|This AIThority guest post is co-authored by Karla Crawford Kerr, VP of Marketing, and Cyndi McMaster, Director of Client Development, Hawthorne Advertising.
The consumer-packaged goods (CPG) industry is on an exciting and transitional path right now, especially when it comes to the marketing approach. Virtually everything about the category has changed, including the items classified as CPG, the way brands develop and bring products to market, and how consumers learn about and acquire CPG products.
The pandemic accelerated the shift to digital shopping channels, and a combination of greater availability of venture capital and affordable digital advertising options enabled emerging brands to use direct-to-consumer sales to remove barriers that had stood for decades — obstacles that once protected legacy brands’ share of the market and prevented new entrants from gaining traction.
It’s critical for marketers to understand how CPG is evolving so they can compete effectively as the landscape shifts.
Legacy brands had the advantage, but over the last decade, emerging direct-to-consumer brands like Dollar Shave Club, Warby Parker, and countless others flipped the go-to-market script, appealing to new generations of customers and driving growth through social commerce.
Karla Crawford Kerr
New Customers, Values and Buying Habits
How consumers buy CPG products has changed. For many it’s now become automatic to purchase everyday staples like laundry detergent, pet food, coffee, etc., through Amazon and other direct-to-consumer platforms which also make automatic reordering at the right frequency simple and easy. And more people are now ordering groceries and other supplies online for pickup or delivery. And when consumers do physically visit stores, they compare prices in real-time on their phones, which makes multichannel selling for CPG’s an absolute must.
The customer base has changed, too, as is the way consumers select and buy products.
Millennial and Gen Z customers are looking for products that meet their needs at a good price, but they also look for brands that share their values, like sustainability and corporate commitment to their employees and communities, because they want to feel good about their purchases.
At the same time, as higher prices put pressure on budgets and new choices proliferate, brand loyalty is weakening, especially for legacy brands.
Many shoppers are opting for store brands or are willing to give less well-known products a try if marketed in a way that appeals to, even mirrors, their values and who they are (vs what they should aspire to be). Newer brands that succinctly convey product benefits while communicating a strong mission can pick up today’s more socially conscious consumers, including companies like Girlfriend Collective, which makes quality clothing for all shapes and sizes from recycled materials.
Acquisitions, Incubators and Retooled Distribution Strategies
Another sea change in the CPG space is the way brands develop and distribute products.
Buying habits changed, so brands have had to shift distribution to meet consumers where their needs and preferences are in the moment of purchase, balancing convenience with the experience. Established CPG brands meet these challenges in different ways, with some opting to offer legacy products on multiple channels and others acquiring emerging brands to reach new consumers.
In some cases, legacy brands have shifted from funding in-house new product development to purchasing emerging brands that appeal to desired demographic groups to remain relevant in a changing marketplace. For example, the maker of Schick razors acquired direct-to-consumer razor brand Billie for $310 million late last year, and instead of folding the emerging brand into its legacy portfolio, the parent company is allowing Billie’s founders to continue running the successful business.
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Emerging brands recognize that product development and distribution have shifted too, and instead of focusing on scaling up for an IPO, some are looking to be acquired earlier as a means of expanding production and distribution capabilities. But the landscape is now flooded with new products and brands, there is heavy competition.
According to a recent McKinsey report, “Today, low barriers to entry have encouraged an explosion of DNB’s (digitally-native brands). However, DNBs (digitally native brands) that break through with outsize investor returns are rare. Over the past two decades, fewer than 0.5 percent of DNBs have reached $100 million in revenues. Investors face the challenge of sifting through concepts to determine which are worthy of the capital required to scale a business or buy into an existing company at high multiples.”.
In other cases, brands that were previously acquired by large CPG companies are finding they do better when the big enterprise divests and new owners invest more in product quality, innovation and marketing, as in the case with Bolthouse Farms, KRAVE PURE FOOD, and other brands.
Products and Messages that Break Through the Noise
One aspect of the CPG sector hasn’t changed: product quality still ultimately drives success or failure. The product must genuinely solve a problem and have attractive benefits and features. If it doesn’t, consumers will catch on eventually. But the way marketers communicate value has changed. Ads that are less polished and perceived as more authentic can appeal to the demographics CPG brands are most interested in targeting.
Emerging CPG brands demonstrated that influencers and social media can drive fast growth, even legacy CPG brands took note and invested in those channels too, demonstrating that campaigns on platforms like TikTok and Instagram can drive sales. And Amazon offers newer brands a quick and easier path to e-commerce. But these efforts should not be mistaken as a stand-alone marketing strategy.
Per Retail Dive, “A diversified marketing mix and the cost of customer acquisition are among the factors investors look for before contributing funding.” What’s needed for CPG’s to successfully launch and grow a brand is an omnichannel approach that expands past the initial customer base and loyalists- one that cuts through the noise of competitors and takes continuous analysis to identify consumer segments the brand hasn’t connected with yet or should be. Grove Collaborative has does a great job with content and messaging that successfully delivers a product’s uniqueness and value to customers in real, relatable terms while testing and expanding new media channels and platforms.
It’s an exciting time with limitless opportunities for CPG brands that embrace change.
Marketers are changing the world in a real sense, and brands that connect with marketers who have the right expertise can do more than just keep up as CPG evolves — they can drive that evolution forward.