To succeed in the future, consumer goods organisations will need to adopt flexible business models which work with disruptive technologies - models which are both fit for the present and will also flex for the future.
The market for goods and shopping has been disrupted. Organisations which could previously guarantee annual growth, double-digit margins, and a strongly loyal consumer base are now examining operating expenses with some urgency, as pressure ramps up due to flat or declining revenue streams.
New entrants in the niche ‘direct to consumer’ segment, subscription clubs, products which can point to ethical sourcing and strong commitment to social responsibility, and organisations which circumvent the typical manufacturer-wholesaler-retailer supply chain are forcing a re-think for many Consumer Goods firms.
This is not limited to Consumer Goods; within the retail sector John Lewis Partnership and Marks & Spencer are now urgently seeking to re-assess their approach to their customers and update their business processes to reflect huge changes driven by technology, and a sea change in consumption behaviours, to which they are only recently reacting.
Digital is an unstoppable force for disruption. For Consumer Goods companies, new digitised business models adopted by the leading players including ‘digital natives’ have seen them embrace these new consumer expectations to deliver both products and enable consumer purchasing in a new, innovative and convenient manner.
These companies are regaining some of the past profitable growth through a flexible and adaptable approach to customer service delivery. Harry’s Razors, for example, kicked off a revolution in men’s grooming direct sales, appealing to consumers with a neat presentation package, eco-friendly components, and a flexible subscription model, mirroring the rise of gin, wine and craft beer clubs which have sprung up over the last few years. The reaction was slow at first (Harry’s first appeared in 2013) but Gillette has now followed suit, and the company responsible for Wilkinson Sword snapped up Harry’s in May 2019. Unilever had already bought up Harry’s rival in the US, Dollar Shave Club, in 2016, as part of its further assault on the $2.8bn annual men’s grooming market.
What Is Next?
Certainly, the global market for Consumer Goods is a tough place to be, consumer confidence is still not at the levels seen before 2008 - more than 10 years on. The domination of major players has been eroded, but not wholly undermined.
However, it is also likely that some new Consumer Goods entrants and established players alike may chase a piece of the market suggested by trending consumer buzzwords on social media: ‘wellness’, ‘eco-sourced’, ‘plant-based’, ‘climate crisis’ and rush into pouring time and money into new products to catch the wave.
Some of these companies may find it tough to recoup their investments; reckless spending without a strong business case may be ultimately punished in time. The buying public are famously fickle and whilst some may be prepared to pay a premium for ‘value add’ in its varied guises, history also demonstrates that consumers collectively have short memories.
What Should Consumer Goods Be Doing?
Most leading Consumer Goods organisations will be adopting digital initiatives which are fully integrated into their strategic planning. This is not to say that initiatives need to be planned in the minutest detail, there is room for real-time testing of viability - via focused advertising, prototyping, or an iterative approach (“failing fast”) before achieving success.
A key question for Consumer Goods is ‘What is the place of ‘digital’ in the business?’. Is it a strategic enabler or just a key buzz concept on which to hang advertising and customer perceptions of the brand? Or is it a chance to incubate and foster insights, customer feedback and build improved intelligence upon which to focus attentions on customer journeys, meeting customer demands along the purchasing lifecycle?
If it is the latter, achieving this controlled flexible approach demands a corporate culture and mindset which allows for some disruptive, free-thinking and the removal of the types of bureaucratic corporate governance which often typified organisations in the past.
Many other industries have seen the advent of -tech: fin-tech, legal-tech, bio-tech, health-tech, and the like. These industries have seen acceleration achieved through a twin approach of incubation of new ideas, often co-operating with individuals from outside the organisation, as well as standing up an innovation hub, which can execute on these technologies in practice and get the innovations to market. For these to be successful, they need to be adequately funded and run; part of a business case that integrates the people, processes, and capabilities back into the core business.
Digital leadership that links business and technology expertise and has board level sponsorship is a vital component, but as important is the execution arm - the teams that will move theory into practice and drive the business benefits. Some of the skills required may not be available within the organisation. It is not uncommon to recruit externally, sometimes individuals with experience from outside of the sector - the capabilities of these staff will be coupled with deep understanding of the business from existing business unit representation, rendering the potential gap of industry expertise in new recruits a much less relevant concern.
What Of Retailers?
The bricks and mortar companies have been striving to balance physical and virtual presence in the market and targeting consumers who are increasingly savvy and use technologies which enable real-time or near real-time price comparison of branded goods.
Customer expectations have been inflated by services offered by Amazon, Google Shopping, Facebook, boohoo, and other newer virtual entrants to the market; some Consumer Goods companies are also actively using the former organisations to drive sales and kick off promotions for their brands.
On the other hand, there has also been a backlash towards a more personal customer experience within some segments. One example is fashion retail, where adverse publicity against ‘fast fashion’ and the perceived excesses of online retailers who cannot guarantee that their supply chains do not exploit low cost workers have driven a measurable shift in buying habits.
Amidst all this turmoil, the focus is still on optimisation: reducing wastage; automating manual processes; achieving better use of customer data, intelligence which is focused on improving customer service, and not just on increasing revenues per customer. The leading retailers are also focusing on optimising their supply chains, removing any bottlenecks, and providing a consistent service to the customer whether this be online, or in a physical store. Technology can help in this regard: it is now the quality of data which is becoming a key differentiator, ensuring that the optimal data is collected, analysed and acted upon in the relevant timeframe and that decisions are taken based on the most accurate and current view.
Whilst the outlook may still appear far from rosy, the role of technology in driving innovation in Consumer Goods is more pivotal than ever before.
Smart organisations are focusing on optimising their operating costs whilst improving the value created from capital investments. Innovation is no longer being regarded as a hazardous concept, with a spread bet of expenditure on projects which may not be fully realised; these organisations are taking a controlled but iterative approach to technology programmes of work, with more freedom to innovate and consider opportunities which might have been considered too risky as recently as 5 years ago.
These organisations are focusing on the improved customer outcomes - re-establishing a measure of brand loyalty within an increasingly crowded market - and enhanced customer experience which can be strongly reinforced via online customer feedback forums. This future does represent a level of risk for Consumer Goods and Retail organisations alike, but also reflects huge opportunities to seize momentum and to deliver products to the consumer in a strikingly different way than has been conceived of in the past.
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