How Digital Disrupts CPG Trade Promotion

Posted on October 9, 2018 by Caitlin Orosz under Retail

Chances are you’ve purchased a traditional grocery store product – maybe laundry detergent, paper towels, ketchup, or mac & cheese on Amazon over the last few months. And you’re not alone.

Now, more than ever, consumer goods companies are having to find ways to stand out from the crowd in channels that challenge traditional notions of promotion, price, packaging and placement. Read on to learn what these channel shifts mean for trade strategy and consumer loyalty.

Disruption Distilled

CPG industry disruption can be credited to the availability of private labels, growing popularity of voice recognition technology, advancements in 3D printing, and more online shopping. As a matter of fact, online CPG sales are growing 2x as fast as online sales in general, and in 2017 online CPG sales surpassed $10 billion in the US for the first time ever. The future of consumer goods is fast-paced and requires an equally fast response says John Zealley of Accenture.

Online CPG Sales

Digital customers demand convenience, transparency and personalization, which challenges CPG manufacturers to adjust their long-established trade promotion methods to fit today’s preferences.

As mobile technology changes shopping behavior even further, CPG manufacturers figure out how to stay competitive, optimize their promotions and enhance the customer experience.

Being Competitive

Even though eCommerce claims only one-third of all CPG sales, online channels drove 89% of growth for CPG products between 2016 and 2017, reports Nielsen.

CPG growth

Traditional manufacturers face serious competition from direct-to-consumer companies. CPGs continue to sell through retailers and distributors, but they can’t ignore direct-to-consumer strategies.

Many new-age CPG brands have embraced an online-only business model. Brands no longer need to rely exclusively on retailers; they can attain power by creating more channels to sell product(s). A competitive advantage in today’s fast and digital world is to be able to innovate and launch products quickly. These innovative, online-based CPGs embrace consumer trends and understand the value millennials and Gen Zers place on experience. And some powerhouse manufacturers have taken note by investing in product innovation and/or acquiring brands that extend their reach.

Here are a few examples:

 

  • Keurig Dr Pepper Acquired Core Nutrition. Core, created to give enhanced water options to the modern customer, will see even more sales and distribution opportunities under the Keurig Dr Pepper business. “Core has been a valued and successful allied brand partner, and we are pleased that this on-trend beverage will become part of our owned family of brands,” said Keurig Dr Pepper CEO Bob Gamgort.

Core nutrition logo

  • Kraft Updates Famous Mac n Cheese Recipe. Kraft made its famous mac n’ cheese natural, switching from artificial ingredients to spices like paprika, annatto and turmeric to simulate the orange color. The company started selling the artificial ingredient-free concept months before their announcement, calling it “the world’s largest blind taste test.”

Kraft mac n cheese

  • PepsiCo Acquired Bare Snacks. With Bare Snacks in its portfolio, PepsiCo expanded its vision of making more nutritious products, while reducing added sugars and saturated fat. For Bare Snacks, joining the team at PepsiCo supports its development of healthy snacks and reaches more consumers.

  • Perdue’s No Antibiotics Ever Line. Leading the way of reducing antibiotics in poultry, Perdue manufactures meat raised without antibiotics. Perdue is the first major brand to convert all its value-added products to contain zero antibiotics. Next, the manufacturer is converting all its foodservice distribution turkey items to its “No Antibiotics Ever” product line.

 

Impact on Trade Promotions

“The proliferation of digital options for directly engaging with shoppers has significantly fragmented the trade promotion market,” says Brad Golden of Kantar Retail. “Manufacturers must act with agility to keep pace and optimize spending.”

According to Kantar Retail’s Trade Promotion Study, despite trade promotion activity and spending quickly migrating to digital, just 13% of manufacturers have separate brick-and-mortar and e-commerce budgets and 24% have no e-commerce budget at all. And, while manufacturers focus on promotions through retailer websites, retailers minimize their sites in favor of social media, email and mobile coupons.

The Promotion Optimization Institute estimates that “satisfaction around the ability to manage trade promotions and to execute at retail has declined and now stands at 14% and 19%, respectively in their 2016-17 TPx and Retail Execution Report.”

More efficient trade promotion programs start with small changes that can have a significant and sustainable impact.

Personalization, Transparency & Social Media

Personalization powers purchases. A Deloitte study showed that one in four consumers are willing to pay more to receive a personalized product or service and 22% of consumers are willing to share some data in return. Although the new promotion landscape is digital, there are opportunities for manufacturers to promote their products where their customers are: online.

Highly targeted social media campaigns work, brands can break into the market showing their social voice, regardless of distribution capabilities. Take Chobani for example. The Greek yogurt company shares recipes and uses for its many products. Chobani invites fans to tag recipes (#ChoSquad and #MadewtihChobani) for a chance to be featured on its feed. Their Instagram boasts 160.2k followers. Or, look at Kraft’s Pinterest account. The company creates unique content helps its more than 570,000 followers make recipes (with Kraft Food products).

Kantar Retail’s study shows “that the industry knows the shopper remains boss,” says Golden.  “In an increasingly omni-channel world, manufacturers believe the shopper will continue gaining power. However, more work is needed to understand how trade promotions affect shopper behavior longer-term.”

The challenge remains: meet customers in the right place, at the right time. CPG brands continue to develop strategies to win over the digital consumer using an omni-channel, shopper-focused approach.