COVID-19 has sped up consumer interest in buying directly from brands, but even before the pandemic, changes in traditional retail and wholesale environments combined with robust technologies have pointed to DTC.
For brands frustrated with the traditional retail model, in which retail stores and sales reps determine the future of their products, they can adopt DTC to take ownership of their most important assets — their consumers.
This new article uncovers how the wealth of actionable insights provided by a CDP help CPGs become confident in their understanding of their consumers, communicate effectively with them, and meet their evolving needs while attaining differentiation in the marketplace. The article explores:
- The new shopping environment
- Options beyond “owning” the consumer relationship
- The beauty of a CDP
- Steps to take when anticipating a CDP transformation
Table of contents
As consumers continue to shift to online shopping, agile consumer packaged goods (CPG) companies are moving to court consumers directly.
In fact, according to a Digital Shelf Institute report, between 2015 and 2019, $3.3 billion was invested in CPGs with a direct-to-consumer (DTC) component. According to The Food Institute, some of the best-known CPG food companies are pivoting to DTC models, including PepsiCo, Kraft Heinz and Nestlé. With the outbreak of coronavirus in 2020, a DTC play is becoming even more attractive because consumers’ path to purchase has shifted and may continue to do so as the retail landscape evolves.
But these companies have still another incentive for embracing DTC: changes in how third-party data and cookies are being managed. Currently, CPG companies rely on third-party data to collect information on consumers that informs how they direct their daily digital marketing investments. But CPGs are being impacted by the European Union’s stricter enforcement of the General Data Protection Regulation (GDPR) on technology vendors that offer third-party data services. With a secular trend toward more privacy regulations, third-party data is no longer dependable.
Nor are cookies. CPG advertisers have long relied on cookies to deliver personalized marketing. But between Google’s January 2020 announcement that it will phase out third-party cookies in its Chrome browser by 2022 — something Safari and Firefox already do — and Apple’s announcement that it will strengthen consumer privacy controls in iOS14 by reducing the efficacy of the Identifier for Advertisers (IDFA) technology, cookies by 2021, too, are no longer dependable.
“It is absolutely crucial to develop first-party data sources,” said Sir Martin Sorrell, executive chairman of S4 Capital. “And in order to do that you have to build your direct-to-consumer initiatives.”
Moving to DTC may be a brilliant strategy, but CPG companies — from startup DTC businesses to well-established brands dipping a toe into the DTC waters — may be doing so without the technology necessary to integrate and manage the scale, volume and level of granularity of consumer data they’re going to need.
Even more challenging is that this data is coming from multiple sources — including websites, apps, third-party review sites, social media, retailers and DMPs — and so needs to be unified and actionable. DTC is all about offering a value proposition based on consumer relationships. For longtime CPG companies, consumers have been habitually buying the brand through a retailer, whether it’s their local grocery store, big-box store or Amazon. What’s their impetus to head over to your website to buy snacks or cereal or shampoo? Your holistic knowledge of your consumers, which informs you how best to communicate with them and directly acquire them, relies on a robust data strategy that facilitates the kind of analysis that leads to clear, actionable engagement strategies. You won’t get this first-party data from your retail partners. These are insights you need to access directly and then analyze to find your potential consumers, acquire them, drive engagement, and determine both the best channels and marketing strategies to achieve DTC success.
A customer data platform (CDP), such as Treasure Data’s CDP, enables the unification of data from a variety of sources. It can collect, unify and analyze customer data and facilitate flexible data activation — all to enable campaign and other strategic needs. In short, if you want to maximize the value of and optimize your investment in DTC, you absolutely need a CDP.
A New Shopping Environment
Long before coronavirus, consumers had already been avidly shopping online, shaking up the traditional brick-and-mortar retail establishment. Additionally, traditional retailers, who have a wealth of customer data, have been creating private-brand labels that compete with their CPG partners’ brands. And, CPG companies also have been facing competition from agile DTC-native startups in their space. Think Blue Apron, Harry’s and Thrive Causemetics. Add to that, some CPG companies’ longtime retail partners are disappearing as brick-and-mortar retailers struggle and close. With an eye toward the future, some established CPG companies decided to initiate a DTC strategy to complement their traditional retail channels.
The retail landscape has only gotten more complicated with the pandemic. Not only are brick-and-mortar stores slipping away, many wholesale CPG customers in the entertainment and travel-and-leisure sectors have dried up since March 2020, such as hotels, restaurants, theme parks and sports facilities.
For example, Modern Retail noted in April 2020 that Coca-Cola had announced its global volume had sunk 25% at the beginning of the month. With almost half of the company’s sales coming from theaters, vending machines, shows, musicals and other events — as well as restaurants — the company has taken a huge wholesale hit.
Beyond Owning the Consumer Relationship
Coronavirus may be speeding up consumer interest in buying directly from brands, but even before the pandemic, all the changes in the traditional retail and wholesale environment combined with robust technologies have pointed to DTC.
For brands growing frustrated with the traditional retail model, in which retail stores and sales reps determine the future of their products, they can adopt DTC to take ownership of their most important assets — their consumers. This move, done right, transforms them into the kind of nimble, relevant companies that are better suited to thrive in today’s customer-centric, data-focused consumer market. With DTC, they eschew the middleman to own the customer relationship themselves — every element of the customer journey. CPGs create the customer experience and become the direct influencer of the brand.
Potentially, CPGs then gain the leverage to increase customer lifetime value and brand loyalty — and with that, higher sales and margins. But building a DTC channel or launching a DTC-native retail operation goes beyond owning the relationship with the consumer.
For one thing, it can also reduce some headaches of the traditional supply chain. The Blueprint points out that the centuries-old CPG tradition — which has relied on finding efficiencies between supplier, manufacturer, wholesaler, retailer and distributor — is becoming less relevant. The Blueprint notes that the sales process is now less onerous and less dependent on third parties. Instead, it’s more focused on direct marketing and more customized to the end consumer.
There’s another related issue that Barb Renner, vice chairman and U.S. consumer products leader at Deloitte LLP, has contemplated: costs to CPGs and retailers post-COVID.
“CPGs are obviously trying to figure out where their margins are going to be, and COVID brings on additional costs — employee bonuses, PPE and added costs in the plants and warehouses. Retailers have had additional costs, as well, including in-store employee wages, PPE and other sanitation costs. Right now, retailers are trying to figure out if they have assets that maybe CPGs would be willing to pay for — mostly consumer information. So the question will be — for cost reasons, for consumer loyalty and for other reasons — will CPGs have the need to have that direct-to-consumer strategy for at least portions of the business? What will be the demand post-COVID, and how do you make your bets on that?” Renner said.
The Missing Link
CPG companies will quickly find that data collection alone isn’t enough to succeed in DTC. They need a strong technology — a customer data platform — that helps them get actionable insights from the consumer data they’re collecting to build winning strategies.
While digitally native DTC companies rely on expertise in harnessing data and analytics to succeed, traditionally larger, established companies that have been selling in traditional retail spaces have been at least one step removed from their end consumer, McCarty said.
“Even once they started selling online, they sold through companies like Amazon, with yet another intermediary between them and the shopper,” he said. “CPGs may now want to have the relationship with their consumers, but they don’t know how to achieve it. They’re limited by their processes being predicated on scale.”
Some established CPGs have realized they need to use technology to be more agile and connect directly with consumers globally.
Unilever PLC is using consumer data to transform its model. It’s pushing to digital, using artificial intelligence to predict demand, co-creating new brands with consumers and targeting customers only with products they want, according to S&P Global Market Intelligence. The company had collected 900 million individual records as of January 2019, up from 200 million in 2018.
The pandemic may have shaken up CPG companies to put them on that same path.
“Even pre-COVID, CPG companies were interested in getting consumer data and having insights,” Renner said. “There’s always been a lot of consumer data at CPG companies. With COVID, companies are making investments in digital and other capabilities, such as machine learning, so they can get those insights in a very different way than they got them before.”
The beauty of a CDP is that it can integrate and unify data from many sources, not only first-party but also second- and third-party data. A consumer’s interaction with the brand across multiple channels are connected and attributed to the same person, allowing CPGs to recognize their customers as individuals, and truly understand each engagement journey. With this holistic data, CPGs can model lookalike audiences, then use those to find, acquire, and engage with new consumers on different channels, thus growing their first-party data. Ultimately, with a CDP, businesses can build out a more comprehensive and expansive customer profile data set with the additional benefit of being able to adhere more easily to privacy regulations because they control the data, not their partners.
A Channel for Engagement, Learning and Data
A savvy CPG company can do some fascinating things with a CDP. Yes, it enables precision marketing so you can develop new ways to successfully target and reach consumers. It can give companies the insights necessary to build an inviting website or do outreach on social media or know what platforms or even specific television shows to place ads on. And, McCarty said, it can give CPGs the tools to test out market research and inform operations.
“Let’s say you make shampoo and your market research says sage is the next new big scent/flavor trend,” he explained. “If your company is thinking about making a sage-scented shampoo, you’d need to set up a test market. In the past, perhaps you’d work with your sales team to collaborate with Kroger in a geographic market to do a test run. But now you could also offer it on your website to see how well it performs.” 11
Selling direct to consumers with the support of a CDP can also help inform in real time demand planning and supply chain planning for a new product instead of waiting for distribution reports or point-of-sale data, McCarty said.
“You’re capturing this data live to better inform all these other decisions, whether it’s a new flavor or market trend or supply chain capabilities,” he said.
And, he added, CPGs could even test out pricing strategies and learn how much elasticity you have by dialing it up and dialing it down, then measuring it.
“CPG companies need to think about DTC as less of a channel for revenue,” McCarty said. “Think of it as a channel for engagement and learning and data, facilitated by a CDP. And if you think about it using that mindset, you’re going to look at it using a different set of KPIs. Being able to see in real time the sales velocity of different products is potentially worth something above and beyond just the margin on the products you’re selling.”
Anticipating a CDP Transformation
Any CPG company planning to adopt a CDP should start by identifying the highest value use case you want to execute in 90, 180 and 360 days, said Treasure Data’s Thomas Kurian. “You’ll want to align your use cases to measurable KPIs so you can track your progress and make real-time adjustments.”
A CPG company should look for a CDP that can unify first-party data with demographic information, such as income, occupation, gender, ethnicity and more — as well as weather data, data on interests, and meaningful holidays and events. These all help marketers create a more comprehensive customer profile so they can target offers and promotions effectively.
While deploying new technology can often disrupt an organization’s systems, a CDP vendor should be able to integrate all your data sources for marketers to use in less than 90 days. A CDP built on a schema-less architecture will give you the most flexibility in data integration — existing data sources, campaign activation channels and tools can be integrated quickly, alleviating the need to keep investing in continuous support to get your data into the CDP and to activate campaigns. In fact, a CDP partner should be able to add or remove martech solutions with minimal disruption or data-unification issues, and also allow you to use the CDP as a tool to onboard customer-related artificial intelligence.
A proof of concept can be achieved in weeks because a CDP sits next to existing systems and doesn’t change workflows. Once the CDP is selected and installed, CPGs will want to train their marketers to use the CDP to activate campaigns in various channels, including journey orchestration — and support them with data scientists who can run machine learning for advanced applications such as next best action, Kurian suggested.
“The nice thing about a CDP — or at least Treasure Data’s CDP — is that we pre-built connectors to over 150 other marketing solutions so analysis of your current technologies and tools isn’t really a requirement and doesn’t demand upgrades. With a flexible, schema-less architecture, Treasure Data’s CDP gives you the freedom to switch data sources and activation channels without fear of being painted into a corner.” McCarty said. “The key thing would be to determine that unifying data that you have — especially the data coming from a DTC website that has been launched — will provide new insights and value. It really comes down to determining the use cases.”
As CPG companies rethink what they sell and how they sell it, a sophisticated CDP can help make the transformation to DTC a value move. CPG businesses that view their future success as being strictly DTC or include DTC as part of a larger, multichannel strategy can’t succeed unless they have robust first-party consumer data at their disposal. And they can’t succeed if all that data isn’t available, unified and automated in a way that helps the business easily segment, analyze and then act on it. The best CDP technology will enable both startup and established CPG businesses to acquire and act on the consumer insights they need to adopt a DTC strategy. With the wealth of actionable insights provided by a CDP, CPGs can be confident that they understand their consumers, know the best channels to communicate with them, and can efficiently meet their evolving needs and desires while attaining differentiation in the marketplace.