FMCG and ecommerce: what next?
FMCG or fast moving consumer goods are all the products that shoppers buy for their daily needs. think toothpaste, dish-washing liquid, detergent, soap etc.
These are invariably the reason one goes monthly (or weekly) shopping.
Today, many consumers are exploring e-commerce to shop for these essentials. Convenience, better deals and subscription models make online so much more easier for shoppers to stop thinking about these recurring purchases.
So, how does this changing user behaviour affect FMCG manufacturers? The P&G, Unilever, Reckitt-Benckiser, Nestle and many more? Is online just another sales and distribution channel? Consumers are shifting online, so should the brand owners join in as well? Are there any downsides? What should they do about it?
Let us start with the very basics:
At its core, a popular branded FMCG product exists because of three factors:
1. The brand - cultivated over multiple years of mass media advertising
2. Manufacturing - The ability to source raw materials and produce at scale.
3. Distribution or availability - Ensuring that the retailer closest to you has the product.
These three points at closely tied to one another. The popularity of the brand generates volumes of sale which in turn helps bring down the manufacturing costs, leaving brands with more money to further market their products and ensure distribution of the product. The popularity of brand also force the retailer to allocate space on their limited shelves.
Apart from the three points above, brands invest in R&D to produce a better version of the existing products. New. All New. Better. Cleaner, Sharper. Faster.
So what has changed in the recent years?
Manufacturing no longer needs to be done in-house. Most brands outsource the production to facilities that ensure quality and cost-efficiencies. This takes away a big advantage that larger brands had (versus newcomers) in the not-so-distant past. Further, most FMCG manufacturing processes and product constituents are not really a secret within the industry.
Distribution reach helps the incumbent in more ways than one. If you have a strong brand, your primary product can ensure placement and distribution of a range of other products in your portfolio. This in the case of physical stores, also block competition from occupying the limited shelf space. Online stores have an infinite shelf, so this again is no longer going to be a differentiator or a barrier.
Store brands that look and feel the same and cost significantly lower than the branded products. Most retailers across the globe have a strong portfolio of own brands. So, while it is difficult for smaller players to compete for the shelf-space, own brands have no such problem.
I know all this. What’s the point? What was all the fuss about e-commerce at the start of the post?
Unlike in the physical stores, online stores can personalise the user experience. So, every user sees their very own store. What this means is that a user may not even notice the existence of a product if the retailer so desires.
Subscription models and “Dash” buttons give shoppers another reason to not “Shop”. Consumers’ essential requirements come home without any significant action on their part. So, how do the consumers discover new launches and new products?
Impulse products are no longer seen and even if seen, all the factors that trigger impulse - product packaging, price, fragrance, general attractiveness, kid magnets - aren’t the same online. So, what happens to impulse category of products?
Most large FMCG brands have 100′s of unique SKUs available for sale. In a physical store, for reasons stated above, the brands are able to get the shelf space for their range. Once on the shelf, shoppers see the product as the walk around the store aisles, touch the product and maybe even try it. In the eCommerce led world, most of these long tail items aren’t even seen. This affects sales volumes. and in turn, the FMCG manufacturers’ margins. So, there is an Increased reliance on a few big products and the range shrinks over a period of time.
FMCG brands’ spend a lot of time in designing their product packaging and point-of-sale marketing activities. eCommerce makes that less relevant. The touch-feel-smell lemme-try options don’t translate very well online.
The world is changing. Or at the very least, the online world is different.
Increase in consumers using the online channels affect FMCG industry in a big way.
In a relatively undifferentiated world of products, and the shifting balance of power to the retailer, FMCG manufacturers can only see a slow decline. Store brands will take over incrementally. First the peripheral products and then the highly profitable ones. An eventual downward spiral for FMCG brands.
Bow down to your retailer overlords.
Now seriously, what should FMCG brands do?
The one thing that makes the infinite-shelf online-retailer afraid is the non-availability of products that users demand. In cruder terms, search terms on the website leading to out-of-stock products or worse no results. Online retailers run the risk of losing the shopper to a rival if they don’t offer the specific products users’ want. This means that the Brands need to ensure that they are generating the pull for their lesser products. Get the shoppers to ask for their product (SKU) by name.
For this to happen, brands need to demand greater openness on user browsing and searching behaviour data from the retailers.
Brands should also demand greater transparency or visibility into product recommendation logic employed by the retailers. How can brands use that data to make their own products more likely to be clicked and purchased?
Advertising strategy for brands needs to evolve. Apart from the larger brand campaign, advertising for smaller products and sub-brands become critical. This incidentally can only be enabled digitally. The choice of format - text, image, video, audio, long-form content, email, notification etc - are channels that need to be judiciously employed to ensure that the users are aware of each specific brand, sub-brand and variants.
Bundles and cross promotions within an FMCG manufacturers’ product portfolio should increase. This not only helps ensure that the product range gets visibility but can also subtlely bypass retailers’ own recommendation.
Create own stores where (potentially) the orders are delivered by retailers. Attract consumers to the brand store using various marketing strategies. Explain the product. Educate the user. Sell the item. Handhold the users to complete the transaction on the brand store itself. Get the delivery made through partnerships with retailers. This would work best for FMCG players with a large product portfolio. Treat this own store as a marketing investment and not as a sales channel.
Work with the retailers to enhance the content on the product pages. Offer all the professionally shot photographs, marketing collateral, ad copy, brand’s own understanding of product uses and why someone should buy your product. EVEN IF the seller or retailer is unknown. I, in fact, have written a longer post about this. Let me link it here. It is your brand that the users interact with, and just like how you influence the way retailer stocks the shelf, displays point-of-sale marketing message, the product packaging itself, do what is required to enhance the way users see your product. BTW, do you the brand manager have the necessary processes in place to track how your products are being sold online?
Extending the above point, do you the brand manager know how the product is delivered to the user? Is there a process in place to track how every retailer ships the product? Can you do something about the shipping packaging to enhance the users’ experience everytime they receive your product at their doorstep? One can, maybe, use the packaging to educate the user about the variants available. If you “own” the shipping packaging, you can possibly send samples of the other products in your range.
I mentioned the use of data quite a few times above. Do you have the system in place for collating, analysing and understanding user and consumption data for all your products and variants? Do you the manufacturer or brand manager know about what proportion of users return your product and why? Do you know how often they add your product to a shopping cart and remove it prior to transacting? Do you know which zip code/ pin code places orders for your product? Some of this information is only available online - provided your retailers’ share it with you. Some of the information like zipcode / PIN code based purchase was so much more easier to collate in the pre-eCommerce era.
The world is changing, so should you.
All ye FMCG manufacturers and brand owners, eCommerce fundamentally changes many aspects of your business.
eCommerce gives smaller players an easy entry onto the shelf and for the larger players it gives an even more wider canvas to grow. However, the growing eCommerce share and the resultant changes in consumer behaviour require a relook at the end-to-end processes within the FMCG ecosystem.
