Consumer Good’s dilemma


Consumer Packaged Goods (CPG) has always been considered a solid, recession-proof business. After all, people always need to eat, wash and look after their households. However, steady demand does not mean firms can afford to be complacent. A number of developments are producing significant headwinds – and opening up new opportunities for growth. How CPG leaders navigate these waters can make the difference between building or losing market share.

The CPG industry is facing many challenges, including:

  • Weak growth

Times are tough. Unemployment remains high, incomes are flat and a recessionary mindset continues to influence consumer behavior in terms of higher coupon usage, increasing market share of deep discounters and the growing popularity of lower cost private label brands.

  • Margin pressure

Margins are under siege tracing to rising input costs and limited pricing power due to retailer consolidation and pricing pressure from discounters. Emerging market growth was supposed to offset this funk. However, emerging markets have become more competitive due to slowing growth rates and the rise of viable, more competitive local brands. Profit risk comes at the same time as managers need to boost their capital and marketing spend to drive product & manufacturing innovation and next generation IT capabilities.

  • Growing role of regulators and activists

Governments are getting more involved in what goes into our bodies and households. Increased oversight has important implications in terms of regulatory compliance, product development and marketing tactics. Some regulators are trying to levy higher taxes on products that are considered unhealthy, introducing measures to improve product safety, scrutinizing product claims and labels, and discouraging marketing to children. Moreover, there is increasing consumer demands for transparency on how companies perform when it comes to sustainability and corporate social responsibility as well as where products are made.

These are not easy challenges but the future need not be grim. Leaders should consider the following strategies to cope with this ‘new normal’:

  1. Embrace digital transformation

New digital technologies and devices have fundamentally changed consumer behavior in many categories. Winning companies will skillfully embrace digital transformation to more tightly connect their brands to consumers, and demand to their supply chains.

Yet, most firms we have researched have been cautious in embracing digital business. They do so at their own peril. Many companies need to quickly become proficient at digital marketing; adapt to new information gathering & mobile buying practices; leverage Big Data insights and; recognize the role of social networking in driving word of mouth referrals, awareness and community-building.

CPG firms have a variety of emerging technologies at their disposal. They can use location-based services to deliver personalized promotions or content based on their physical location. Companies can also leverage a smartphones or tablet’s camera functionality to directly enhance the customer experience. By scanning QR codes on a product, consumers can get more information, such as advice on how best to use a product or which complementary products to buy.

On the operational side, cloud services plus “agile” development practices give companies the ability to shorten the product innovation cycle, reduce infrastructure costs and rapidly scale functional capabilities.   Mining Big Data insights can help organizations better identify consumer preferences and trends, improve marketing ROI, refine pricing and deepen relationships with retailers.

  1. Refine brand strategies and portfolios

The difficult economic climate requires brand managers to refine their targeting and value propositions while holding down cost. In particular, companies will need to have distinct strategies to address an increasingly stratified market of affluent and lower-income consumers as well as seniors and ethnic groups. Multi-category firms should think about pursuing complexity reduction initiatives to cull poorly performing and costly sizes, variations and brands as well as streamlining operations and maximizing scale economies.

  1. Optimize channels

According to a 2013 Deloitte study, U.S. consumers consider 2.5 channels for their CPG purchases across 28 food, beverage and household goods categories. Consumer migration to both on and offline channels for selling and support creates operational, IT and marketing headaches around integration, alignment and efficiency. To profitably serve consumers with a consistent experience, firms need to balance their reliance on traditional channels like retailers and wholesalers with the need to follow consumers into emerging channels (e.g., mobile computing) and deliver them more personalized service, products and information. In 2014, the ‘holy grail’ of brand strategy has become delivering the omni-channel customer experience.

  1. Tweak supply chains

Many companies can do more to squeeze more flexibility, predictability and efficiency from their supply chains. For example, Big Data and Predictive Analytics combined with advanced IT systems can better match supply and demand in real-time, minimizing inventory levels, improving service performance, and reducing stock-outs.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

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