This is a guest blog post from CPG and Amazon expert, Melissa Burdick. Melissa has over 12 years of experience in ecommerce, and works with brands to help them develop ecommerce strategies and win online. She previously helped launch the CPG retail business on Amazon.com, and was at Amazon Media Group at its inception.
For a long time, CPG brands didn't need to be overly concerned with ecommerce. US CPG manufacturers sleepily watched other categories (like consumer electronics) and markets (like UK and China) increase in ecommerce maturity while still focusing on their bread & butter brick & mortar businesses. However, as shifting consumer preferences, low barriers to entry online giving rise to niche incumbent brands, and declining brick & mortar sales, an ecommerce strategy has suddenly gone from nice to have to critical and required immediately. According to a new Nielsen study, brick and mortar sales for fast-moving CPGs have declined, while online sales of these same goods have grown by a massive 32% over the last year. The study stated that nearly nine of out of 10 dollars of FMCG retail growth came from online last year.
Unfortunately, the majority of CPG manufacturers are not ready for this shift. Their supply chain and logistics are still structured to support brick & mortar, not nimble and fast-moving ecommerce needs. Their digital content, if it exists, hardly meets the requirements of today’s search engine optimized let alone mobile world. And there is a dearth of ecommerce savvy employee candidates to help lead these internal transformations.
To that end, here are the top blind spots and assumptions CPG brands need to recognize and start looking to solve.
Pricing issues are caused by manufacturers, not retailers
Imagine spending 18 months developing a new, innovative product to market and within 30 days of launching online, the item is “CRaP” (can’t realize a profit), Amazon’s term for structurally unprofitable items. That’s the new CPG reality. Rather than leading the price discount charge, Amazon is a fast price follower who will match the lowest published price from its rivals (often Walmart, Target, and Costco). When selling the same highly commoditized, mass product everywhere, it can be a price race to the bottom. Some brands with the most pain in this area are starting to develop different and unique products for different channels, not willing to play the pricing game anymore.
Your competitors are not who you think they are
CPGs are used to thinking about competitors as the other top brands in their category. However, not only are you going head-to-head with smaller, niche brands with lower barriers to entry online, you’re also competing with the likes of Amazon themselves and now Whole Foods. Amazon private label batteries already have a greater market share than Duracell and their wipes are third in sales behind only Huggies and Pampers, according to Mary Meeker’s 2017 Internet Trends Report. Additionally, Amazon Basics is now the third best-selling brand on Amazon according to analytics firm One Click Retail.
And what about the packaging, labeling and other branding plays that CPGs have depended on to set themselves apart on store shelves for decades? Those all disappear in the era of voice commerce, where consumers rely on AI to suggest the brand they buy or simply keep reordering their most recent purchase.
You have a lack of organized data
While ecommerce opens up access to all kinds of interesting, new, and real-time data, companies are overwhelmed with how to best analyze multiple, disparate sources and unfamiliar with how to action new key performance indicators. In addition to tried-and-true metrics such as sales, CPG ecommerce success involves measuring and analyzing KPIs such as glance views, conversion rates, buybox percentages, search rank, and product reviews (number and quality) that weren’t on their radar before. For the average CPG brand, new data blind spots have led to the desire to create holistic dashboards and single-threaded ownership to analyze the true impact of business drivers.
Amazon is a platform, not your partner
“You can’t take an algorithm out to dinner” needs to be the new mantra for CPG manufacturers working with platforms like Amazon. Mastering this platform doesn’t mean cultivating a relationship with your vendor manager, but a robust understanding of how Amazon prioritizes and ranks products, which means a deep dive into what data drives its algorithms around relevance and performance, as well as figuring out how to win at search, the importance of which cannot be understated. According to a Bloomreach study, 55% of consumers begin their product search on Amazon and according to One Click Retail, 68% of their clicks go to Amazon’s top three search results. It’s critical to be on the first page of search results (either organically or via PPC). Also, negotiating with Amazon can sometimes feel like you are negotiating with a machine. In some cases, you actually are! Emails generated by robots may look like it came from a person who cares, but really, it’s AI determining what your new terms should be. To win in this new era of negotiation, CPG brands need to come prepared with data, their points of leverage, competitive information and the knowledge that Amazon’s asks will only likely continue to grow.
You aren’t organized for ecommerce
As more CPGs realize that they can’t afford to ignore ecommerce, there’s an arms race to recruit experienced talent to fill specialized roles in areas such as business/account/partner management, digital marketing, supply chain/operations, innovation and analytics. While some brands choose to outsource their ecommerce functions in order to scale faster (especially to a growing industry of niche firms specializing in Amazon services), others look to expand in-house capabilities in order to build expertise and retain greater control. Despite its size, Amazon moves quickly and can totally change the landscape of a particular vertical with a single decision or acquisition (Whole Foods, anyone?).
Forward-thinking CPGs are making the right moves and making them quickly
According to a now 2-year old article by McKinsey, “Successful CPG companies are already skating to where the puck will be, not where it has been (to paraphrase ice-hockey star Wayne Gretzky)”…Winning CPG players know that while their e-commerce businesses average just $20 million in annual revenue, their online sales are growing three times faster than those of their peers.”
If you’re a CPG brand that is ready to embrace ecommerce today instead of waiting to be left in the dust, what can you do? Start with collecting the right data to measure your business, get the right people in the right roles via insourcing or outsourcing, start building out your short and long-term strategic plans and, perhaps most critically of all, start developing the organizational ability to be nimble and responsive to your changing business context. The competitive and customer experience reality for CPGs has changed dramatically in a short time and that pace of change isn’t going to slow down.
Melissa Burdick is the co-founder of an ecommerce marketing agency Day 1 Digital and ecommerce advisory Leigh & Burdick. A 10-year Amazon veteran, she helped launch the CPG and advertising businesses at Amazon. She is a well-known thought leader and ecommerce expert.