Same day delivery. Omnichannel consistency. Personalization. The list of what shoppers and consumers want is long. What is even more scary for manufacturers and retailers however is not that they just want these things, but that shoppers want them for free. Oh, and lots of low prices too. Consumers and shoppers want it all, for less. This seems to me to represent the biggest challenge facing the entire consumer goods industry. It could change completely the way that industry does business. How are you going to face this challenge, and can the recent strategies of Unilever perhaps point the way?
Consumer Goods Challenges – Shoppers Want More For Less
Same day delivery. Omnichannel consistency. Personalization. Each of these elements drive cost, often massive cost. Supermarkets used to get shoppers to do their own product picking and delivery. Shoppers used to be happy as long as a product listed in their local Wal-Mart: no need for integrated websites and ‘everywhere media’. And everyone was happy with either the same product, or minor tailoring at best. Not anymore. But who is going to pay for all of this? Where is the money going to come from? If shoppers aren’t prepared to pay for all of these things, that means prices don’t go up. And that means, costs must come out. Here’s two ways Unilever are moving to strip out cost without destroying value.
Unilever Strategy One: Zero-based budgeting, done correctly, drives customer value
The first move is their controversial move to introduce zero-based budgeting for all marketing activities. Historically, zero-based budgeting has been used by businesses cutting costs to prop up profits, or to ready a business for sale (or spin). But Unilever are (we hope!) a bit smarter than that. To quote their CFO “Zero-based budgeting will help us identify the next efficiencies and costs that don’t add consumer value. It’s essential to underpinning our strategy.†Implicit in this is a statement that an awful lot of marketing costs simply don’t add any value to consumers. They were perhaps an affordable luxury in the past, but as the needs of shoppers and consumers are increasing, smart brands are focusing their spend only on activity which adds value.
Unilever Strategy Two: Challenging the retail-supplier model – force it to add value
The second is the dramatic acquisition of Dollar Shave Club. Unilever has just spent a whopping one billion dollars to buy Dollar Shave Club, a s which sells cut price razors and other grooming products online. Its a vast sum spent on a loss making business with turnover below 200 million dollars. The price suggests that this is a big deal, a big throw of the dice, and something that Unilever really wanted. Why? The business isn’t huge, subscription shopping is still small, and Dollar Shave Club only operate in three markets. This acquisition is about recognizing that big retailers too, no longer represent good value to the shopper (or the supplier). They drive in costs (stores, parking space, extensive inventory held at numerous places) which apparently does not add enough value to enough shoppers. As shoppers continue to split their shopping trip across more and more channels, the retailer-supplier relationship has come under more and more strain. Retailers are under pressure, and are demanding more and more from their suppliers, at a time that they are representing less and less of a brands’ business. Manufacturers are being asked to maintain, or increase their investment in traditional retailers at the same time as needing to invest in new channels such as online. The Dollar Shave Club acquisition is a move to challenge that model. It’s a massive move towards serving the shopper directly, in effect cutting out a middle man which potentially doesn’t add enough value.
Both of these changes recognize the reality that the consumer goods industry needs to move on. The simple model of big brands locked in with big retailers is a diminishing one: shoppers have seen the light and are now voting with their wallets. The next five years will see more of this: more cuts to marketing budgets, more disruption in retail, and more ‘surprise’ acquisitions (and exits). How can CPG industry professionals survive and thrive? Take a leaf out of Unilever’s book!
Consumer goods success will be powered by shopper insight
All of these challenges come from changes in shopper attitudes and shopper behavior. If you don’t understand your target shoppers, how they behave, and what motivates them, you are dead. Or you will be soon. It is as simple as that. Shopper insight used to be optional. Today, shopper insight is mandatory.
Consumer goods winners will drive massive value
If Unilever are buying and conducting a lot of marketing activities that don’t add enough value, I’m pretty sure that you are too. Nobody is perfect. Now is the time to stop resting on laurels, and make sure every cent adds value. Think like a small business owner. Because your next competitor might well be a small business, who does zero-based budgeting because they are starting from scratch.
Consumer goods winners will be focused
You can’t be everything to everyone. Omnichannel is unaffordable. We need to focus. Who are the target consumers? Who are the target shoppers? Where can you influence them most? What is likely to influence them?
Consumer goods winners will measure return on investment
Which of your current channels or brands are actually profitable? A brand/channel profitability matrix (which is something we do for our clients) can often make chilling reading. How profitable are your relationships with key customers (and yes, you need to add ALL of the costs).
For all the talk of ‘customer focus’ it appears that there is a lot of activity which is anything but. For consumer brands to survive (and I don’t think this is hyperbole, this is a matter of life or death for brands). Customer focus for the consumer goods industry means focusing on three customers, not just one: companies must rethink the way they market and interact with consumers, shoppers and retailers. For a demonstration of how we have used this thinking and approach to add value to major consumer goods companies the world over, please contact me.
