By Simon Hunter, Business Development Director, HGS Europe
The relationship between consumer packaged goods (CPG) brands and their end-customers is changing, and it’s a conversation that I’ve been having a lot recently with leaders in this sector. It sparks an interesting debate about whether CPG companies should be engaging directly with the consumers who buy their products, or whether the relationship should continue via the retailer. Business leaders across industries are catching on to the link between excellent service and improved financial performance, with customer insight driving business decisions. So why wouldn’t a CPG company take the same approach?
Consider the fact that CPG covers a wide array of products, from the packaged food in your local supermarket to many of the products you will find on Amazon to beauty and toiletry brands. If it is a packaged product and flies off the shelf, then those in the business probably call it a CPG. For many years there has been a symbiotic relationship between the producer of CPGs and the retailer. Retailers, such as high-street stores or supermarket chains, need a ready supply of great products to sell and the product manufacturers need retailers to stock their product. In recent years though, I have noticed some changes to this long-accepted rule and I believe there may be more changes ahead for CPG.
My colleague James Waite recently wrote about digital transformation, and some of the examples he cited are CPGs in the process of changing their business model. These examples are particularly interesting because they show that, with today’s digital systems, some CPG brands with a well-established customer base have the option of cutting out the retailer entirely. These companies are actually disrupting the market by defining new distribution channels that bypass retail.
Ultimately, my perspective is that there are three steps for CPG brands that want to achieve this direct relationship with their customers:
- Build a relationship. Clearly this is more difficult for new CPG brands, but it is possible, as Dollar Shave Club has demonstrated. This brand employs a clever social media campaign with creation of a new customer base as well as the potential for millions of potential direct customers.
- Build a subscriber base. Today’s brands don’t just want “likes” on a photo, they need to build a real, captive group of potential buyers of your products, either on a regular basis using a subscription or on a semi-regular basis using a direct method - such as an app.
- Create the logistics and continue with engagement;. Brands also will need to create a team that can serve your direct customers. This will consist of the required logistic changes, but should also include a customer engagement strategy. These companies can keep subscribers by analysing their behaviour and knowing exactly what they want. Engage with them regularly on this basis and use insights from their behaviour to personalise your interactions.
It’s clear that many customers develop relationships with specific products that have nothing to do with the retailer. Amazon has exploited this with their recent launch of “Dash” buttons. These Dash buttons feature the logo of a specific product, such as Tide laundry liquid, Campbell’s soup, or Lavazza coffee. This plastic button can be mounted at home in your kitchen or bathroom and anytime you push the button, that item is added to your shopping list. If you asked a retailer five years ago whether they thought customers would put buttons featuring their favourite products all over their home then they probably would have laughed, yet the Dash system has been extremely successful for Amazon and tens of millions of different buttons are freely available.
It’s important for CPG brands to think carefully about this. Customers care less about retailers and more about the individual brands they are consuming, so are there ways in which those brands can build better and more direct relationships? Danone is a great example of a brand that is thinking about these issues. The French food multinational earns about half their revenues from dairy products, but they are also in other important sectors such as early-life nutrition and water. Traditionally this type of company would just supply a retailer and the retailer would be responsible for getting yoghurt and water into the basket of the customer, but as I have described this is all changing fast.
Danone has launched what they call the alimentation revolution. Their corporate mission is described as: “...to bring health through food to as many people as possible, in a sustainable way.” This movement is described as: ”A revolution led by Danoners, together with consumers, retailers, farmers, suppliers and NGOs all designing, producing, marketing and consuming food in a new way — a way to protect and nourish health of the people and health of the planet.”
There are countless companies like Danone showing that CPG is not just about manufacturing as many products as possible and shipping them to a retailer. Customers care about what they are buying. They want to build a relationship with the brand and if they can ensure that a farmer is paid a fair price by changing the brand of yogurt they consume then that’s good for the brand, good for the customer, and good for the wider supply chain.
There is a quiet revolution taking place in the CPG industry, and it is largely being driven by consumers who want to engage with the brands they are purchasing. Retail is still extremely important for CPGs, but it’s no longer the only way that customers can see brands. Customers are engaging directly with CPG brands, and the smart ones are nurturing those relationships and exploring how this can enhance their business.
I’d love to hear your views on this trend. Please leave a comment or connect with me on LinkedIn.