Recent advertising revenue forecasts have shone a spotlight on the struggling consumer goods industry. It’s an industry — like many others — that is going through a time of immense change. Companies operating in this sector are curbing spending due to a confluence of weak economic growth, technological disruption and a radical change in consumer behavior which is making many rethink how they sell to consumers.
Despite global caution, market optimism in Asia remains strong. With $4 trillion in new spending and 400 million first-time and upgrading consumers up for grabs in Asia’s emerging economies — China, India, Indonesia, the Philippines, Vietnam and Thailand — digitally savvy multinational consumer goods companies seeking new growth have the opportunity to turn ambition into reality by looking East.
The Asia lifeline?
What currently unites Asia’s diverse emerging markets is increased consumer spending due to rising incomes, rapid urbanization and economic growth. Millions of new consumers will add trillions in spending over the next few years. Armed with healthy disposable incomes, many of these consumers will be making brand and product choices for the first time.
But these markets are difficult to penetrate. Advertising reaches only half of CPG companies’ target audiences, and their products are in 10 to 20% of the 25 million stores that serve them. Traditional trade — mom-and-pop stores — dominates retail, but in many cases the correct addresses of these stores are unknown. And distribution networks outside the cities are undeveloped.
Companies that reach and engage these missed consumers — and get their products on more shelves — will capture disproportionate growth. There is a huge opportunity to use digital to capture growth in Asia’s emerging markets by connecting with consumers and shops that were previously unreachable. To succeed, CPG companies will need to rebuild their value chains based on Asian characteristics.
New channels for new age consumers
CPG companies doing business in Asia need to rethink their existing marketing spend. Too many are wasting budget on mass market targeting such as television advertising, which encompasses up to 70% of their entire media spend, to realize disappointing returns. With new age consumers prolific on digital platforms, marketing investments need to be redirected to acquire new customers through direct channels.
Innovative digital marketing tactics, such as social media marketing, gamification and augmented reality, can better help CPGs engage in more personal interactions with consumers. Moreover, companies can capitalize on Asia’s strong mobile phone penetration, delivering direct marketing to consumers through this highly used channel.
Tapping into the mom-and-pop market
Another opportunity lies in Asia’s booming mom-and-pops market which is attracting higher consumer spend. To capture enough scale for sustainable growth from new consumers, a two- to five-fold increase in coverage of these small stores is needed.
This is a huge challenge; industry players lack the reach and relationships with locals to increase shelf space, and in turn, grow brand awareness and consumer purchasing. Locals are served through multi-tiered distribution networks of third parties. Their interest is selling any product fast, not your product first. The many layers block trade promotions and incentives from reaching small retailers or their shoppers.
By rethinking distribution practices and making them digitally enabled, CPG companies can build stronger relationships and better compete against local brands that dominate the shelves. For example, digital mom-and-pop trade incentive programs establish a direct way to motivate local stores to stock products by channelling trade spend directly to them. This creates an effective pull that matches the push created by the sales force and distributor.
Furthermore, digital capabilities, from mobile phones to sophisticated software platforms, are critical for the effectiveness and productivity of sales representatives. It is impossible for them otherwise to cover more than 25 million shops spread across Asia using outdated tactics.
New technologies can enable sales representatives to regularly connect with priority stores, informing store owners about new products and promotions to make the most of in-person visits. Similarly, sales force automation tools improve in-field execution, route optimization, trade spend management and inventory visibility.
Maintaining local relevance
Finally, CPG companies need to rethink their distribution ecosystems to help them reach new digital consumers and retailers.
In China, leading Internet players, together with major Chinese distributors, built a distribution system network to automatically optimize truck and warehouse operations in real-time. Likewise, distribution networks in Thailand, Malaysia, and urban areas of other Asian countries struggle with traffic jams and a lack of delivery workers. Startups are introducing solutions such as motorcycle taxi delivery, neighbor agents and smart lockers. Through partnerships, CPG companies can realize speedy, small-cargo delivery in urban areas.
CPG companies can capitalize on Asia’s strength to build lifelong relationships with new consumers. Just five years ago, it would have been impossible for CPG companies to tap into this enormous new consumer spend. With the right digital capabilities — including strategy, business model, process, organization and technology — companies can outperform the market and reignite profitable growth. They just need to maneuver a swift course correction to do so.