Transform Or Be Left Behind: Why CPG Manufacturers Need To Create New Value Propositions For Their Customers

Maggie Slowik

Today’s consumers are anthropologically different from the past. In May 2013, Time magazine published a cover titled “Millennials: The Me Me Me Generation.” This was an obvious pun on the concept of the “Me” generation that had been widely used in the past to define their parents, the baby boomers.

Now, five years later, we are fully witnessing the seismic impact on the consumer market as a result of digital technologies converging with this new generation’s attitude. Let’s face it, online commerce is often the de facto platform for today’s customer experience. But the consumer journey could also start in a physical space, such as a store or an event, which often involves a digital device such as an iPad.

The point is, today’s consumer will want everything now, at the click of a button, ideally customized, with discount options, assurance that the purchase can be returned if it doesn’t meet expectations (customer service), and perhaps most importantly, able to be delivered the next day, if not earlier. And not only are today’s consumers highly demanding, they are also in the powerful position of influencing a company’s brand via pervasive social media platforms.

This has a disruptive impact on several industries, but in no other industry as much as consumer packaged goods (CPG). To avoid brand commoditization and protect their market share, brand-oriented companies must transform to create and maintain a meaningful relationship with their end customers.

IDC data shows that in the CPG industry, of the $35 billion in net growth over the past three years, only $1 billion has come from traditional, large enterprise players. Most of the growth in the consumer industry – 90% over the next decade – will be captured by companies that participate in direct-to-consumer models.

This transformation requires that companies in consumer industries identify new opportunities for growth, productivity, and profitability. In fact, these companies must reinvent themselves. As a result, by 2019, all digitally transformed organizations will generate at least 45% of their revenues from “future of commerce” business models. What does this entail? A big monetization opportunity from data platforms and the sharing economy. And some companies have already started tapping into these opportunities to create an ecosystem of partners that share risks and rewards, which then creates new value propositions.

However, to do that, companies need to consider rethinking their value proposition significantly by leveraging mass-customization strategies and direct-to-consumer approaches.

This means that CPG companies need to engage the customer in a whole new way. Think about the example of the Adidas Glitch football shoe. The shoe consists of an inner sole, which is custom made to fit the shape of any foot, and an outer shell, which is interchangeable at any time, and will be, once ordered, hand-delivered within only four hours.

However, to deliver on this type of value proposition, manufacturers will also need to transform their shop floor processes, starting with innovation design. Adidas, for instance, deploys the concept of the “speed factory” where it combines the same technology and practices it uses for custom shoes for top athletes with state-of-the art digital technologies to deliver custom-made shoes to consumers in season. As an Adidas spokesman reportedly commented, “It’s customization without compromising the needle on the speed nor on the changing of the line.”

IDC believes that this balance between transforming the “external” customer-facing activities and the “internal” dimension of business processes is what ultimately drives the digital experience (DX). In other words, this influences how companies innovate and manage their customer, their production processes, and then their supply chain.

This has major implications on their business processes. For instance, when it comes to product design and innovation, we see a major transformation that leads to some unsolved issues. In fact, innovation has never been so important. We see evidence of this in the annual IDC European Vertical Market Survey, which interviewed over 2,000 companies across Europe, including a number of CPG companies.

This year, IDC witnessed a significant change in the CPG panel’s business initiatives. For years, CPG companies have prioritized security, marketing, and (of course) cost, but this year, innovation was top of mind, as well as customer-centricity. Despite this interest in innovation, CPG companies still fail to bring forward a coherent and systematic innovation approach. Companies need to bring both the digital and the real together into an end-to-end lifecycle.

Another, perhaps more important, key challenge in the CPG sector is the lack of customer experience ownership when it comes to the end consumer. Traditionally, CPG companies have focused on fulfilling orders from their customers, namely retailers. Here, the guiding principle was calibrating to demand cadence where the experience was ultimately in the hands of the retailers. However, CPG companies now have an incentive to create the whole customer experience as well.

Leveraging next-generation smart-manufacturing principles is another step along the digital-transformation journey for CPGs. This requires creating data-infused, connected products that can “communicate” throughout their entire lifecycle. But smart manufacturing also means augmenting the factory worker with technologies such as collaborative robots and augmented reality. Another attribute of smart manufacturing is that it is distributed, meaning plants and operations are connected into a consolidated view.

Finally, manufacturers will need to invest in a digitally enhanced supply chain, which leverages IoT and sensor data to provide real-time analytics that can serve as inputs for building a cognitive model. On top of that, deep-learning modules can aid in the creation of cognitive modules that, in turn, would be the core of an automated supply chain. This concept of the cognitive supply chain allows organizations to proactively manage inventory by moving it closer to customer demand, which can ultimately reduce supply chain disruptions and therefore the overall cost of supply chain operations.

Innovation is extremely important, but challenging customer experience practices have yet to be learned from retailers, and the opportunities from next-generation manufacturing and intelligent supply chains have yet to be explored in full.

These initiatives cannot happen in silos, and companies must take a holistic approach that blends together people, processes, and technologies. Therefore, companies need a clear customer-centric DX vision and, based on that, map out their use cases, starting with a long-term view, and then work out the various milestones. This is not an easy accomplishment, but as every millennial customer would say: “I can’t wait.”

Interested in learning more about the Value of IoT in Consumer Products Companies? Download the whitepaper “Reinventing the consumer industry with IoT innovation” or watch the webinar “Reinventing for Today’s Consumer.”

About Maggie Slowik

Maggie is a Senior Research Analyst for IDC Manufacturing Insights EMEA. In this position, Maggie is responsible for leading the European Manufacturing Digital Transformation Strategies program and contributes to the Worldwide Smart Manufacturing Strategies program. Her activity is focused on research regarding digital transformation and innovation strategies, along with providing support to consulting projects for both vendors and end users.