A Moment of Truth for CPG Brands
Why it is now more important than ever to build brand affinity
Last Thursday, Amazon officially started offering Prime members in four U.S. cities free two-hour grocery delivery service from Whole Foods via its Prime Now program. While analysts and industry insiders have been anticipating integrations of this kind since Amazon acquired the upscale grocer last year, this move nevertheless marks an important step in Amazon’s plan of leveraging its Prime customer base to upend the grocery market.
One thing particularly worth noting in this development is the positioning of Whole Foods’ private-label brand, 365 Everyday Value. Most of this label, CPG items ranging from packaged snacks to household products, are already available on Prime Now delivery in some markets including New York City. And there is little doubt that Amazon will continue to push the private label, similar to the way it pushed for its AmazonBasics batteries and cables on its flagship ecommerce site. In a word, Amazon has started selling directly to grocery shoppers via the Whole Foods brand.
Looking at the bigger picture, a bevy of direct-to-consumer upstarts across categories such as Dollar Shave Club, Glossier, and Brandless has been leading a broader shift in consumer-brand relationship. According to data from IRi, $20 billion market share value has shifted from big U.S. CPG brands to long tail indie brands in the past six years. Thanks to the internet, shelf space and physical retail distribution are no longer the primary concerns when it comes to reaching customers and establishing brand loyalty. Traditional CPG brands have made it a top priority to maintain shelf presence and manage retailer relationships, yet in this new digital era when two-thirds of U.S. consumers expect to be directly connected to the brands they buy, it is the customer relationships that CPG brands should be managing.
Make no mistake, a moment of truth is coming for CPG brands. As shopper behavior starts to shift, it is time to find out just how much your customers truly love and value your brands as new ways of shopping become readily available and increasingly attractive.
The powerful combination of direct consumer-brand communication and supply chain as a service is eroding physical retail and fueling a paradigm shift in consumer expectations. It may be hard to admit, but brand marketers, particularly those in CPG categories, have a tendency to overestimate how much regular consumers truly care for branding when in reality, price, convenience, and inertia are far likelier contributing factors to repeated purchases than the ever-elusive brand loyalty. After all, most CPG products fall under the category of low-stake purchases that most shoppers don’t spend too much time thinking about.
CPG brands have a tendency to overestimate how much regular consumers truly care for branding
However, when the sales channel shifts from the physical to digital, so does the shopper journey, which effectively resets their selection process. When someone that is used to buying Bounty paper towels because it was the best option for her at the local grocery store is suddenly faced with new options when she switches to online grocery shopping, suddenly she is given a chance to reevaluate her options and give some consideration to private label products with a competitive price tag and the top spot in the search results.
Over 80% of online shoppers say they should be able to purchase products directly from a brand’s website, and many find it frustrating to search for the products they want via a third-party retailer. At first glance, this statistic seems to point to the power of brand loyalty and makes a case for CPG brands to prevail in the age of ecommerce if all brands can go direct to consumers. Yet, the reality remains that very few traditional CPG companies are set up to fit the emerging direct-to-consumer model, and most are still too busy managing retailer relationships to focus on building a direct connection to consumers.
Most CPG brands are too busy managing retailer relationships to foster a direct relationship to consumers.
In addition, the way people shop for most household CPG products, i.e. getting everything one needs in one shopping trip, means that they’d be much likelier to head to a one-stop site where they can buy everything they need rather than jumping from one brand’s site to another to complete their shopping cart. Now, there is an opportunity for CPG brands to experiment with the subscription-based monthly replenishment model that the likes of Birchbox and Harry’s have pioneered, or even the kind of on-demand replenishment services that Amazon’s Dash Buttons and Dash Replenishment Service enable. But both models require a new business model and a level of brand affinity that most CPG brands may not possess.
This situation will only exacerbate for CPG brands as mobile shopping and voice shopping becomes more mainstream. On mobile, limited screen space makes the top placement of search results highly coveted spots for brands competing to be noticed by mobile shoppers. And with 35% of online shoppers saying mobile is becoming their main shopping channel, fighting for the top spots will be a tough task for CPG brands selling through retail vendors.
This situation will only exacerbate for CPG brands as mobile shopping and voice shopping becomes more mainstream.
Things will get even worse on voice shopping, which is already gaining momentum. 1 in 4 shoppers used voice assistants in their holiday shopping during the 2017 season. according to data from CTA. And due to the ask-and-response nature of conversational interfaces, only one or two top results will be served to consumers when they shop via voice. A recent study by Bain & Co. found that when shoppers use Alexa to search for an unbranded item they haven’t previously purchased, they tend to be steered toward certain products under the Amazon’s Choice label, which, of course, mostly consists of Amazon’s own private label products and those from partnered brands.
So, what can CPG brands do today in response to these looming challenges and stay relevant to consumers?
First of all, it is time to build up brand affinity through brand messaging, making consumer truly love and trust what your brand stands for so that they will make the effort to search for your products by brand name. In our 2018 Outlook, we pointed out the growing importance of brand trust in the 21st century economy, as the growing distrust in algorithm-driven social platforms and the divisive political climate makes it increasingly important for brands to showcase their core value as well as corporate social responsibility to appeal to customers.
It is increasingly important for brands to showcase their core value as well as corporate social responsibility to appeal to customers.
For example, brands such as Patagonia and Cards Against Humanity have been incorporating social activism to earn affinity from casual consumers, while this year’s Super Bowl saw a number of commercials prominently featuring the philanthropic efforts from brands such as Budweiser and Toyota. However, it is also important to stay consistent to your brand and walk the walk, so as not to appear opportunistic.
Brand affinity is a prerequisite for brand trust, and it is important that CPG brands start there first. Dove famously led the female empowerment movement in advertising with their “Real Beauty” campaigns that celebrate women of all ages, races, and body types. Yet all the brand affinity and goodwill that those campaigns accumulated does not mean that Dove is immune to backlashes when it greenlit a racially insensitive ad. This just goes on to show that brand affinity is a thing that brands need to carefully and consistently manage.
Moreover, CPG brands also need to consider how they can play nice with the big platform owners like Facebook, Google, and yes, Amazon in order to gain a seat at the table as their platforms continue to aggregate consumer attention and market demand. Last year, Calvin Klein and Nike both signed on as brand partners to help Amazon make inroads into the fashion market, and in return, their cordial relationship with Amazon will help broaden their reach on Amazon platforms as well as eliminating counterfeits.
As we noted in the 2018 Outlook, the battle for smart home platform is only just beginning, and the ensuing platform war will leave plenty of room for CPG brands to make alliances and establish their brand presence on emerging retail channels. Showing up is half the battle, as the popular saying goes, and it is important for CPG brands to make sure they show up on those digital platforms via partnership or sponsorships.
Showing up is half the battle, and it is important for CPG brands to make sure they show up on the major digital platforms
Last but not the least, CPG brands need to respond to the aforementioned rise of direct-to-consumer brands and start building a direct connection with their customers. There are two primary approaches that brands can take — one by adding services on top of selling products, and the other being building out their own ecommerce platform.
By incorporating services that add value to the consumer experience into your brand strategy, CPG brands will be able to enhance brand affinity and build a lasting relationship with their customers. Of course, home delivery and customer services are table stakes now, and brands that wish to stand out will need to think bigger. For example, IKEA acquired on-demand handyman service TaskRabbit to offer its customers an affordable and hassle-free way to assemble furniture, thus eliminating a key pain point in their customer experience while gaining a new revenue stream. By the same logic, why can’t a cleaning product brand branch out to launch an on-demand cleaning service for their customers? Or an skincare brand with their own spa services?
CPG brands need to enhance overall brand affinity and build a lasting relationship with their customers.
Going directly to consumers may be too big of a business model shift for most established CPG brands today, but it doesn’t mean it is not worth trying. P&G, one of the biggest CPG brand holding company, has started investing heavily in ecommerce platforms run by the likes of Amazon and Walmart and basing more digital buying around ecommerce data supplied by Amazon and others. It already launched a subscription service for Tide Pods called “Tide Wash Club.”
In 2016, Gillette’s share of the U.S. men’s-razors business fell to 54% from 70% in 2010 and most of the market share has shifted to its direct-to-consumer competitors like Dollar Shave Club, and Harry’s. In response, Unilever acquired Dollar Shave Club for $1 billion in 2016 and P&G launched a “ Gillette Shave Club” last year to go directly to consumers. But for P&G to truly make the transition, perhaps it will need to take a cue from startups like Brandless and make a stronger play for household bundles instead of selling each brand as a separate subscription.
In fact, with such a radical retail paradigm shift already in progress, the conventional “house of brands” approach that most CPG companies adhere to may soon become obsolete. In the emerging 21st century economy where controlling demand trumps controlling supply, personalized recommendations trumps unlimited options, consumers will no longer need to choose from five different brands of paper towels. The platform will likely already know their preferred choice, or simply offer up their private label brand. Resultingly, CPG companies will soon be facing a harsh reality where only the most beloved and trusted brands will survive while the rest fade into oblivion. A consolidation of CPG brands across product categories seems inevitable as the conglomerates behind them focus their marketing budget on those household names.