Digital technology gives both CPG manufacturers and retailers more opportunities to reach consumers directly.
Is it possible for them to do that in a way that helps them both? Or at least that doesn't leave them getting in each other's way?
Manufacturers of food and other consumable products have always sought to get their messages out to consumers directly, whether through various forms of advertising or through discounting like manufacturers' coupons. Such efforts are increasing, says Pat Dolan, national line of business leader for consumer markets at KPMG.
"We see CPGs expanding their direct-to-consumer activities beyond activation and into direct purchasing relationships," Dolan says. "CPGs need to own shopper relationships more than they have in the past. There will be some channel conflict, but smart CPGs are working on how to sustain and grow their retail partners' profitability at the same time as they work to reach consumers directly."
"When retailers, or their CPG partners, know enough about shoppers, they can move beyond a simple discount and offer real value to shoppers."
Ideally, anything that increases sales is a win for both CPG manufacturers and retailers. The problem comes when they work at cross-purposes—say, a promotion by one side creates demand that the other is not prepared to handle, or both sides discount a product and cut margins to unacceptable levels.
When it comes to promotions, product-specific sales data are more likely to be shared than more general, category-related data, Dolan says.
"Most trading partners are good at sharing data about promotions planning, demand forecasting and inventory levels to ensure adequate stock. They've been working together on these issues for decades, and the industry's maturity is pretty advanced," he says. "But it's much less advanced on the commercial side, e.g. leveraging shopper data to grow total category profitability."
It comes down to control, says Rick Chavie, CEO of Enterworks, a product information management company. Both sides want it.
"One of the things I think [CPGs are] really struggling with is, the retailer wants to control them within the traditional approach," Chavie says. "If you're a grocery-type product, we'll include you in our promotional offers; we'll build our schedule out with you in a common calendar; there will be lots of collaboration around the timing for the discounts on the product. But that's kind of the old-school thinking."
To a large extent, old-school thinking still dominates in CPG retailing, especially grocery, because its digital capacity is undeveloped compared with other retail sectors.
"While there may be isolated instances of digital direct-to-consumer efforts having a material impact on trade promotions, we have yet to track any meaningful impact from these efforts for the major CPG companies," says Kurt Jetta, CEO of TABS Group, a data analysis and consulting company. "The reason for this is that digital shopping has not penetrated CPG purchasing habits." Jetta points out that according to TABS research, only 6 percent of consumers research products online before they shop, and digital accounts for only about 1.3 percent of grocery sales.
Under this old but still dominant model, free-standing inserts (FSIs) and other print formats are the primary advertising media. While CPG can still reach consumers directly with ads and manufacturers' coupons, retailers still have far greater influence.
CPGs "struggle to get that direct connection to the customer because retailers really own that last mile by and large," Chavie says.
Retailers are increasingly taking advantage of that position to make demands on CPGs to invest in promotions and trade funding, Dolan says. That can make them work at cross-purposes.
"There is a lot of promotional activity that is good for one side and bad for the other side," he says. "For example, some promotions drive brand switching at shelf, which is good for the CPG and bad for the retailer. Other promotions drive foot traffic into the retailer but damage brand equities with excessive discounting."
"[CPGs] struggle to get that direct connection to the customer because retailers really own that last mile by and large."
Even though it hasn't come near its potential in CPG retailing, digital outreach has the potential to offer CPGs new opportunities to reach customers.
"Outside of the store, we've seen a dramatic shift to incorporating digital marketing activities like search, display, e-mail, social, etc., among CPG marketers," says Dominic Field, a London-based partner at Boston Consulting Group. "Most of that shift has generally come at the expense of printed media such as newspaper and magazine, while TV has proven to be a more robust and resilient part of the marketing mix for most CPG brands."
One reason for the high potential of digital is the greater number of platforms available to marketers. E-mail still remains the dominant vehicle in terms of getting offers to consumers, but for other types of outreach, social media is coming on strong. Facebook has proven to be mostly a disappointment, but other forms of social media, especially Instagram and Pinterest, are gaining, Chavie says. That's because social media is evolving as a tool for consumers, especially younger and more technologically inclined ones, to search for products.
"Smart CPGs are working on how to sustain and grow their retail partners' profitability at the same time as they work to reach consumers directly."
"Traditionally, manufacturers were OK with, ‘I'll advertise something on TV; I'll show some heartwarming experience about the holidays; and I'll show my product in a good light,'" Chavie says. "Well, that's not how people tend to search for products. You need to have the ability to search for that product, and that comes down to making sure you have all the right product attributes, making sure you're on the right websites, putting output on Instagram or Pinterest or even Facebook, but making sure you have the visual representation of your product and that you're able to have people find it."
Another way to make sure people find products is through website optimization, known as search engine optimization (SEO) and search engine marketing (SEM). These techniques, which basically involve structuring websites so that they come up as high as possible in search results, are becoming increasingly important in digital marketing, says Neal Rich, a Chicago-based associate director at The Boston Consulting Group.
"SEM and SEO are becoming increasingly intertwined disciplines, and SEO, in particular, is becoming an ‘always on' activity versus something more ‘project-based' in the past," Rich says. "This reflects the ongoing evolution of the algorithms of Google and others and the resulting quality scoring and its impact on SEM bid pricing."
An SEM-enhanced website is an effective vehicle for marketers because of its inherent responsiveness. It reaches consumers with information about exactly the kind of products they've expressed interest in, at the time they express it. That advantage applies to digital outreach in general: it allows CPGs to reach a targeted audience that they have reason to believe will be interested in a given product.
DISTINCT AND DISCRETE
"We have seen CPG marketers realize success with direct outreach in circumstances where the consumer target is distinct and discrete and, therefore, the benefits of traditional mass marketing and branding techniques are reduced," says Field of Boston Consulting Group. "For example, you can imagine categories, brands or products at super-premium price points, or with a clearly defined replenishment cycle, or very specific personal benefit."
Another use for digital outreach by CPGs is product development. At almost any point in a product development cycle—initial ideas, beta testing, consideration of product or line extensions—digital outreach provides greater opportunities for CPGs to connect directly with consumers.
Andrea Fishman, a partner in advisory practice at PwC, says this is not merely a matter of digital hookups being easier and faster than face-to-face communication. Getting digital advice on a new product can give a CPG access to not only more consumers, but better ones—who Fishman calls "influencers." These are people with high digital profiles, in terms of things like a high number of followers in social media or lots of hits for a blog.
"One thing that we're actually seeing right now is the extension of the influencer audience into new product development and product extension," Fishman says. "One of the ways we're seeing CPG companies connect directly to consumers is in sourcing everything from new product ideas[and] evolution of product." When consumers have a voice in the creation of new products, Fishman says, there's higher adoption.
Once a product is developed, a big advantage of digital outreach for CPGs is that it allows them, to some extent, to go around retailers. Traditional print-based approaches depend to a large extent on the retailer's merchandising, in terms of willingness to display a promoted product prominently.
"The traditional way of looking at it is that there's only so much shelf space in a grocery store, and so you're always competing," Chavie says. "You have to pay for that shelf space, with the slotting allowance and all of that. So it's viewed as sort of a zero-sum game based on where you're positioned on that shelf." In cyberspace, on the other hand, the only limitation on the number of products is the willingness of individual consumers to scroll through pages.
However, manufacturers of consumable goods, especially food, don't really have as much opportunity to go around retailers as do manufacturers of big-ticket items like electronics. Grocery stores are still by far the dominant place for consumers to get groceries, and will probably remain so for years to come.
Partly for this reason, retail loyalty programs have been the most common vehicle, if not the only alternative, for personalized marketing of consumable goods. Before ads, offers, etc. can be targeted to individuals, those individuals must be identified and profiled, and loyalty programs have been the usual way to do that.
"CPGs are working to integrate their trade marketing promotions with payment and loyalty capabilities," Dolan says. "This can occur through mobile coupon apps, card-linked offers or reward program integration."
But as digital marketing evolves, loyalty programs will probably become less relevant, industry observers say. Part of the problem is that the traditional plastic-card loyalty program often doesn't translate well to smartphones, simply because there are a lot of apps, and motivating a consumer to use an individual one can be challenging.
"Most people have lots of apps, but they only use a small number," Chavie says. "Everybody puts the [retailer] app on their phone, including loyalty apps, and then they don't use them."
"One thing that we're actually seeing right now is the extension of the influencer audience into new product development and product extension."
Digital outreach gives both CPGs and retailers the potential to get beyond loyalty programs through means like social media.
"Either through data exchanges or directly asking customers for their social media handles, retailers increasingly have the ability to tie purchasing behavior to shopper activity outside the store," says Brad Lawless, VP of social strategy at Collective Bias, an advertising agency that specializes in social media messaging. "When retailers, or their CPG partners, know enough about shoppers, they can move beyond a simple discount and offer real value to shoppers. Would you rather shop at the store giving you 5 percent off your purchase for scanning a card or the store that gives you some kind of discount, but also offers you flowers on your anniversary or a bottle of your favorite wine when you announce a new promotion on LinkedIn?"
Digital outreach should be used to increase the quality, not the quantity, of consumer messaging, Lawless says.
"People don't need anything that increases outreach," he says. "We are actually being bombarded with messages all the time. Instead, we need technology solutions that take existing content activities and makes them more contextually relevant and applicable to a shopper's needs in the moment."
Whatever the medium, CPGs and retailers will be better off in the long run if they cooperate in their consumer outreach to maximize benefits to both sides.
"We are starting to see some CPGs and retailers collaborate to determine which promotional activities really grow the pie, as opposed to benefitting only one side, or neither, and changing their mix of spend to activities that drive the most sustained incremental growth," Dolan says.