How CPG companies can address the ‘Amazon Effect’ and rethink customer engagement

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When Amazon bought Whole Foods for nearly $14 billion in mid-2017, everyone sat up and took notice. Consumer packaged goods (CPG) companies and retailers were particularly attentive. The acquisition is changing the game in a highly competitive industry already rife with upheaval. The quintessential online retailer is now embracing brick and mortar – and it seems to be working.

Traditional retailers large and small have online sales, but the so-called Amazon Effect is impacting their brick-and-mortar stores. Iconic toy store chain Toys “R” Us filed for bankruptcy in the fall of 2017 and is closing all 800 of its U.S. stores, and its end is due in part to the rapid shift to online shopping. Toys “R” Us is not alone. In late 2017, retailers announced plans to shutter more than 6,700 stores across the U.S.

Other retailers are embracing multi-channel sales and finding ways to make their brick and mortar and online channels complement each other. Strategies proving to be successful include using online sales trends to drive the assortment in local stores, “click and collect,” showrooming, personalized services and using the brick and mortar to speed home delivery.

It’s not just e-commerce that’s upending the CPG and retail markets. Increasingly tech-savvy and demanding consumers, squeezed supply chains and order fulfillment services, and a shift to multi-channel and direct customer relationships are all pressing CPGs and retailers. So how can a CPG company make multi-channel retail work for them? What should be their game plan?

Cozy up to the customer

The Amazon Effect has pushed CPG and retail companies to rethink how they engage the customer — how to know them well, put them at the center and strengthen relationships with them. One way is by quickly detecting trends and changes in taste and responding to them quickly and directly. That’s how Dollar Shave Club did it. The startup began offering consumers a low-cost, direct-ship source for personal grooming products, with quality products and a convenient subscription model. From its membership launch in 2012 through 2016, the company amassed over 3 million subscribers. Established CPG company Unilever saw Dollar Shave Club’s value and purchased it in 2016 for a reported $1 billion.

Acquisitions are one way to move the needle. But companies can also adapt and evolve to meet customer demand. Office supply companies are building the capacity to profitably deliver supplies in small quantities to homes and businesses, and so are companies selling perishable items and other lower-value, commodity items.

Try something new

CPG companies already have many of the solution components they need to develop direct customer relationships, but most don’t know how to effectively transform existing technologies and integrate new ones to leverage their strengths. For instance, they’re still relying on traditional channels built around enterprise resource planning (ERP) systems that support a traditional retail client business model. And these legacy ERP systems can’t keep up with the market’s whip-speed rate of change. CPG companies need to embrace small unit orders with direct-to-consumer fulfillment to support the new breadth and speed today’s consumer expects.

And CPG marketing capabilities – while sophisticated – are often based on market segmentation that can tell you, for example, what the average 30- to 45-year-old female would buy. But those capabilities don’t deliver individual consumer intelligence that can predict what someone specifically will buy.

It takes an ecosystem

Addressing these issues requires companies to revise well-honed business models and create new processes and systems. But these are big jobs, and generally only the largest CPG companies can afford to do this themselves.

The alternative is for CPG companies to build an ecosystem of partners focusing on four key areas they’ll need for success:

  1. Agility and interconnectedness within ERP systems
  2. A demand-driven supply chain designed to produce what, when and where the customer demands
  3. Analytics, AI and machine learning for actionable insights in time to react to demand
  4. Rapid-delivery freight and logistics to extend to the consumer’s front door

With the right approach and the right partners, it’s possible to develop a cost-effective web of relationships and capabilities that can give any CPG company or retailer the capacity to embrace change and prosper.


Michael-Donovan-headshotMichael Donovan is Chief Technology Officer and industry leader for CPG at DXC Technology, bringing together technical and business leaders to work together to drive both incremental and disruptive change.

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