Consumer packaged goods companies haven’t changed their stride in decades — not necessarily because they didn’t want to, but because they didn’t have to. Their models of focusing on products, brands, pricing, advertising, and selling large quantities to retailers are classic for successful businesses. But business evolves in cycles, and it looks as if the “good times” for many large CPGs are coming to a close.
According to Fung Global Retail and Technology, more than 6,700 retail stores have closed in 2017. While many of those stores weren’t ones that sold CPG products, this is still bad news for CPGs, which have historically used retailers as their sole sales outlets. Considering the current state of retail, CPGs would do well to learn to serve the end customer in a way that challenges them to compete with Amazon, the third-largest retailer in the world.
Embracing a New Model
For CPG brands, it’s virtually impossible to compete with Amazon on selection or price. But that’s where curation comes in. Curation — the act of offering expertly chosen and/or personalized products or services — goes a long way toward both drawing in and keeping consumers and justifying costs. The trend toward curation, started by physical subscription brands such as Dollar Shave Club and Harry’s, is gaining momentum because those brands offer high-quality content personalized for their customers.
To truly succeed with personalization and curation, brands need to understand consumer trends, such as the tendency of younger generations to place higher values on brands that “do good” or that focus more on their ingredients or solutions than on becoming a household name — and the psychology behind their decisions.
Many brands continue to try to employ a traditional “strategy” of playing the same advertisements as often as possible. They’re likely alienating more customers than they’re gaining, as a survey found that almost two-thirds of people reported being “highly annoyed” by repeated generic ads.
Instead, brands should move toward the subscription model and focus on learning from and connecting with customers. A subscription is essentially a long-term exchange of information between a company and its consumers. The data that companies can gather based on purchases, returns, and customer feedback allow those companies to serve customers at a higher level than general retailers can provide. For CPGs, increasing that level of service through subscription relationships is an incredibly valuable opportunity.
For an example of a company using curation to its advantage, consider Madison Reed, a company that sells hair coloring products. Madison Reed has been taking market share from traditional CPGs that offer only a few shades of coloring at a minimal price. The brand offers customers the opportunity to talk to specialists about their hair color and care, and it regularly communicates with its customers and changes the shades it sells. To further distance itself from the crowd, the company leaves out the toxins and chemicals present in most other hair color products.
Ensuring a Smooth Transition
For CPGs looking to stay relevant as consumer trends change, moving to a curation-focused model is key. For well-established CPGs, that transition can be a difficult road, but following these tips will make the change as smooth as possible:
Hire people trained to think about the end customer
Brandwide shifts are difficult, but having the right people on your team is a sure way to guarantee you’re moving in the right direction. Add to your team people with experience catering to the needs of the end user, not retail buyers. Doing so will help your brand create products that customers want to use while also increasing customer engagement and brand awareness.
Learn from the disruptors in your space
For an idea of where to begin, look to the companies disrupting the status quo in your industry. This idea isn’t new: Learning from disruptors, specifically in the CPG space, was one of the primary focuses of the 2017 Xcelerate Retail Forum. Watch these disruptors, and you’ll likely learn a thing or two from their strategies and business concepts. You might even acquire some disruptive talent along the way.
Experiment with subscriptions
If you’re serious about curation, trying a subscription offering can pay off in several ways. You’ll gain valuable information about your customers’ needs and expectations and set yourself apart from your competition. A sample box is a great way to connect with potential customers outside the retail aisle where they would normally find your products. It also lets them see your product away from your competitors’ products.
CPGs have had a successful run, but if they don’t change their strategies, they risk watching their biggest customers disappear. To thrive in today’s quickly evolving environment, CPGs need to change focus from attracting retailers to forming strong relationships with new customers. Brands that take advantage of curation and the subscription model will find that they can serve their customers better than ever before.
Georg Richter is founder and CEO of OceanX,