How CPG can capitalize on the consumer-direct market

online-shopping-cart

Consumer shopping habits have changed rapidly and dramatically, and it’s easy to understand why. A universe of stores rests in the palm of our hands with seemingly infinite choices, available around the clock — literally at our fingertips. Product information, reviews and opinions provide answers to just about any question we could have. Smart algorithms offer us the latest “shiny objects” we’re likely to want. And nearly everything, from aftershave to zirconium , can arrive almost instantly.

Retailers have felt the brunt of this change as they retreat en masse from big box stores and malls. Now the impact of this shift is being felt through the supply chain all the way to the manufacturer’s front door.

Consumer-direct models offer consumer packaged goods (CPG) companies a way to offer more value, more choice and more innovation. A new direct channel to consumers can support new business models like subscription-based services and analytics-driven customer insights to drive cross-selling opportunities.  And, it represents an important means for testing new product ideas quickly and affordably — like DevOps where new software solutions are rolled out to subsets of the population.

There are other benefits as well. CPGs that successfully gather data from a consumer’s initial order through delivery to the doorstep will be able to optimize product life-cycle management, thereby increasing consumer loyalty and stickiness.

Consumer-direct sales will also enable CPG companies to identify supply chain changes needed to handle the volume, flexibility and consumer demands. CPGs pushed to make a higher quantity of lower-volume orders will identify manufacturing, logistics or distribution bottlenecks that can be prioritized as part of longer-term plans.

To capitalize on these opportunities, there are some issues CPGs will need to address.

First, there’s the matter of IT infrastructure. CPG companies are built around large (and typically monolithic) enterprise resource planning (ERP) systems that can’t change at the rate the market demands. Business agility now easily outpaces the technology agility in this area. In particular, back-end systems at the core of the enterprise need to be integrated, transformed, digitized and made ready to handle millions, possibly billions, of consumers.

Second, CPG companies have great market insight about brand loyalty and consumer behaviors at the aggregate level, i.e. based on market segmentation. To build a closer relationship with consumers, they’ll need to possess that same intelligence and insight at the individual level.

To successfully retool, we think CPGs will need to pay attention to a few trends in particular:

  • Modernization and simplification will be a continuing theme, with a focus on product development that meets minimum standards for market viability and subsequent rapid, incremental changes. This is enabled through a DevOps culture, which implies that CPG companies will increasingly behave like software companies. As such, they will need to embrace Agile and DevOps methodologies and frameworks, as well as drive flexibility with microservices that extract business logic and rules from the applications.
  • Data and data insight are key components of the consumer-direct strategy. CPGs need to develop the Amazon-like ability to capture and monetize loyalty-inspiring insights. This requires change that penetrates deep into the CPG enterprise. Developing deep levels of insight not only needs to be done at scales that are orders of magnitude larger than what CPG companies are used to, but also needs to be done in near-real-time.
  • Manufacturers will adopt more asset-light models. Established brands will continue to use the established market places to drive revenue and place their branded products. At the same time, transitioning to a “build as you buy” model for new products and services will enable them to reduce the assets they directly own and maintain, especially if augmented with a digital supply chain implementation and 3D printing.

These are just a few things manufacturers can do to not only respond effectively to market changes, but also to launch an offensive play against new market entrants and open up new markets and opportunities. In other words, CPG companies will become leaders as represented in author/speaker John C. Maxwell’s quote: “A leader is one who knows the way, goes the way, and shows the way.”

Read our series of papers on the evolution of the CPG industry to find out how consumer manufacturers are adapting to new market realities and how they’re learning to thrive on change.


Rene-Aerdts-headshotRené Aerdts is DXC’s chief technologist for a global consumer goods corporation client, for which he leads the technology strategy and provides the technical vision to advance the objectives of the business. Integral to that process, René drives innovation and inspires selective disruption to enable the client to thrive through accelerating change in the industry.

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