Deloitte: CPGs Firing On All Fronts In 2013

Pat-Conroy

CPGs -- along with all types of consumer products -- will accelerate major changes in their strategies and business models as they continue to respond to a confluence of transformative shifts in consumer behavior, according to Deloitte LLP’s newly released 2013 Outlook on Consumer Products.

The most far-reaching shift is the permanent change in consumer mentality wrought by the recent recession. 

“Previous recessions ‘bruised’ consumers, but they returned to their old ways once things improved,” says Pat Conroy, Deloitte’s vice chairman and U.S. consumer products leader, referencing the findings of Deloitte’s 2010 and 2011 American Pantry Studies, comprising quantitative and qualitative consumer research across numerous CPG brands and categories. “This recession was different -- it left a scar.”  

Specifically, consumers expressed “tremendous guilt and remorse” about traditionally having engaged in “wasteful and indiscriminate” shopping habits -- powerful feelings that, along with economic necessity, drove them to question the true value of national brands, Conroy tells Marketing Daily. They began to question whether they had bought into “slick marketing” or bought brands out of force of habit, and whether their families might not respond to private-label brands just as well in many cases, he says. 

The upshot: Today’s consumer is playing by her own new set of game rules, and perceives “shockingly” few CPG brands as “destination” brands, meaning brands that she will buy, and even seek out, whether or not they are on sale, Conroy says. Instead, a preponderance of national brands are viewed either as “preferred only” (she’d prefer to buy them, all other things being equal, but will switch brands if there’s an incentive or if ‘Brand A’ is not readily available); or “sale only” (she’ll buy Brand A only if there’s a sale or promotion).  

This, in combination with the informational and word-of-mouth comparison shopping made possible by online and social media -- including mobile access while in store aisles -- amounts to a “perfect storm” for national brands. And national brands are heeding the wake-up call and pushing to respond on all fronts, Conroy sums up.

The 2013 outlook report identifies key challenges facing CPGs and other consumer products, and various strategies for responding to these. Here’s a top-line summary of the challenges, followed by some CPG-specific examples of companies that are employing savvy strategies. (A more detailed summary of the challenges and potential strategies for consumer products is on Deloitte’s site).

Key Challenges

*Impacts of technology and proliferation of data: CPG companies have massive amounts of consumer data, but are behind some other sectors in terms of ability to glean actionable wisdom from that data, says Conroy. Social media and mobile devices have, of course, hugely magnified the data available, making it ever more crucial to find ways to harness this invaluable data -- and to provide consumers with brand-specific mobile apps and other tools that feed actionable brand knowledge. 

*Growth of nontraditional channels:  Consumers are exercising their ability to shop across many formats, including warehouse clubs, dollar stores and e-tailers -- each of which has different dynamics and customer bases. That is creating growing cross-channel conflict, and forcing product makers to adapt products and operations.

*Legacy operating models:  Many CPG organizations are optimized to serve the traditional grocery and supermarket channel, but demographic shifts and changing consumer preferences have reduced the importance of these channels. Furthermore, many CPGs are organized based on more traditional product development and marketing channels, without adapting to the technologies that are shaping the future consumer. 

*Multidimensional innovation:  A now-continuous need for product differentiation and innovation, combined with price volatility, is challenging product makers to develop new products that are less costly to produce while also more sustainable and/or healthier.

*Serving multiple price points, while building strong household brands and a global presence:  Consumer product companies are challenged with serving an increasingly price-aware consumer across a range of incomes with products at multiple price points. In addition, they are challenged with building and expanding their footprints across regions with different tastes and price points.

High-Performing CPG Companies In Action

The report identifies several areas where high-performing consumer products companies are taking action to foster innovation and growth. Here’s a summary of those, followed by Conroy’s (non-proprietary) CPG-specific insights and examples in these areas, as requested by Marketing Daily: 

*Many leading companies are adapting their product portfolios and business operation strategies to serve, profitably, both affluent and low-income consumers across evolving retail channels and geographies. 

*For nontraditional, fast-growing channels like e-commerce, dollar and club stores, consumer product companies are increasingly creating channel- and retailer-specific products and packaging. 

*Some high-performing brands are also altering their mix of marketing spend toward digital technologies, sometimes with the help of data analytics to more successfully (and cost-effectively) engage with different consumer groups. 

*Some leaders are embracing simplification and sustainability to meet evolving consumer preferences. Cloud-based technologies have the potential to help companies simplify infrastructure and rapidly grow in new markets. 

Conroy’s selective examples of how CPGs are leveraging one or more of the above strategies (many of these CPG's initiatives go well beyond these examples, he stresses):

*Clorox has produced product sizes that enable price point flexibility geared to the dollar-store channel’s customer base/demographics, as well as instituted channel-specific logistics -- enabling margin preservation and making this a highly profitable channel for the company, he points out.

*Procter & Gamble has produced many product innovations that appeal to various markets and income levels, while simultaneously building in successful product differentiators. Its new products and formulations offer improved cleaning capabilities using smaller detergent volumes and smaller, more sustainable packaging. In some cases, this has actually enabled lower pricing for targeted channels/markets; in others, it has enabled higher price points. 

Conroy also cites P&G as an example of a growing trend toward CPGs striving to use R&D to develop simultaneous, “bundled” innovations, rather than single innovations -- a strategy that enables more cost-effective, profitable innovation as CPGs realize they can no longer rely on brand/product extensions.

Furthermore, he cites P&G as a prime example of a company that although one of the most sophisticated marketers in the world, was willing to reorganize its entire marketing structure and approach because it realized that social media, in particular, had changed the whole marketing dynamic -- that its traditional methods weren’t resonating with consumers anymore.

*General Mills’ many strategic innovations include creating a site dedicated specifically to gluten-free information and products. The site has not only enabled General Mills to “get their information to consumers in an unfiltered fashion,” but was designed to enable easy online purchasing of its GF products, points out Conroy.

“This direct, targeted, informational outreach to consumers, combined with making it easy for them to order General Mills products online, has been a major home run, producing high conversion rates and pushing sales through the roof,” says Conroy.  

*PepsiCo’s many digital initiatives include having dedicated staff monitoring social conversations about the Gatorade line 24/7, and posting immediately to correct factual errors or misperceptions. Coca-Cola’s numerous digital initiatives include similar dedicated monitoring/response operations. Conroy says he notes these as examples of how all major CPG brands are becoming highly aware of social media’s power to address consumers’ new skepticism of all brand claims, which can rapidly affect brands’ sales positively or negatively.

*On the “big data” front, Conroy says that while many leading CPG companies are pushing hard, even the most sophisticated are in the early stages of leveraging the transformational capabilities offered by cloud computing. 

Cloud capabilities will enable CPGs to combine consumer/shopper data -- much of which is gleaned from loyalty-card data -- with online analytics, allowing them and their retail partners to begin making much more rapid, targeted changes in their offerings and business models based on specific variables, including emerging market opportunities. 

While some of these capabilities are already starting to be seen, the potential for CPGs and retailers to be able to change their business strategies within weeks, instead of years, has only begun to be seen, says Conroy.

“This is just emerging in the CPG sector -- CIOs and CEOs are discussing how to prepare for this,” he says. “The implications of being able to change your business model virtually on the fly are enormous.”

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