Branded consumer goods companies, the ones we all know (and some of us love) spend a lot of time and resources building things. They invest in technology needed to run world class manufacturing businesses, and work to optimize all the related processes, from sourcing through distribution.
They also invest in helping retailers sell product in the form of trade promotions, reportedly the second largest expense in most consumer goods companies after cost of goods sold. Many of these promotions focus on price discounting. It's all much a science at this stage. So much so I heard a Chief Information Officer at a global CPG company claim the business has run the same way for nearly 100 years and is still a leader. Be that as it may, industry wide growth in branded consumer goods has been slow and investors are getting impatient.
Global economic factors are part of the problem. The other is that those same retailers on the receiving end of money to help sell product are hurting just the same, with far slimmer margins than big brands. There's been a lot of consolidation among retailers as well, giving them greater leverage with manufacturers when it comes to the magnitude of those dollars.
Many have become competitors. Some private label brands experience sales larger than well-known CPG (consumer packaged goods) brands. Retailers have also invested a lot in marketing technology -- from software tools to mine transactions to optimize market baskets, to online and mobile stores to complement brick and mortar operations. The use of data and technology has become central to the way retailers operate successfully at the point of interaction with consumers and shoppers. That's not quite how manufacturers are attacking slow sales growth.
I recently interviewed Teradata Industry Consultant Roy Beckelhymer, who said "digital marketing” was the shiny new object in CPG. He's right, if you have seen any of the numerous articles citing executives at major CPG companies committing to greater investments in digital marketing. Traditional media investments remain a large expense, but are becoming viewed less effective due to the digitally connected nature of today’s consumer and shopper.
"More digital” sounds like a solid strategy, and the agencies who work with CPG companies are not surprisingly excited to see more interest and investment in the media buying, promotional and technical expertise they have built around digital marketing.
The data involved in these programs, including the costs, estimated returns, actual results and collected consumer data, are almost always distributed across the agency and a third party point product (think email marketing service). The ultimate benefactor, the Consumer Goods company, rarely obtains any of this data – data to collect, analyze, aggregate across programs, integrate with other sources of consumer insights, or use to plan and execute more effective, successive programs. It’s a huge, lost opportunity that will sooner or later come back to bite.
For that reason, branded consumer products companies need to begin manufacturing loyal shoppers, as much as they prioritize building things. The technology now exists to make this possible in a manner that also vastly improves the performance of the entire business by creating a consumer insights foundation valued by every function:
- Marketing: higher return demand creation
- Sales: value focused retail collaboration
- R&D: successful new products
- Production: sourcing more efficiently
- Distribution: reducing out of stock situations
Digital marketing, be it an opt-on email program to promote recipes or a social media product launch, are great steps to take. They establish a direct connection with consumers, which could form the basis of programs designed to influence loyal purchase behavior over time, on a one-to-one basis. The way to make it reality is to take advantage of integrated data technologies and concepts such as governance to scale the capture of all of the inputs and outputs of digital marketing activity.
Manufacturing excellence will always be a core competency among successful consumer goods companies, but only so long as the definition extends to creating data-based relationships with consumers and shoppers.