The Customer Is The Channel

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The Iceberg That Could Sink Traditional CPG Brands

 

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Life used to be pretty easy for well-established CPG brands. As long as they had a handle on their supply chain, manufacturing and distribution, their operations would run smoothly. Competition was centered on securing prime shelf space and fending off brand or product line extensions from other CPGs or the private label offerings of supermarkets or big-box retailers. Magazine and TV ads, along with retail coupons, would remind consumers why they preferred this brand of household name toothpaste or breakfast cereal over another. Maybe if you wanted to be seen as particularly cutting-edge, you tried your hand at a light-hearted branded Twitter account.

And then things changed quickly and dramatically. What was once smooth sailing got a whole lot rougher.

Amazon diversified its offerings, so that in addition to the latest bestseller, you could also buy laundry detergent with a single click and, in the case of an increasing number of products from batteries to diapers, opt for Amazon’s own brand. Disruptive new CPG companies like Dollar Shave Club and Harry’s decided to set a precedent by bypassing traditional retail channels and selling directly to consumers via their own ecommerce sites, rendering the fight for shelf space obsolete. Voice and text emerged as new channels for shopping and customer care, both of which offer on-demand convenience for customers but strip away the visual branding that so many traditional CPGs had relied on to stay top-of-mind with their target market. All of these factors have combined to form a looming iceberg that threatens to sink even the most well-established CPGs. Selling directly to consumers without the familiar retail middleman, and engaging customers who no longer respond to branded advertising is now the new paradigm they’re scrambling to adjust to.

“36 months ago, CPGs weren't going directly to consumers. They were using traditional channels, Walmart, Target, the grocery stores, everything like that. Amazon has just completely disrupted the whole connection to the consumer,” says Linc’s own Jonathan Taylor, who has been analyzing this phenomenon and the impact that emerging AI-powered platforms will have on CPGs. He calls this a moment of “identity crisis” for traditional CPGs. The way that they have conceived of and structured their communication with and to customers needs to be reimagined for this new reality, as does their understanding of visibility and loyalty in an era when being seen on a store shelf becomes less important by the day. Decades of brand equity are poised to vanish in a click or a few words spoken to an AI-enabled device.

“One thing that happens with Linc’s platform is that I can say, ‘Order more detergent,’ and it will tell me what detergent I ordered before. I don't have to say Tide, I'm brand agnostic now. It's just whatever my last purchase of detergent is. The brand is losing identity. How the brand maintains identity is that they're going to have to go direct to consumers, they're going to have to build their own customer base. They can't rely on traditional retail channels because they'll maybe pushing their own private label solutions and services,” says Taylor.

But what does going directly to consumers look like for brands that have long had an arms-length relationship with shoppers? It starts with embracing ecommerce, rapidly scaling or building out subject matter expertise within their organization that may currently be underdeveloped or non-existent.

“If you have no ecommerce site, then you need to build the ecommerce site ASAP. That'll be your first step. If you have the ecommerce site, then you have to get into Facebook Messenger, you need to be on Google Home, you need to be on Amazon Echo and set the reordering capability and the skill so the consumer can re-order and ask for updates,” says Taylor. Then comes partnering with the likes of Amazon, Walmart and Target to handle fulfillment and delivery. Acting quickly and aggressively, an unfamiliar approach for many traditional CPGs is imperative to avoid ending up like the Titantic.

“They have to move much faster and smarter than they ever have before. They have to have a startup mentality and just get it done. CPGs have six months. They have to change their mentality. They don't have years to study and roll out products and things like that. In six months, you get a website up. You found a great startup brand that's poised to be the new Oreo cookies for the next 20 years? You don't make a similar product, you go buy the company. Use what you have. You have distribution already because of your brands, you have the cash, build an ecommerce site. Most of the emerging brands you will acquire already have an ecommerce site, so you buy, you do M&As to build up your new channels,” says Taylor.

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The challenge for traditional CPGs isn’t just about warding off a behemoth like Amazon or keeping pace with what disrupters looking to invade their industry are doing, it involves embracing a fundamental shift in how consumers will shop that is largely driven by automation. While we might still browse in person for big-ticket items like designer shoes or a new car, increasingly shopping as it relates to household commodities or frequently purchased items will be stripped down to its most accessible, low-touch form, driven by convenience and ease of fulfilment rather than cost comparisons or explicit brand loyalty. Customers will buy a product and, if they’re happy with it, be able to rely on AI-enabled devices to keep reordering that same product indefinitely, either at their discretion or according to a preset subscription. The “set it and forget it” age is here.

AI-enabled buying means that the nature of CPG competition shifts profoundly from fighting over slivers of market share with equally well-established rivals to a vital quest to own the status of default order choice in your category for a new type of brand agnostic shopper who prizes convenience above all else. What CPGs need to understand at every level of their organization is that customers welcome the concept of never having to think about which brand of laundry detergent to buy again and once they get a taste of that life, they won’t go back to the old way. Taylor puts it best:

“They have to realize that in a house today that has voice assistants such as Google Home and Amazon Alexa, the four year-olds are using them. The four year-olds have adopted them as their best friends. They're voice shopping. So when they say, ‘Order me cookies,’ are you the cookie of choice? By the time they are 12 and 13 year-olds, when they normally would go to the mall, the mall is going to be their voice assistant. It is a complete behavioral shift in shopping that has never happened before.”

 

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