• by Rick Braddock , Columnist, August 1, 2018

At the beginning of July, Colgate-Palmolive announced plans to acquire a minority stake in eye contacts startup Hubble. This is just the latest example of how established consumer packaged goods (CPG) companies are taking major steps to compete with disruptive startups like Dollar Shave Club (acquired by Unilever in 2016), PillPack (newly acquired by Amazon) Native (acquired by P&G in 2017) and now, Hubble. What do all of these startups have in common? Their direct-to-consumer connection.

While some subscription-service startups are not deemed profitable during infancy, they have been successful in attracting consumers away from established brands and, as a result, forced these brands to re-strategize as reflected by the recent spate of acquisitions and investments. A clear example is when P&G’s Gillette lost notable sales and market share as consumers began to favor the cost, quality and the on-demand shopping experience of Dollar Shave Club and Harry’s subscription services.

As the retail industry faces the pressure of an ever-increasing online and on-demand world, legacy CPG brands now have to compete in the “direct brands economy” where knowing your customers is key to not only surviving, but thriving. 

Let’s have a direct conversation

One route is to build an on-demand model, essentially a direct connection between a brand and its customers. Amazon is a leading example of how brands can create this type of platform, mainly by being one of the first online companies — as well as Uber, Lyft. Key to creating customer-focused data-driven businesses is the adoption of technologies like messaging, conversational commerce, AI and chatbots (some retailers who use this technology are Sephora and Staples).   

Understand me

Another advantage that direct-to-consumer startups have over legacy CPG brands is that they have mastered leveraging all the data accumulated by operating in the online world. For legacy CPG brands to compete, they, too, must start adding value from the consumer data and use it to make consumers’ lives easier — such as remembering purchasing habits so as to offer complementary product recommendations. All this has to be done while adhering to all the privacy regulations.

To innovate or acquire?

When it comes to competing in the digital age, it’s clear that CPG brands must either start adopting technologies to create better customer experiences, or invest in startups like Hubble  and integrate their on-demand services into the legacy business model. 

Since consumers today prefer brands that make their lives easier, whether that’s remembering your favorite regular purchase or predicting what kinds of products you might be interested in, I predict that marketers will continue to see acquisitions like Colgate/Hubble. In particular, companies need to find ways to transform and innovate — either through acquisition or innovation from within. The on-demand customer experience will surely become a mainstay of every aspect of our lives and legacy CPG brands must evolve or suffer the consequences.