No Match Found
The shift from traditional product- and brand-centricity to consumer-centric business models had seemed almost insurmountable for consumer packaged goods (CPG) companies — until a global pandemic resulted in explosive growth. Consumer adoption of grocery e-commerce exceeded 103% YOY in 2020 and continued expanding in 2021 with 7.2% YOY growth.
This surge effectively catapulted the CPG sector three years into the future — and jump-started the previously nascent efforts at direct-to-consumer (DTC) growth strategies. Many companies, however, were caught off-guard by the pace of change, resulting in inadequate DTC commerce models, less-than-optimal customer experience and anemic returns on DTC investment.
Leading DTC practices include hyper-personalization, metaverse exploration, seamless omnichannel experiences and the power of community. Many food and beverage leaders now realize they need to reinvent their business models and retrain their organizations to be more consumer-centric, including:
To do so requires a change in strategy from compiling brand and consumer segment insights to compiling privileged individual consumer insights that provide true differentiation. Evaluating these individual consumer insights can help fast-track production, logistics and marketing functions.
That’s what Inditex, the Spanish apparel company best known for its retail brand Zara, does. Both vertically and cross-functionally integrated, the company can use privileged consumer insights to react seamlessly to unfolding market situations and rapid changes in demand signals to adjust production, safety stock and merchandising.
Customer lifetime value measures the strength of the relationship between a brand and a consumer. The stronger the relationship, the higher the lifetime sales and the lower the attrition or churn. Yet, few CPG companies invest in such hyper-consumer segmentation to understand consumer migration and adoption paths so they can manage the relationship across a customer’s lifetime.
PwC analysis found that Starbucks was ahead of its peers in understanding how consumers interact with its products across their lifetimes. In the early 2000’s, Starbucks explored consumer adoption curves from a child’s first hot cocoa experiences, through the adolescent’s indulgence in sweeter coffee drinks, to the college-age student’s discovery of espresso, to the more sophisticated adult palate that experiments with cold brew and Starbucks reserve. Starbucks leaders understood the value of retaining customers across every stage of life.
Commerce in the DTC space can range from subscription services and next-generation vending to own-brand stores, pop-up stores and social commerce. To strengthen consumer relationships, CPG leaders can turn to exclusive events, either virtual or real; games and contests; loyalty programs and rewards; community building; and entertainment.
The most advanced CPG companies are doing more than investing in customer relationship management systems to gather and leverage first-party data from their DTC operations. They are also partnering with predictive analytics firms to gauge a consumer’s lifetime value even before that consumer buys a product from the company. The sophistication of these predictive models allows companies like Dollar Shave Club to focus marketing at an individual consumer level to drive the greatest value.
The key to DTC business models is imbuing consumer relationships with the kind of trust that motivates them to volunteer personal data — demographic information, attribute preferences, purchase and consumption habits, motivations, attitudes, fears and hopes — in exchange for benefits.
Those benefits might include access to differentiated products or limited-edition offerings; product- design collaboration; discounts; curated or customized offerings; and higher loyalty program rewards.
The most successful consumer-centric companies create mutual value exchanges that are so productive they can not only predict consumers’ future behavior, but can also extrapolate the data to find similar target consumers for messaging and acquisition. The power of artificial intelligence (AI) in customer relationship management systems makes marketing to a segment of one not only a reality, but a fundamental requirement for DTC strategies.
After Chipotle launched its rewards program, digital sales increased 174%. The company partnered with Venmo to offer consumers money in exchange for their inclusion in the Chipotle rewards program; $250,000 in all. In a continued example of mutual value exchange, participating consumers get letters from the CEO, early notification of new products and ways to try them as well as special messages around Chipotle's ESG offerings.
The most successful consumer-centric companies have invested heavily to create highly integrated, customized experiences for their best customers. Those experiences are not discrete events, but rather a series of engagements and experiences in the virtual and physical worlds that allow brands to flourish in the daily lives of these customers, fostering emotional connection and relevance.
As The Coca Cola Company did with the launch of Starlight, a limited-edition product line inspired by the metaverse. The campaign, which encompassed differentiated, integrated, high-impact touchpoints, aimed to persuade young consumers with high lifetime value potential — Gen Z — to try carbonated beverages by activating their main interests: gaming, fashion and music.
For consumers and their avatars in the metaverse, the value exchange included the limited-edition product, a virtual metaverse concert and partnerships with streetwear designers. The company gathered first-party data willingly provided by consumers as well as influencer endorsements on social media.
Similarly, PacSun, a California youth lifestyle clothing company, launched an integrated experience with the online gaming platform Roblox and a game development studio. Consumers can customize avatars with PacSun clothing and accessories available for sale in the virtual marketplace.
The PacSun integrated experience offers customizable designs, mini-games, branded merchandise for consumers and their avatars, social commerce and virtual try-ons by way of various platforms and sustainability credit via its pre-loved Pac offerings.
PacSun has gained more than 1 million followers on TikTok. Essential to the success of its campaign is leadership support and encouragement for all employees to immerse themselves in digital experiences for clarity on what motivates their customers.
In the DTC omnichannel world, consumers can dictate how they interact with a brand, when they choose to visit a virtual store, play online games, make a purchase via social commerce, promote the brand on social media or customize products for their avatars.
To create these types of seamless, frictionless experiences for consumers, decision-making cannot be siloed by brand or channel. No single group or function can take charge of the customer experience. The entire company must work from a common 360-degree insight platform. And companies often need external partners to deliver an entire ecosystem of value to consumers.
The evolution from brand-centric to consumer-centric DTC business models is essential for CPG companies to meet consumers who move freely across physical and digital channels. The winners will be the companies that invest the resources to create entire ecosystems to connect with and engage consumers — and their avatars — across every touchpoint. The sooner CPG companies put consumers front and center in their growth strategies, the sooner they will realize the tangible and sustainable benefits of creating value for consumers.