Connecting with and engaging customers: It’s an ongoing struggle many CPGs face. The real problem, however, lies in the way consumer packaged goods companies think about their customers. Most actually think of their customers as the large and small retailers to which they distribute products, rather than the people buying and using those products. That traditional way of thinking — focusing on retailers over buyers — is hard to break.
Channel conflict created by selling direct has been around since the launch of e-commerce. For years, many brands, particularly in the retail and electronics industries, chose to focus only on retailers and avoided selling direct. This created openings for digital-first companies to disrupt established players by going where the customers were, while also being able to see higher profit margins. Dell disrupted computers, Warby Parker disrupted eyewear, and Dollar Shave Club disrupted shaving.
Another important factor is the career/compensation structure and history at large and established consumer packaged goods companies. Most CPGs are public and very stable. While that’s a good thing, it also often leads to three-year plans and little room — or motivation — for senior managers to change course or experiment with something unknown, such as selling direct. It is safer to stick with the old and ignore the new.
Amazon Leads CPG in 2017
In 2017, many — but not all — CPGs have websites that allow customers to order products direct. These efforts, though, rarely lead to significant results because they were done as an afterthought with very little marketing or concern for the end customer experience. Direct sales of 1 percent to 2 percent of overall sales are the disappointing reality for most CPGs.
With these sales numbers, it’s easy to conclude that direct selling doesn’t work. But because most of these organizations’ media budgets are allocated to brand general advertising instead of selling direct, direct selling often isn’t given a chance to succeed.
Many CPGs are trying to break into the digital world, with 20 percent of consumer packaged goods sales now happening online. However, the lion’s share of that goes to Amazon and the rest to other large retailers such as Walmart, Target, and Jet.com. Some CPGs are even starting to pay Amazon to advertise their products to stand out on Amazon. So in essence, Amazon gets paid twice on the sale and owns the important customer relationship as it becomes a huge digital media channel.
In 2016, CPG e-commerce sales increased 42 percent, mostly driven by Amazon subscription sales. It’s becoming more obvious and no longer deniable that Amazon, with its increasingly powerful machine, eats everybody’s cake and simply kills all other forms of retail.
Because they’ve sold through retailers for decades, most consumer packaged goods companies don’t actually know who their customers are. Amazon does, and that’s why CPGs have to win back their customers — because Amazon will not look out for a specific brand. Rather, it will drive prices down and put CPGs under pressure.
Gaining Back Customers
Selling direct needs to be funded and executed by leaders educated in direct sales, and it needs to be taken seriously. This starts by creating a division within the company that’s solely dedicated to increasing direct sales, then giving that division the marketing budget to establish real relationships with customers. However, because building internal expertise takes time, other options include purchasing or partnering with an established direct seller. Take, for instance, when Unilever purchased direct seller startup Dollar Shave Club for about $1 billion in 2016.
Dollar Shave Club built a disruptive brand with deep and loyal connections to its customers, and in turn, those customers were highly engaged. In other words, the startup had conquered the direct-to-consumer space within its industry. By taking over the brand, Unilever was able to harness those insights and take advantage of Dollar Shave Club’s strong customer bonds while learning from its experience.
To win back their customers from the e-commerce giants and retailers, CPGs must learn how to engage and resonate with those customers. And as startups such as Dollar Shave Club continue to disrupt the market and reach buyers on a deeper level, it will be more important than ever for CPGs to engage with their audiences.
Are you a CPG leader who wants to find a way to compete with Amazon? Check out the OceanX platform and schedule time to talk with a membership expert.