Rapidly advancing digital shopping behaviors are irreversibly altering the fundamentals of selling many common Consumer Packaged Goods (CPG) products. The recent Amazon acquisition of Whole Foods has raised awareness of this trend, creating buzz and dialogue about the future of CPG retailing, and highlighting the headwinds buffeting large CPG brands.
The mantra for retail has long been location, location, location. But when people can shop anywhere anytime, the once irrefutable advantage of location becomes irrelevant. In our most recent examination of e-commerce trends, Emerging Digital Shopper: Trends & Triggers Across Five CPG Categories, we found that over half of all Americans have shopped one or more of five major CPG categories (Personal Care, Household Goods, Salty Snacks/Confections, Non-alcoholic Beverage, Alcoholic Beverage) online in the past month. And these shoppers are twice as likely to be 18-34 – making it clear digital will be integral to the future of CPG retailing.
Within traditional brick and mortar stores, big manufacturers have zealously guarded their shelf space—a location within a location. When the virtual shelf is endless, the barrier to new, smaller brands disappears and the competitive landscape expands.
Powerful branding has in the past bonded consumers to products and kept them loyal. However when people begin to trust large brands less than smaller ones, the bonds dissolve and loyalty is lost.
This combination of radically expanding "on-demand" digital shopping occasions, coupled with declining trust in large brands, has created a moment of truth for the established CPG players and traditional brick and mortar retailers – reminiscent of what the music industry faced nearly 20 years ago with the advent of digital downloading and Napster.
Premium products and personalized convenience drives CPG digital shopping behaviors
The benefit of being a big brand is that you are well known, and what you stand for is stamped into people's minds. But when the things you stand for fall out of favor with your customers, the perceptions that anchored your brand can become a deadweight that drags you down.
Products with premium features and clean labels are increasingly popular, especially among millennials. However, consumers are less likely to accept premium claims from large mass brands because that is not how they think of them. New and small brands have greater permission to be premium, precisely because they don't have this big brand baggage.
Half of American digital shoppers in our most recent study said they "like to buy from new, innovative brands even if they are not well known". These same digital shoppers are twice as likely to report they "like to buy products with premium ingredients/benefits (e.g., organic, small batch, sustainably sourced, etc.) even if they are more expensive" and they "like products that are pure and natural (i.e. made with little to no processed ingredients)".
And these shoppers are increasingly likely to buy these products online. So, what's a big brand to do when you've fallen out of favor with your customers, and the traditional barriers to entry are eroding?
Many large CPG manufacturers are leveraging new and innovative tools and techniques that allow them to achieve a deeper level of understanding amongst leading edge digital shoppers. In the past, these may have included consumer focus groups or shop-alongs. But today there are scalable digital shopping research solutions that seamlessly combine qualitative, quantitative, mobile and behavioral data so that brands can instantly delve into the hearts and minds of their target customers to create more customized products and marketing activations. This fast, iterative learning reveals insights that may have otherwise been overlooked.
For example, our research reveals that functional benefits are driving CPG digital shopping behavior. Free trials, purchase reminders and personalized product recommendations are highly influential in digital CPG shopping. These convenience-oriented benefits are very much like what is successful in high-touch shopping experiences in the apparel and technology categories. But now they are serving as a catalyst for CPG digital shopping behaviors as well.
Small and agile win the day
Big companies tend to move and change slowly. Oil tankers take forever to turn, but speed boats can pivot with ease. In part it is sheer size and structure. But large companies also tend to have different and more deeply ingrained cultures than smaller ones.
"Shortcomings in organizational culture are one of the main barriers to company success in the digital age" according to a recent study of executives by McKinsey and Company. Their research "highlighted three digital-culture deficiencies: functional and departmental silos, a fear of taking risks, and difficulty forming and acting on a single view of the customer."
All these forces give the advantage to small, agile firms—or firms that act like them. Like music, books and movies, CPGs are facing an existential threat that has the potential to fundamentally alter their established world order. But deep investigation into early stage digital shopping behavior can yield clues on how large and small brands alike can win in the age of the on-demand shopper.
To learn more download our eBook Emerging Digital Shopper: Trends & Triggers Across Five CPG Categories.
Digital shopping is changing everything. Are you ready?
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