Sales & Marketing Study 2018: Progress Report
'Improvement' Is for Losers
In the nine years that CGT and IDC have collaborated on this report, the general topics that we’ve covered haven’t really changed much, because the areas that consumer goods companies cite as critical for running their businesses have remained pretty consistent.
But at the same time, we’ve shifted the theme of these topics from “How do I improve what I already do?” to “How should I be doing these things in the future?”
Digital transformation of the sales and marketing functions has become the single biggest issue in the consumer goods industry, so we’ll focus a lot of this year’s discussion on how that’s playing out at some companies. It’s not just digital for its own sake, however, but rather how these technologies can let businesses behave differently in fundamental ways, to do things that were not previously possible — or at least not practical.
Depending on whom you ask, companies are either undergoing a gradual but consistent shift to digital business models — or facing bankruptcy tomorrow if they don’t adopt digital today. While the reality is likely somewhere in between for most organizations, it’s certain that the future for any CG lies with digital.
In early 2018, IDC updated and amplified the following predictions, some of which were first presented in last year’s report:
1. As much as 90% of industry growth over the next decade will be captured by companies that successfully engage directly with consumers.
The decades-old battle for control between consumer goods manufacturers and retailers is over and the winner is … the consumer — who is relentlessly connected, craves individuality/personalization, and is intolerant of complexity and latency. As older consumers give way en masse to the Millennial and Gen Y generations, this “problem” gets worse. That, as we’ve said, is a consumer goods company’s worst nightmare — but also its greatest opportunity. Companies that figure out how best to engage with these in-control consumers will be positioned to capture more than their fair share of growth.
2. In the next few years, as barriers to entry continue to fall, smaller, newer competitors will wrest 10 to 15 share points from traditional, large enterprise players.
Less than 3% of industry growth in the last three years came from traditional players. While small entrants historically have always earned a significant piece of the pie, many analysts believe their share has never been higher. As one prime example, nearly half (49%) of the 200 top-selling packaged goods launches in 2017 came from small suppliers with annual revenue of less than $1 billion, according to IRI’s annual “New Product Pacesetters” report (see more in New Product Development).
No one believes this to be an anomaly anymore, because new competitors to traditional businesses are appearing in ever-growing numbers. The historical barriers to entry (manufacturing capabilities, technology — a workforce) have disappeared; they’ve either become “commodities” or are now available via the cloud. Entrepreneurs have long started businesses out of their garages; the difference these days is that they can build up a global customer base while still in the garage.
Another factor is that, as consumers look either for personalized products or items that appeal to their generation, smaller competitors are better positioned to be flexible and take risks.
3. Successful businesses will adopt and adapt capabilities to capitalize on the growing “front edge” of the industry while ensuring that the traditional base business is properly supported.
The challenge for traditional players is the balancing act of protecting the base business while finding new ways to capture growth. While most of the industry conversation centers on digital disruption, most current business is still conducted with conventional products through traditional retail — and will remain that way for some time.
Appealing to younger consumers through new and novel ways is important, but so is making sure that the existing business is properly served (even as it shrinks). Companies able to do this well will be the ones that thrive.
4. By 2020, one-third of consumer goods companies will have made gains through digital transformation, with the remainder held back by inflexible/outdated business models, processes or functional structures.
IDC research finds that one of the biggest gaps currently between digital thrivers and survivors is in the area of leadership, which holds the critical responsibility of creating a vision for the direction their companies must head. Yet despite all the obvious industry indicators, many leaders are still not ready to change direction by adopting new business models or functional structures.
What’s more, not every company that has a vision will be able to fully leverage its investments in supply chain and the other areas of digital transformation (which has many dimensions). But we already see some leaders laying out a roadmap for their companies to evolve.
As noted last year, noteworthy examples include Bayer’s move to join with Monsanto to increase agricultural innovation, and Under Armour’s investments in technology-enabled products and health information (a recent security-breach setback notwithstanding). These moves required executive leadership to recognize how both the business model and enabling processes must change — and not just incrementally, but fundamentally.
5. Within five years, the majority of large consumer goods companies will have reached a level of trade promotion maturity that lets them leverage sophisticated optimization tools.
The concept of trade promotion is going to change in the coming years as direct-to-consumer sales and private-label brands inevitably grow. But as we noted earlier, traditional trade will persist for many years. Trade promotion has been problematic for many companies that have less than full visibility into performance and lift. This is changing — and has to change. The tools are available, the data is available, and within a few years, we expect that true optimization — of promotion planning, execution and analytics — will be a reality for all large players, and many small and medium-sized ones as well. (Also on the horizon is broader, greater alignment of the commercial spend. See Trade Promotion Management.)
6. By 2020, the contribution of new products (less than three years in market) to overall revenue will increase by 20%.
Many product categories already experience high SKU churn. IDC expects this to accelerate over time, as consumers become more demanding of personalization and product differentiation.
For these projections, we define new products as both “Horizon 1” launches such as line extensions and variants, and “Horizon 2” innovation like new brands and new value propositions. Winning companies will most assuredly focus more on the latter.
This won’t happen in all product categories, of course, but it almost certainly will in health & beauty and personal care. One of the implications here is the need for companies to up their game in the new product development and implementation process (see page 20).
7. Data, Data, Data … and Quality
Though not a “trend” per se, the subject of data and data quality is essential to discuss. Many people IDC speaks with think of the Internet of Things as an “instrumentation problem” and, while that may have been true to a degree in 2016, it’s now really a “data and analytics problem.” You can capture all the sensor data in the world, but it’s not useful if you don’t have accurate data quality and comprehensive analytics capabilities.
As we move rapidly into a world where the consumer has become the primary driving force for the industry, consumer goods companies are confronting some tricky questions — in particular, how to shift from a mass-market world to one that values personalization and customization.
The other implication for a consumer-centric world is that the focus for many businesses has shifted. While cost and service remain important, of course, the majority of companies now place the greatest emphasis on product quality (see Figure 1).
This shift has been occurring for a few years, but as illustrated in the chart, almost half of consumer goods companies now cite product quality as most important.
The other profound implication from our discussions with consumer goods companies is the nature of competition. If lateral competitors will gain 10 to 15 share points over the next five years, larger companies will be required to change the ways in which they compete. Many of these small, nimble, disruptive new competitors have been digitally enabled, with business models built on competencies that weren’t possible in an “analog” world.
Being digitally enabled doesn’t guarantee business success, of course. But consumer goods companies cannot succeed without it. While many traditional companies are modernizing to be more resilient to external disruption, the real leaders are striving to become the disruptors (see Figure 2).
To read the rest of the 2018 Consumer Goods Sales & Marketing Study, click on the links below:
- Editor's Note: Confronting the Consumer-Driven World
- The Progress Report: 'Improvement' Is for Losers
- Organization: Taking the '&' Out of Sales & Marketing
- New Product Development: A Made to Order Marketplace
- Data & Analytics: Going Deeper with the Data
- Trade Promotion Management: Working Off the Same Page
- Consumer Engagement: Something to Talk About
To download a PDF of the full report, click on the attachment below.