As this column is primarily focused on the world of retail, we tend to look at retail and CPG as a binary, with different rules governing each. In the past year, however, the lines between these two worlds have been blurring.
Retailers, for their part, have been adopting some of the behaviors of CPGs; particularly, they’ve been launching more private label brands as a means of not only coping with disruptions to the supply chain, but also siphoning the business of price-conscious customers off of established CPG brands. CPG brands have also been evolving over the past year, adopting more direct-to-consumer (DTC) and consumer-forward commerce models to cope with a loss of business during brick-and-mortar store closures.
Where CPGs are dipping their toes in the world of retail presents a unique learning opportunity for retailers involving better promotion, loyalty, and consumer data strategies that may position them more advantageously for the future. While there’s been resistance for retailers to see anything of value in the CPG-consumer relationship in the past, their actions in this current moment offer a fresh perspective that can be insightful if retailers take it to heart.
Retailers Have Long Relied on CPGs
Retailers would never admit to taking any plays out of the CPG playbook. For as long as there has been a distinction between these two worlds, CPGs have existed more as product suppliers than anything else, while retailers have claimed the mantle of sales and consumer-facing marketing strategies. The thought that retailers would look to CPGs for DTC innovation might seem radical, because historically retailers would have said the opposite was the case.
In reality, however, retailers have long relied on CPGs for a number of insights. Both consumer and category research are generated by CPG brands with extensive marketing and consumer insights budgets, and then utilized by retailers to help guide localized marketing strategies. Retailers tend to see this exchange as mutually beneficial; CPGs get the shelf real estate, retailers get the research, everybody wins.
As brands begin dipping their toes into the DTC world, the strategies they’re bringing are an outgrowth of their history of deep consumer research and knowledge. It’s to the benefit of retailers to understand these innovations and deploy them in the same way they would any other brand-developed market research in order to keep pace with the evolving digital marketing landscape.
What Makes CPGs Unique in the Retail Space
During the past year, it became imperative for CPGs to diversify their businesses away from a solely retailer-facilitated model. As stores were shuttered and supply chains were strained, brands needed more opportunities to get their products directly in the hands of consumers without the need for a retailer middle man.
The unique thing about CPGs in the DTC world is that they’re essentially start-ups with the immense capital backing of major brands, armed with a mountain of consumer data and insights, built-in name recognition, and the technological infrastructure to support a number of inventive marketing efforts. More importantly, CPGs don’t have any of the baggage retailers carry with them, especially with respect to pricing and promotion. While many retailers have spent years or decades training their customers to anticipate sales cycles or develop some other form of discount dependency, CPGs entering the DTC world have a blank slate.
It’s this freedom from established consumer expectations that enables them to be more innovative in their sales efforts.
Where Retailers Can Learn From CPGs
Ultimately, the prevailing trend for brands and retailers over the past decade—accelerated in the past year—has been offering consumers a more personalized experience while also respecting consumer preferences and privacy.
“In the past ten years, companies have started moving away from broad-based demographic marketing to what I would consider to be people-based marketing,” says Shyam Venugopal, senior vice-president of global media and commercial capabilities at PepsiCo. “We started thinking about: these are actual people we’re talking to. The big shift I’ve seen in the last couple of years has been every brand realizes the importance of personalization and better consumer experiences play in their marketing and end-to-end commercialization.”
As this column has explored previously, where privacy and personalization intersect is within the concept of a value exchange. In order for a brand or retailer to trade in on the consumer data they collect, they need to offer something of value to the consumer.
“The value exchange between retailers and their customers is becoming increasingly important,” says Tom Litchford, head of worldwide business development for retail at Amazon Web Services. “As the availability and velocity of data collected continues to increase, customers are naturally going to expect that retailers use this data to enhance their shopping experience.”
CPGs are leveraging the value exchange to offer consumers more unique experiences in exchange for their personal information. With this data they’re creating the conditions to integrate into the consumer’s everyday life. The Gatorade Gx app, as one of many examples, provides a brand-aligned offering that reinforces their product line as a performance drink while connecting to consumers within the context of physical activity. Apps like this can be used to provide standalone value, or to provide exclusive offers and promotions, in exchange for consumer interaction and insights.
For retailers, CPGs can offer a model of adaptability. As roadblocks begin going up in traditional modes of insights—Apple’s updates to email being the current conundrum—retailers are going to need to take a new approach to consumer personalization, centered around a value exchange that puts consumer preference at the forefront, in order to change with the times.
While CPGs may not be new, their fresh perspective on DTC efforts can be an opportunity for retailers to explore new models of outreach that can fortify them for the changes to come.