The playing field just changed big time
In the summer of 2012, a little known start-up launched a little promo video touting the marvel of its shaving razors.
Razor sales is a funny business. It’s probably the only absolutely commoditized product group that CPG companies feverishly try to upsell in an arms race of one-upmanship.
The game used to be pretty simple: use military terms, figure out how you could possibly fit as many blades as possible on a single razorhead, undersell the stick but charge a fortune for the blades.
But razors occupy a special place in the Consumer Packaged Goods (CPG) industry. They’re probably the only product group that shamelessly exploits male masculinity to sell.
But then, along came Dollar Shave Club (DSC) with its amazeballs promo:
And the rest is history.
Since 2012, DSC has become one of the fastest growing retailers, pulling over $152 million in 2015 alone.
That’s f***^*& crazy. Any retailer worth their salt would kill to have those figures.
Today, Unilever paid a BILLION DOLLARS to buy DSC. But, given DSC’s sales figures, assuming a 10x valuation, it’s a steal for Unilever.
But there’s an important story here.
This is probably the biggest play ever made by an FMCG player in the e-commerce space. Unilever has just entered the internet retail game in a big way.
And it’s going to change the playing field.
Until recently, CPG players weren’t all that interested in e-commerce. Over 95% of all CPG sales were offline, with e-commerce accounting for between 3 and 5% of sales in 2013.
That’s changing though.
The CPG industry is incredibly well-positioned for e-commerce. It’s non-perishable, so there isn’t a need for a cold-chain or freshness, saving bucketloads of money on shipping and logistics.
CPG shopping is also seen as a necessary evil by most consumers.
Honestly, who actually likes running to the store to pick up toothpaste and shampoo? Certainly not me.
US consumers hate shopping for CPG items. Period.
This is precisely why Amazon invented the Dash Button. Coz we hate CPG shopping that much!
But where there is frustration, therein lies opportunity
E-commerce represents the golden future of CPG, the next source of growth for the industry in the United States.
Because let’s face it, traditional sales channel growth for CPG in the United States is completely tapped out for the most part. Barring an expansion into rural America, most Americans are more likely than ever to buy their CPG supplies online.
But while these retailers have a strong hold on the market, CPG companies have the unique luxury of not having to rely on these companies to serve as their main sales channels.
It’s pretty simple, really. Traditional CPG sales has always relied on maximising offline sales channels like supermarkets, department stores and convenience stores.
CPG companies, for obvious reasons, don’t want to setup their own outlets, which carry massive overheads and risk. Why get into all of that when you could use retailers to push your products?
That strategy obviously has its own drawbacks. Retailers are not particularly beholden to any particular CPG company, often carrying multiple brands, and even their in-house, off-brand products
That leaves CPG companies competing for shelf space, particularly in the coveted impulse purchase zone at the checkout counter:
In an e-commerce setting, however, the tables are turned.
Since consumers are obviously not beholden to any particular online retailer, CPG companies effectively have a direct line to the consumer via their e-commerce platforms.
This is a massive opportunity for CPG companies to engage and sell directly to their customers.
For obvious reasons, most CPG companies don’t do that. The last thing they’d want to do is to anger the retailers.
Enter the Dollar Shave Club format
This strategy makes sense for CPG companies, because they aren’t directly competing with retailers (they aren’t competing for customers who are browsing or purchasing on impulse) — in fact they’re doing the opposite.
CPG companies who start their own subscription services could potentially form a closer relationship with their customers, building a lifelong relationship, with potential to upsell more premium products as well.
Over time, as more consumers get used to the idea of buying their CPG supplies online, there’s a really good chance that e-commerce will take up a larger share of CPG sales.
But this is just the start
Eventually, CPG companies would want to take a closer look at their e-commerce businesses. And here’s where their approaches will have to differ from traditional retail.
The single largest advantage of CPG e-commerce is the abundance of rich channel data available to form solid and reactive data-driven sales strategies.
Here’s how CPG companies can leverage available e-commerce data:
- Assortment intelligence
By observing user behaviour when purchasing online, CPG companies can glean insights that can inform their assortment and packaging intelligence.
For example, most consumers who shop online for CPG items like toothpaste tend to buy in bulk so as to stock up. In this case, for example, it would make sense for CPG companies to offer more multi-pack items, rather than single pack goods.
Another possibility — CPG companies can offer consumers more premium or niche “small batch” or customised packs, say a set of European versions of Cadbury’s chocolates, or customized ramen noodle packs. This allows CPG companies to effectively hit the “long tail” set of niche customers not traditionally accessible via offline retail.
2. Pricing intelligence
Previously, CPG companies had limited insight into how their competitors priced products.
The are limited alternatives to procuring this data; either a) pay traditional retailers to provide their pricing catalogs to CPG companies, or b) send surveyors into retail outlets to record prices.
Neither option is ideal: a) Not all retailers are keen to hand out their data, and b) performing manual surveys is time consuming, expensive, and inaccurate.
However, the reverse could not be more true in e-commerce; thanks to services like Semantics3 Product API, CPG companies can monitor pricing signals for both their products and their competitors’ catalogs in RealTime.
3. Brand and product performance
While online retailers can be very reticent in providing sales and revenue data to CPG companies, there are plenty of ways in which data proxies can be used to evaluate brand and product performance
Using metrics like average user ratings, number of reviews, and others listed below, CPG companies can reap huge benefits from this data:
- Semantics3 Brand Index: A single score that shows how well the brand is performing in terms of reach and performance.
- Median Discount %: The average discount % that SKUs from this brand carry — a higher number indicates that the brand is typically heavily discounted.
- Median Price: Indicates whether the brand is competing on the high (premium) end of the market, or on the lower (volume) end of the market.
- Customer Satisfaction Rank: Derived from how well products are rated online, it indicates how well customers have been reacting post purchase.
- Listing Rank: Indicates how widely listed the product is on the web; a low rank indicates poor distribution.
- Stock Availability Rank: Indicates product availability, i.e., how widely in-stock the product is.
- Variety Rank: A poor variety rank indicates a smaller assortment set, i.e., competitors are in the market with a wider variety of products.
- Chatter Rank: A good rank indicates a high volume of chatter about product — which in turn indicates how strongly customers feel about the brand.
These metrics are based on thousands of underlying data points collected from across hundreds of retailers and stored in the largest e-commerce product database in the world.
For access to the individual data points, detailed brand performance reports, competitor analysis reports, cross-category reports or access to premium metrics (including consumer sentiment details, price trend curves and supply trend curves), just get in touch with us!
Schedule a free consulting session, or email us at email@example.com.