones has led to a paradigm shift in purchasing trends and consumer preferences. The last decade saw the slow rise of e-commerce stores and the rapid growth of marketplaces. These emerging trends, coupled with the effects of the covid-19 pandemic, pushed consumers to embrace advanced technology with open hands.
    McKinsey says that consumers have been ahead of the curve by a decade during the pandemic. The next decade will ensure that this transition is complete and consumer goods companies jump on the bandwagon, go digital and extend great consumer experiences.
  • Transferred loyalty
    Customers are more likely to switch loyalty from their favorite brands. The pandemic also caused several out-of-stock situations, interrupted delivery, and lockdowns that contributed to this change. Customers discovered lesser-known brands, local brands, and previously unknown luxury brands.
    Long consumer goods companies faced huge losses when this shift in allegiance became a longterm problem. Being available in all geographies and leveraging that mindset is the solution for consumer goods companies to stay relevant. They can achieve this by digitizing their businesses and making data their main strength. Better data means actionable insights into consumer behavior to make effective decisions.
  • Consumer Proximity
    CPG companies of the past tried to fit consumers into a global size that they assumed would fit everyone. However, CPG brands must invest in hiring local talent and make decisions based on regional trends, insights, and product usage patterns.
    Innovating from local centers with the help of global R&D capabilities helps develop a marketspecific product in weeks. The chances of scaling sales of such products are excellent, as supported by data based on consumer habits. For a consumer goods company to achieve this, the route to market strategy must be digital yet customizable to geographies.
  • Growth vs. margin expansion
    Most CPG companies made more profit from margin expansion than on products over the past year. The data shows that the top 30 CPGs saw double the profit (50%) from margin expansion, while growth contributed only 26% of company profits.
    One of the enablers of margin expansion is operational efficiency, and digital transformation helps achieve this.

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Critical trends in the digital transformation of the consumer goods industry

The massive digitization of consumer behavior and the growth of eCommerce have undoubtedly opened up new scenarios for those companies in the sector that are capable of strategically responding to change and developing their business proactively and continuously, putting the consumer at the center.

Eight significant trends are influencing both the way consumers and businesses interact with each other and the approach with which brands are rethinking their sales models and strategies for the coming years:

  1. Attention to user participation, where and how to involve them
    With consumer attention spans shrinking and customer journeys not always linear, brands now more than ever need to tell stories quickly, concisely, and compellingly to engage and engage consumers to discover more. Brands must encourage consumers to feel passion for them. The key is to be authentic: brands must be consistent in everything they do.
  2. The omnichannel shopper
    Due to digital commerce, the classic consumer and the digital shopper have now merged into a single identity, thanks to the phenomenon that has seen the user end increasingly online purchases of any item.
  3. The Amazon Effect
    The growth of Amazon's marketplace model has increased shopper expectations for retailers and brands to offer the benefits of various offerings, competitive pricing, and business offerings. It is the largest marketplace in our market, and more and more brands are taking advantage of its massive volume of visits to increase their sales.
  4. Proliferation of DTC channels and markets ( Direct to Consumer )
    The new functionalities and technological platforms now allow companies to collect, analyze and take advantage of customer data to improve their commercial offer and encourage direct and effective customer participation.
  5. The retail approach to business
    Some small brands have begun exploring new strategic approaches to their businesses. From bottom-line analysis to the advertising campaign and offer planning, everything revolves around specific consumer segments and the ability to customize and create customer loyalty models.
  6. The support of unconventional technology partners
    New retail skills are needed in addition to traditional ones, creating opportunities for consumer goods brands to collaborate with new technologies and partners to sell and engage directly with consumers and launch new marketing programs. Consumer loyalty to develop new strengths.
  7. The resurgence of technology as a resource beyond its function as a service
    Companies in the sector have traditionally considered information technology consulting organizations mere providers of services, technical support, and software. Today the role of IT has become critical to future leadership with a new, more central role to play.
  8. The limited ability to measure success
    The consumer is now used to buying only through easily measurable channels. This means that brands that do not adopt innovative business models or systems have to make do with reduced visibility into sales trends, incredibly if they are limited to the physical channel only. Brands need to avoid exit alleys, those interactions, and connections with customers that don't lead to conversion.

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Conclusion

The ability to actively follow these trends and respond to the change that is already taking place is the key to success for those who work in the consumer goods industry today.

"The eight trends we have highlighted radically change how consumers and shoppers browse, search for and buy products online. Embracing not only technology but also an increasingly digital approach to retail to offer real and tangible added value to consumers and their long-term loyalty is the challenge that companies face.

They must assume, even more so in this new and uncertain normality in which the pandemic forces them to act", said Daniela Jurado, general director for Western Europe of VTEX.

To address open markets and penetrate deeper into existing markets, consumer goods companies must focus on building scalable digital capabilities. The new model must focus on centrally active distribution management, transparent operations between different hierarchies, and local decision-making capabilities to support faster growth.

These new technologies must be available and accessible on mobile phones and tablets for the ground operations team to use them best. Leap into a promising digital future with your consumer goods brand.

Millennials will play a significant role in driving retail growth in the upcoming years, and their high expectations can be challenging for retailers to meet. However, the same technologies that are popular among millennials can also benefit retailers. With the abundance of inexpensive computing power, retailers can now access advanced analytics and optimization on a previously unimaginable scale. From reducing supply chain inefficiencies, to improving demand forecasting accuracy, to executing multi-channel engagement strategies, we adopt a comprehensive, step-by-step approach to create a roadmap for success. Our retail consultants, with their vast experience, understand the industry inside-out and can help retailers undergo digital transformation to meet the needs and expectations of this new customer demographic.

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By tapping the right signals from sales, experience, and marketing channels, we help you unlock the untapped potential of loyalty transformation. Our digital solutions team works with multiple SaaS, PaaS, and cloud solution providers to help you ideate, design, plan, and execute new loyalty solutions driven by a proven loyalty-transformation framework. Rejolut's team of experienced designers, data engineers, integration specialists, and loyalty functional SMEs can help expedite your transformation journey by building loyalty.

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