Traditional consumer packaged goods (CPG) and fast-moving consumer goods (FMCG) brands see the writing on the wall. With department stores going out of business, malls in decline, foot traffic down and customers moving online, opportunities narrow for using third-party retailers, partners and wholesalers to expose products to consumers.
What’s equally troubling for CPG brands is that their traditional go-to-market model may be permanently out of fashion. Even with an expected retail boom on the way, customers are unlikely to revert to their old buying patterns. Expectations have changed to where consumers today expect to be able to have a direct relationship with a brand. In a (pre-pandemic) eCommerce survey, 59 percent of consumers said they prefer to do research directly on a manufacturer’s website, with 55 percent saying they prefer to make purchases that way.
The expectation for a direct relationship presents a Catch-22 for CPG brands: they can’t establish a direct relationship without customer data, and they can’t secure customer data without fostering a direct relationship. To break through the logjam, many brands are taking incremental steps to transition to a direct-to-consumer (DTC) model. Under Armour, for instance, plans to remove its products from nearly 3,000 stores by next year. Levi Strauss, with roughly 40 percent of revenue in direct sales last year, plans to up that to 60 percent this year. FMCG companies including Kraft-Heinz, PepsiCo, General Mills and Kellogg have all made efforts to boost online, direct sales during the pandemic.
Brand Promise & Trust
Brands making a concerted effort to increase DTC sales know that customer experience, more than the largely commoditized price and product, is now what drives consumers. Consider a recent Dynata survey commissioned by Redpoint, where 70 percent of consumers said they will exclusively shop with brands that personally understand them.
Without a trove of first-party customer data, though, many traditional CPG brands breaking into a DTC model are making headway by focusing on brand promise. Brands establish what they stand for on sustainability, social or political issues to attract customers who share their values. In a Marketing Dive survey, 41 percent of millennials said that the environment plays a role in their purchase decisions all or most of the time. A 2019 study from the NYU Stern Center for Sustainable Business found that sustainability-marketed products were responsible for 50 percent of market growth among CPG brands between 2013-2018. Patagonia is the often cited as the gold standard of sustainable-friendly companies, with its recycled fabrics, aversion to fast fashion and even a “Don’t Buy This Jacket” marketing campaign to tackle the issue of consumerism run amok (launching on Black Friday, no less).
Establishing and honoring issue-based brand promise is one way CPG and FMCG companies are making DTC inroads. Another is centering brand promise around trust. Kraft-Heinz, for example, launched a “Heinz to Home” campaign to transform its well-known products into “lifestyle brands” that evoke familiarity, comfort, and reliability. Online experiences include themed gift packages for celebrations and events like Father’s Day or heading back to college. The brand’s intention is that a customer who shares the same values and identifies with the brand promise will seek out experiences on a branded website.
These brands, and many others like them, approach customer experience not as a set of interactions necessary to deliver a product, but as a full value exchange between a customer and brand. By understanding and acting on what matters to a customer, CPG companies making DTC inroads start to form a personal understanding that breaks the logjam; by attracting customers with like-minded values, they begin to gather more first-party customer data, which may then be used to deliver a more personalized and relevant experience. What these brands are doing, in essence, is forming a bond with a customer by exhibiting shared values, trust and respect, and then working backward to provide relevant experiences based on the shared values.
Extend the Value Exchange
It’s easy to see the motivation for CPG brands to re-invent themselves by selling experience over product. According to the 2020 Consumer Culture Report, 71 percent of consumers (83 percent of millennials) prefer buying from companies aligned with their values.
With a foothold in a DTC model, companies are able to strengthen the bond with a customer – and receive more first-party data – by building on the value exchange. An eco-friendly company might, for example, encourage a customer to sign up for a monthly sustainability newsletter, or receive (paper-less!) notifications on new zero-carbon footprint products. Likewise, a FMCG company may offer weekly themed menu ideas, or run a recipe contest.
Customers who perceive these experiences as value are generally willing to share more personally identifiable information (PII) to generate an improved customer experience. In a Harris Poll commissioned by Redpoint, 54 percent of consumers said they are willing to share personal data for a more personalized experience. And in a Sitel CX Index report, more than 60 percent of consumers surveyed said that receiving personalized communications over email, chat and social media is important.
Moving to a DTC model will entail new considerations for CPG companies suddenly awash with first-person customer data, such as the imperative to safeguard data privacy, essential to further the value exchange and maintain trust. There are also major supply chain and last-mile implications, but the trade-off – personalized, relevant experiences that drive customer loyalty and new revenue – are worth it. That’s the value of a deep understanding of a customer built on trust. It is, in a way, priceless.
Changing Customer Behaviors Open New DTC Doors
DTC Evolution as CPG Companies Branch Out
Personally Identifiable Information (PII) and the Value Exchange
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