To combat these issues, CPGs should turn to rapid-cycle business experimentation for any new program prior to broad rollout. Specifically, organizations can implement a new initiative in a small set of retail stores or markets and compare performance in these test locations to very similar locations that do not receive the program.

This test and learn approach enables executives to quickly understand which ideas are winners, in which stores they are most effective, and how they can be improved both during initial launch and during ongoing execution of programs.

Based on Applied Predicitve Technologies’ (appliedpredictivetechnologies.com) firsthand experience working with leading CPGs, the company has highlighted the top four trends that are impacting the industry, and outlined actionable recommendations on how to capitalize on each one.

DATA-DRIVEN DIGITAL

Digital innovation is top-of-mind for all CPG executives, evidenced by digital spend recently overtaking traditional advertising spend in the CPG category. In 2017, that gap increased even further, and the trend will likely hold true for 2018.

As digital advertising becomes increasingly prevalent and CPG ad budgets continue to grow, organizations must carefully reallocate media spend beyond mass media platforms to include digital channels and mass one-to-one marketing. However, to make informed, impactful investments in this area, CPGs need to understand the true impact of digital campaigns on financial metrics.

A data-driven approach to crafting a digital strategy will help CPGs ensure that their digital spend is driving sufficient returns. By first mapping the marketing spend in each geographic area to the nearest store location, CPGs can effectively attribute increases in sales to specific marketing efforts. From there, they can leverage business experimentation to refine various marketing strategies—including digital or mobile ads, social media campaigns, and personalized marketing—and ensure they reach the right consumers with the right communications, at the right times.

Clorox is one example of an organization working to understand and optimize the impact of its digital investments. By thinking critically about the long-term value of targeted banner ads and testing new ideas to optimize digital efforts across different platforms, the company looked beyond simply whether digital is working to what will drive the greatest results in the long-term. Overall, given the rapid increase in digital advertising spend, it is more critical now than ever that CPGs refine their ability to quickly test new strategies and course-correct as needed.

OMNICHANNEL FULFILLMENT

For CPGs, online sales are growing. In fact, in recent years the industry surpassed $10 billion in online sales. In this new omnichannel reality, CPGs can no longer rely on their shelf presence alone. Consumers might have a limited number of options in-store, but online, shoppers searching for something as simple as detergent have a far wider array of choices.

In this environment, CPGs and retailers alike are contemplating how best to refine and further develop their omnichannel strategies. ConAgra, for example, is offering new meal kits through grocery delivery service Peapod. Meanwhile, many retailers are focusing on omnichannel initiatives such as click-and-collect, which recent research shows 39 percent of retailers globally already offer. While this innovation is new ground for many retailers, it is critical that those that have not yet adopted this tactic think through how best to implement it. 

As such initiatives are introduced, CPGs need to understand the impact of these new programs beyond overall sales, necessitating a robust analytic approach that will enable them to both analyze and segment results. Honing such a capability would help CPGs to maximize gains and minimize risk by answering questions such as: Which categories or products drive an increase in sales? What marketing and promotions can increase this impact without cannibalizing in-store sales?  What happens to in-store inventory levels when click-and-collect is offered at a new location?

BECOMING AN EXPERIENCE BRAND

While omnichannel is growing, the majority of CPG dollars are still spent in store, demonstrating the value of winning on the shelf. Given that, refining the in-store experience is critical to building better relationships and ultimately driving long-term loyalty.

In response, CPGs are leveraging digital technologies to better engage with customers. CPGs such as the Zatarain’s brand at McCormick, and Hillshire Brands have already implemented beacon technology in store, helping them reach consumers with personalized, location-based messages. Others, like L’Oréal, are offering augmented reality (AR) or virtual reality (VR) apps, while similar offerings include mobile app games and digital displays. Many of these offerings have the dual advantage of not just engaging consumers, but helping CPGs collect consumer insights that they can then leverage across channels to improve marketing and promotions outreach. However, in-store tech and app investments require significant upfront capital, and it is important that CPGs first understand which ideas work, which elements work best, and where, to target rollout for the greatest positive impact.

Many CPGs are also exploring strategies such as subscription services. While this approach has been successful for beauty and personal hygiene products, some brands are expanding it to new categories. On-demand laundry and dry cleaning service Tide Spin, for example, moves beyond just a branded product to becoming a branded solution, offering services in addition to detergent.

RETAILER-SUPPLIER COLLABORATION

CPGs are not the only organizations struggling to maintain market share in a quickly changing industry landscape: traditional retailers are as well. As a result, they are exploring new ways to attract and retain consumers in light of shifting preferences and growing competition from e-commerce giants. increasingly, innovating effectively requires that retailers and consumer packaged goods organizations share information, collaborate on new ideas, and test those ideas.

Some examples of collaboration initiatives in action come from 7-11 and Mondelez, which launched a joint in-store and online campaign to support the Sour Patch Kids-flavored candies. As an example of a different type of collaboration, Kraft Foods worked with U.K. food retailer Sainsbury’s to improve in-store availability of cheeses during promotional periods.

Such initiatives provide an opportunity for CPGs and retailers to quantify the impact on not just the CPG brand’s sales, but the total category.

2018 will be a pivotal year for the CPG industry. Organizations that prioritize a mindset of innovation through rapid-cycle experimentation will be best positioned to thrive as the industry evolves.