The past two years have been an interesting time for the CPG industry. With the pandemic forcing industry-wide trends and innovations and a gradual re-opening providing a time of uncertainty, the CPG industry and its brands find themselves in need of strategies that they can rely on in the face of both the expected and unexpected. In 2023 however, it may be the expected that will be the focus of CPG brands as a highly anticipated recession or “slowcession”
The pandemic and the inevitable lockdowns that followed greatly reduced the value of brick-and-mortar stores while e-commerce websites and apps saw demands surge to a point where they often couldn’t keep up. Customers who previously saw DTC as an option now either preferred it or had no other way to obtain goods. The rise of platforms such as Shopify saw DTC businesses become even more accessible than ever in an industry which already had a low barrier to entry for brands to establish themselves in allowing smaller brands to make use of social commerce, foregoing the expenses of physical stores and displays. Additionally, the final leg of the route to consumer remains a challenge but we also see this being solved in places like Singapore, Hong Kong and China. The below shows the percentage of online purchases for physical products in comparison to offline counterparts from 2017 to 2022 along with projections up to 2025.
Additionally, The Millennials and Gen Z demographics, having internet as an intrinsic part of their lives, are more likely to be interested in the online activity (social posts, stances on social issues, online offerings, and accessibility) of brands in general. What this meant for CPG brands at a time of prime online shopping relevance was that online marketing for DTC through social e-commerce, influencers, and e-commerce platforms became key to catching the attention of newer generations.
Thankfully due to fast roll out of vaccines worldwide, 2022 saw the pandemic start to decline over the year. The question for DTC brands however was if this also meant their decline as the lockdowns had undoubtedly been the biggest catalyst for their surging success. When retail stores reopen and shoppers have an option to shop for CPG goods outside of the internet, will they continue to shop online? It seems the answer, at least for now, is complicated for DTC as rising advertising prices on social media, surging supply chain costs (especially from China), and privacy changes that take away ad measurement options, and a smaller target demographic, among other factors have contributed to DTC brands and businesses finding the post-pandemic scenario difficult. Some brands still struggle to implement a smooth online shopping experience – ordering online in Europe is still not a good experience for consumers. Only a few have gotten it right.
Among the many trends and innovations that the pandemic period brought, omnichannel strategies are perhaps one of the most reliable and long-term focused. While DTC provides an alternative to retail store shopping, an omnichannel shopping experience would aim to combine the best elements of both. Let us look at some of the major advantages of omnichannel strategies that CPG businesses should look out for:
The personalization and seamless experience offered by platforms such as Amazon has set standards where shoppers expect easy browsing, convenient checkout processes, post-purchase support and reliable delivery. An omnichannel strategy attempts to meet these expectations across all channels (social media, brick-and-mortar, website, app), leading to increased personalization across the board. Most customers prefer tailored experiences and studies have shown that personalization positively impacts conversion rates across various CPG products. With younger generations prioritizing technological improvements and recommendations for seamless shopping experiences, an omnichannel strategy to address these points is vital.
In contrast to a multichannel approach, an omnichannel approach tries to make both the store and online components work in tandem instead of in their own silos. With interaction in one platform planned to positively link to and interact with the other, businesses can take advantage of DTC’s strengths for brand strength through an omnichannel approach. For example, in an omnichannel experience, a shirt would share the same cost and availability whether it is from the app, website or a store. Customers can thus browse, try-on and purchase (and return) the exact same item from either a store or online, and have post-purchase assistance, subscriptions, and further recommendations through any of the other platforms in one interconnected sequence. An omnichannel strategy in this way makes customers feel prioritized and the shopping experience personalized for them. The transition and link between online and offline must be seamless.
One of the main advantages of DTC is that it allows buyers to connect to brands beyond face value and purchase. Harnessing one of DTC’s most unique strengths, an omnichannel approach can connect buyers to their product’s story, resulting in increased customer loyalty .
In an industry with a lower barrier of entry for digital brands, omnichannel strategies can help smaller businesses track their data across multiple platforms to provide better personalization. Smaller businesses do not have the luxury of huge investments. Therefore, quickly tracking the right data to enhance customer experience, optimize inventory management, and cut costs is vital in a highly competitive market.
With AI and analytics projected to grow massively over the coming years in both retail and supply chain sectors, CPG businesses need to warm up to, and adopt, new-generation technology that will be expected from customers, such as advanced frictionless payment, AR, VR, etc. An omnichannel approach takes this focus a step further by allowing businesses to consistently obtain and apply customer and markets insights across multiple offerings and platforms to make the right adjustments, investments, and tech advancements in a market where dynamism is key.
With news of a very possible economic downturn as we head into 2023, CPG businesses and brands need to make sure they have the right strategy to handle economic uncertainty. With the lessons learned from the DTC wave during and after the height of the pandemic, it seems clear that omnichannel strategies are one of the best approaches CPG companies can adopt heading into an uncertain year. Here are some ways that omnichannel strategies can help CPG companies in times of economic uncertainty:
Having multiple channels that don’t operate on their own allow brands to seamlessly funnel products based on consumer demand, allowing backstock to deplete faster and easing management of prices and possible interruptions.
Having multiple channels allows brands to employ a wide variety of conversion and retention strategies. They can take the customer-first approaches of DTC and apply them to online channels such as third-party e-commerce platforms to bolster their presence. Influencers, partners, sponsorships, social media campaigns, subscriptions/memberships, and many more options can improve brand recognition and communication consistently. Having multiple options and channels also allows brands to funnel their efforts into one of them depending on market and consumer trends.
If a recession were to take place, then regardless of strategy, compromises in key would be inevitable. Even with the right data, brands need to make the right decision quickly when potential customers are keen on spending less. Here, an omnichannel approach can help gather more data by having more channels that work together and have decisions take effect across multiple channels with speed. For example, if fuel and energy costs were to cause supply chain disruptions again, having multiple channels of sale that could be adjusted quickly would be crucial.
With supply chain risk management predicted as a key success driver for 50% of businesses by 2025, supply chains and ensuring their continued effectiveness may prove to be a key factor. While any CPG brand would suffer from supply chain disruptions, an omnichannel approach would allow a more unified approach to necessary adjustments and business decisions depending on supply chains. Similarly, omnichannel strategies allow better RGM through a unified perspective of a brand/business to allow optimized pricing, promotions, and forecasting. Consumers expect lower pricing when they purchase online, but harmonized pricing will be key in maintaining the integrity between the online and offline; so, price promotions will be an important winning factor in DTC. Monitoring and adjusting for supply chain disruptions and making RGM-based decisions are two key actions CPG brands need to take and an omnichannel strategy allows them to take it a step further through its unified and flexible structure.
Simply having an omnichannel strategy is not guaranteed to be the end-all solution for CPG in the face of an economic recession or any unforeseen event for that matter. However, what an omnichannel strategy provides is the toolset to quickly assess and adjust multiple channels to make the best decisions to maximize your potential and on the other hand, compromise on the right areas if needed.
This is part of a series of articles on how CPG companies can drive profits during economic downturns. Check out our other articles in the series to learn how Supply Chains and RGM can play key roles to help companies navigate economic waves.
Silvana has over 20 years of experience in both B2B and FMCG business with a career spanning different business functions such as sales, trade marketing, RGM and more recently data & analytics. Silvana has worked across different geographies covering Africa and Asia and is currently leading the MathCo business practice in Europe based in Amsterdam.