It’s a tricky time to be in consumer goods. Consumers and their markets are changing and companies are finding themselves wondering how best to adapt to a new world.
There are resource constraints and new markets to navigate, as well as consumers that are harder to predict and reach than prior generations have been.
On the one hand, growing household incomes in large emerging markets appear to hold promise for providers of consumer goods. On the other, there’s risk associated with such ventures. Organizations are in danger of overstretching themselves and misjudging new consumers if they try their luck in these new and unknown markets. There are new supply chains to set up and strategies to craft.
Consumers have changed
There are challenges in domestic markets too. Consumer tastes are also changing – there’s pressure to produce goods in more sustainable ways. Consumers are harder to predict and harder to reach with advertising than they were before and they are buying in different ways.
Consumers are aging and they seem to care more about their health and wellness than they ever did before. Some of them are vegan, some of them avoid bread, dairy, or sugar, some use ad blockers and barely watch TV ads, many of them are struggling to make ends meet and some haven’t got any room to store any more purchases.
Accusations that younger consumers are ‘killing’ particular industries just demonizes consumers for not buying in the same way their parents did. The fact is, consumers have changed.
Their values are different from those of previous generations, their media exposure is radically different compared to the passive and predictable TV audiences of the past. Consumers are also facing their own challenges, which alters how they buy and consume goods.
Consumers are increasingly digital and consumer goods companies and retailers need to respond to this. Brand purchase decisions are increasingly being made in the home and not in-store, meaning point of sale advertising and packaging is less significant than it has been in the past.
Consumers can price compare much more easily than in the past – and they do. Online grocery shopping is growing briskly, in Asia particularly. To truly respond to digital consumers requires a fundamental revaluation of an organisation’s structure, customer engagement strategy, product development approach – not to mention how they market themselves.
Businesses that thought they understood consumers and their market are suddenly finding their certainties evaporating. Those that operate globally may find they’re tackling audiences at very different stages of consumption experience, and with very different needs and expectations than the ones they are used to.
Even in domestic markets, consumers are behaving differently than ever before. New audiences are emerging in home markets, such as ethnic audiences with different language preferences.
Most audiences are increasingly fragmented and fickle. Changes in how we consume media mean people are harder to reach via advertising and we’re listening to new authorities when we look for advice on what to consume.
On a practical level, there are also new resource constraints to negotiate. Resources such as land are in short supply, rents have increased and the retail landscape is changing fast. Commodity costs are more volatile than in the past, with greater competition to secure supplies.
Consumers tend to be unforgiving when products change in response to supply factors. Chocolate manufacturers that have tried to alter their products in response to rising costs have faced backlashes.
The competitive landscape is fiercer than ever before, with new global competitors to consider. There are also new technologies on offer and opportunities to use data to drive decision-making. Organizations can’t afford to stand still or their competitors will overtake them. Old certainties have now gone and organizations need to continuously adapt to fast-moving conditions.
Consumer goods companies will probably look back on the years between 1967 and 2000 as the golden age for their industry, an era of huge expansion and revenue growth. But returns have been down since the 2007-2008 credit crunch, returning to below 1967 levels.
Companies are now faced with the tough decision whether to sacrifice margins for revenue growth in the hope of starving out their competition.
Many consumer goods companies seem to be at risk of underestimating quite how fundamentally they need to change in response to the new global landscape for their industry. Accenture predicts that manufacturers will shift to become retailers, distributors, and media owners. They also suggest that consumers will play a greater role in designing and developing products.
Other threats to the industry are more random and unexpected. In the UK, the border turmoil predicted from the Brexit process is likely to threaten the supply chain, particularly for those manufacturing using the ‘just in time’ approach.
There are also challenges that seem straight out of science fiction – such as the emergence of 3D printing technology that’s affordable enough for consumers to make their own goods at home.
There’s no point harking back to the good old days of healthy margins and predictable markets. The world has changed for consumer goods companies and the new reality is that those that learn to move quickly are likely to be those that survive. In this new competitive landscape, being able to adapt to fast-changing conditions is likely to be the most important advantage for those in the consumer goods industry.