The consumer goods industry is facing its greatest challenge yet; if they want to survive the next few years they’ll have to make some big changes to their business model. Over the next ten years, we’ll be witness to more disruption in the consumer goods industry than in the last 40 years combined. The model that proved so successful in the past is quickly becoming obsolete; it trembles in the face of changing consumer behaviour and preferences in distribution channel. The future of the consumer goods industry is dependent on an evolution from a model based on mass consumer brands and offline channels, to a model that is much more agile and focused on brand relevance.
Survival of the fittest
In order to develop a winning model, brands must first focus on:
- The creation of consumer brands that are both innovative and have a strong enough presence to generate higher profits and margins
- Establishing close links with large retailers in order to gain better access to the general consumer
- Developing an operational model based on cost reduction and chain execution; consolidating organic growth through mergers and acquisitions
- Establishing a presence in developing markets and creating their own product categories in order to generate a specific need
Source of information: McKinsey
The current model is fragile and becoming less and less relevant, and the consumer relationship is not as sturdy as it once was. The key to the development of a stronger, more sustainable model? Data and technology.
The consumer of the future
Consumer habits and consumer needs are becoming more and more polarised from one another, forcing brands to focus on one segment at a time if they don’t want to go unnoticed. According to a study carried out by McKinsey, Millennials are, when compared to Baby Boomers, four times less likely to buy products from large food companies, instead they demonstrate a preference for local businesses.
This new generation is looking for something more; they are in need of added value. For example, commitment to environmental responsibility will drive consumers willing to pay even more than the asking price for a more ethical product or service. This new generation of buyers view transparency as the first step towards trust and eventually a positive purchasing decision.
The key behind generating added value is microsegmentation. New buyers are used to researching, comparing and sharing their opinions on different products and services with others, and they’re also more open to sharing their preferences and consumption habits with brands. The aim of the brand should be to offer consumers a product or service more in line with their needs; the demand for personalisation will force brands to become much more agile and innovative when it comes to production and distribution. Even basic products like bread and milk are becoming increasingly competitive categories.
From mass media to Smart Social
Consumers are prepared to develop a stronger relationship with big brands, but only with those they feel deserve their loyalty. To build strong relationships big brands need to offer consumers a more distinctive experience. Data is part of the solution, it forms the basis of any consumer behaviour strategy and it can help brands to tailor content, improve on the effectiveness of each consumer touchpoint, and develop new products and services.
This is where Smart Social comes in. With Smart Social it’s no longer a question of which brand generates the most impact, but which brand has the most intelligent approach to social. We must avoid repetitive, low value social content that only contributes to information overload, and instead develop a smart social strategy with a focus on generating connections between the consumer, the brand and technology itself.
Some big brands are already beginning to question their own media strategy, even going so far as to threaten to cut advertising budget for Google and Facebook following recent and widely publicised scandals, as well as issues with standardisation across results reports.
The business model battle
Large marketplaces like Amazon and Alibaba offer consumers a whole range of different products from a whole host of categories including books, food, clothes, and technology – and this more attractive offering directly impacts the consumer journey. Their presence is forcing other big brands to redefine their distribution strategy and channel management methodologies, while at the same time questioning how they’re advertising individual products and services.
When these large marketplaces begin to expand their geographical reach through brick and mortar stores, the threat becomes more real. For example, Amazon’s most recent opening sells only products with a rating of four stars or more.
This is where category management and the relationship between manufacturer and retailer must converge in order for brands to adapt their offering based on consumer behaviour online. No doubt, we’ll see the greatest growth in the e-tailor sector:
- Convenience: time is money, and more and more consumers are prioritising efficiency
- Sustainability: brands are being pressured to incorporate an understanding and awareness of environmental issues into their overall strategy
- Personalisation: this applies to both products, services and the consumer journey itself
- Technology and performance: with a view to 2025, we can expect super fast deliveries of products and services (think less than 10 minutes), more frequently and in smaller batches
And that’s not all. In addition to these big changes we have to keep in mind new technologies, like the IoT and AI. Consumers will one day be able to purchase products online, or find inspiration, through visual recognition. Chatbots and virtual assistants will further automate the purchasing process by facilitating a more conversational consumer journey.
Change is coming, and that’s a good thing
If the consumer goods industry wants to evolve and survive, change is necessary. Brands must focus their efforts on better understanding the needs and demands of the consumers of today and tomorrow in order to build a smarter, more bidirectional, more meaningful relationship with potential buyers. Advances in technology and data collection will completely transform the shopping experience, forcing big brands to reshape their strategy and approach to category management. It’s time to leave behind the more traditional consumer goods model in favour of one that’s more agile, and ultimately more successful.