Is premium the future of FMCG?

Is premium the future of FMCG?

Consumers are looking for premium brands and premium brands are the most successful worldwide. Premium products grew by 21% in Southeast Asia, by 23% in China between 2012 and 2014 and 26% in the USA from Apr 2015 to Apr 2016 across the home care and personal care categories, (Nielsen, 2016a). Different factors helped the growth of premium products:

  • Economic growth of middle class: Middle class is massively growing especially across emerging countries (Brazil, China, India, Indonesia, Mexico, Malaysia, Thailand, Vietnam, etc) and by 2030 (Reuters, 2012) will almost count 5 billion people worldwide (two times the current middle class population). This will encourage people to access a many different products and to expand their shopping basket with highest probability to trade up for premium products.

 

  • Urbanization: many people will move from the countryside or rural areas to cities and towns (from the current 2 billion to 5 billion by 2030, Nielsen, 2016b) gaining access to more services who will help to raise the premium products consumption. For instance, even more people will access Internet to be informed and buy and even more people will access convenience store or specialised stores to purchase premium products.

 

  • Digitalization: At the beginning of 2017 more than half the global population uses a smartphone, almost two-thirds has a mobile phone, more than half of all mobile connections are now ‘broadband’ and arond 20% of the world’s population shopped online in the past 30 days (We Are Social, 2017) Thanks to this data and thinking about the massive digital future growth more and more consumers will be affected by the effects of the omnichannel. The combination of different and many touchpoints any time and anywhere will make information more accessible and, as a result, many consumers more influenced by advertising, educational information, promotions, etc.

 

  • Wider offer available (private labels and brands). If in the past only manufacturers offered premium brands in last 10 years we saw a new phenomenon showing how even retailers could launch premium labels on the market moving from aggressive promotion and discounting to better and higher quality in their offer (especialy on food and beverage).On top, we can also talk about the rising of local brands and smaller countries which, although a different impact depending on the countries and regions, massively contribute to increase the percentage of premium products on the market.

 

1. What are consumers looking for?

According to Nielsen (2016a) many reasons encourage consumers to buy premium products. Results are different across different countries, regions and consumers generations:

  • Overall there is no always a correlation between highest incomes and premium products purchase rate. Indeed, the study (Nielsen, 2016a) shows how in many countries and regions a better salary doesn’t always influence the attitude to spend more.
  • Price is not the only attribute consumers link to premium products. Only 31% of global respondents declared to think about a premium product when the price is high. On the other hand quality and performance are considered a plus. Quality and performances change depending on the product category we are talking about. For food quality is made by the ingredients used to make that product, while for a home care product by the effectiveness of a formulation. Other factors are the design or the brand name. The bottle design for a detergent or the brand awareness might be decisive to encourage consumers to purchase a product in a certain category regardless the quality and the performance. Even sustainable attributes are relevant especially among the youngest generations (Millennials and Generation Z).
  • Social aspirations and status are important: many respondents, especially in emerging countries, declared that buying premium products increases their self-esteem, feel them better or more confident about themselves as individual or as members of social groups.

2. Private Labels vs brands: what’s the status?

The relevant growth of the premium fmcg products on shelf has been also facilitated by the launch of premium private labels. From the report (Nielsen, 2014) we can see how Europe, North America and Oceania, are the main region wolrdwide in terms of private labels presence. In Italy (Il Sole 24 Ore, 2016) premium and bio private labels products generated €1.32 billion (13.2% of the total private label segment value of the market in Sept 2016, respectively + 14% and +16.1%, vs Sept 2015). On the other hand low cost private labels lost share (-22% in value vs Sept 2015) only representing 2.6% of the total private label segment.

Figure 1: Premium Private Labels products in Italy, branded “Top Esselunga” 

premium products in italy prodotti_top

 

Local retailers massively invested in brand management and innovations in recent years building a high brand equity across different categories, with the main goal of creating store loyalty and getting better trade terms conditions vs manufacturers. However, there are categories (such as personal care) showing highest and similar value share across different regions around the world.

For brands the premium fmcg path is almost mandatory. Brands should continue to raise investments in brand management through marketing investments in communication and innovations, to better communicate the uniqueness of their value proposition and make their brand equity stronger. In order to do so, heavily marketing research investments looking for new and unmet needs among consumers are required to get the right consumer insights.

However perception of brands vs private labels even for premium products changes depending on the region and on the country. In Europe, Latin America, North America and Oceania, there is a high qualitative perception of private labels, considered as key SKUs able to drive brand differentiation and store loyalty. On the other hand the situation is completely different in Africa, Asia and Middle East, where consumers show the highest willingness to pay premium prices for brands. Most of the respondents still consider buying private labels too risky.

 

3. Management Implications

 

  • Only some products can be upgraded (Nielsen, 2016a): Personal Care is the main category across many regions showing highest differentation and innovations rate vs other products categories. Regardless this trend, differences and opportunities across categories are different depending on the country and on the region. Premium perceptions are not the same worldwide for all products and categories.

 

Figure 2: Premium’s Value share per Category across different global regions (Nielsen, 2016a)

Premium products growth

  • Think global act local: Differences are relevant depending on the market and the region we are taking into account. This implies how even marketing strategy should be locally adapted to support the launch of a premium product on the long-term, depending on the market area to be served.

 

  • Focus on digital and optimize your in-store visibility: In order to get highest results and makes the product successful an excellent quality, distribution or price are not enough. Firms and professionals need to find the right communication. Depending on products peculiarities firms need to find a balance between touchpoints showing highest awareness and trials (typically TVCs and high store visibility) and touchpoints showing a high degree of persuasion (e.g. digital). In many cases both brands and private labels are still struggling to achieve these goals.

 

 

SOURCES

 

Il Sole 24 Ore (2016), Private Label, la corsa è premium, December, http://www.ilsole24ore.com/art/impresa-e-territori/2016-12-09/private-label-e-corsa-premium-110740.shtml?uuid=ADFrDIGC

Nielsen (2016a), Moving on Up, December

Nielsen (2016b), The Dirt on Cleaning, April

Nielsen (2014), The State Of Private Label Around The World, November

Reuters (2012), The Swelling Middle, http://www.reuters.com/middle-class-infographic

We Are Social (2017), Digital in 2017: Global Overview

Diageo responsible drinking trends in the alcohol industry

Diageo responsible drinking trends in the alcohol industry

“Our ambition is to be the best performing, most trusted and respected consumer products companies in the world – ensuring we play a positive role in society is at the heart of this.” (Diageo Annual Report 2016)

With its 9.4% market share on volume (2015) Diageo is absolutely the leading company in the alcohol market, ranking always as first for the past eight years. Its market share is almost double of Pernod Ricard, the second market leader. Diageo strong market supremacy doesn’t surprise since the company operates in more than 180 countries and owns 20% of the world top spirits. For example some famous and well known Diageo brands are Guinness, Smirnoff, Baileys.

diageo-guinness-irish-beer-brewer-brands-768x228

In the medium term the global beverage alcohol market, that generates today around 300 billion Eur of net sales,  is expected to grow. This trend is driven both by a rise in global incomes and a growing legal purchase age population. On one side the beverage alcohol industry benefits from margins that are higher than for the overall consumer goods market, on the other side this market is one of the most highly regulated in the world with regulation varying widely between countries and jurisdictions.

The notch

However, despite of the great market supremacy reached in the past years Diageo seems now to be victim of its own success. The sluggish growth of the company has turned red with a 2016 negative performance of -3% on its global net sales. The brand portfolio has been recently revisited, some brands sold and now it focuses only on the most important areas of the company: Scotch, Beer, vodka, rum and other liqueurs.

It is clear that now Diageo cannot play the same expansion strategy used in the past years. The fast growth achieved thanks to expansion in white spaces market is now not repeatable anymore having reached almost entirely the market saturation.

For Diageo executives a direct competitors fight is now approaching and in order to continue gaining market shares their strategy is diversification through clear areas and a cultural steer towards responsible drinking.   

There are already example of big multinationals who have been able to diversificate effectively in the FMCG market. One is Unilever that is investing in a sustainable living bringing “a brighter future, a better business”. The Unilever sustainable living plan focus on three main points: improving health and well being, reducing environmental impact and enhancing livelihoods. Another one is Coca Cola who have expanded its portfolio towards sugar reduction entering juice and water categories through different acquisitions. For example, a famous one is Innocent brand.  

A challenge

How diversificate in a market where alcohol is considered by the consumer almost like a commodity?  

According to US National Institute of Health, in 2012 alcohol consumption have caused 3.3 million deaths in the world. Alcohol misuse reaches the fifth place as leading risk factor for premature death and disability. However, moderate alcohol consumption may have beneficial effects on health. For instance decreased risk for heart disease and mortality due to heart disease, decreased risk of ischemic stroke and decreased risk of diabetes.

Problems caused by alcohol are of great interest for governments who are continuously putting in place restrictions in the sector, who differs by country and making de facto the most regulated and difficult market to operate. Moreover, consumers – who are the first who pay the sour bill – are becoming more sensitive on this topic.

Responsible drinking

Diageo strategy focus strongly on responsible drinking. This is comparable to the sustainable living plan of Unilever. In the long run, this approach will educate people to a correct use of alcohol and bring a reduction in diseases and deaths caused by alcohol.

Ivan Menezes Chief Executive of Diageo states that sustainable efficiency will bring to the company £500 million savings in the coming three years.

The company is assessing responsible drinking as a performance. In its annual report three KPI out of eleven are based on this: creating a positive role for alcohol in society, building thriving communities and reducing the environmental impact of its products.

Efforts

Diageo is the first company in the industry investing strong commitment on responsible drinking. Moreover, by putting high level of information in the hands of consumers, demonstrates its true desire in helping consumers making informed decisions and at the same time confirms its position as market leader.

In 2016, 335 programs aiming to reduce harmful drinking were sponsored by Diageo. This year DRINKiQ.com was launched in 12 languages. This is a website with best practices about responsible drinking, list of allergens and sustainability symbols. Moreover, compared to 2015, the company has reached 12% improvement of water efficiency through its supply chain and production process.

Screen Shot 2017-03-31 at 01.16.42

Responsible marketing commitment:

“Diageo was in breach for a Smirnoff television advertisement on the grounds that depicted dependency on the presence of alcohol. We were also found in breach for a post on the Guinness Facebook page because it suggested that drinking may have therapeutic benefits. In both cases, the content was immediately withdrawn.” (Diageo Annual Report 2016)

However, the area where Diageo has made the most breakthrough step compared to its industry is with Johnnie Walker, a whisky scotch priced at a similar amount per serve of main competitors. Johnnie Walker Red Label is the first global brand to provide serving alcohol content and nutritional information on-pack. Indeed, a consumer who buys alcohol will never find on any bottle nutritional information. This is quite an anomaly, considering even something as simple as plain bottled water always has ingredients and the chemical makeup of the product on the label.

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Diageo has chosen this exact brand and portfolio range because by value Scotch whisky is the most important area in which the company has 24% of total net sales, owning a total of five brands.

Screen Shot 2017-03-31 at 01.19.50

Competitors reaction

Following very positive market critics and feedbacks, Pernod Ricard follows now Diageo pioneering step. Indeed, it announced in February 2017 that will provide nutritional information on all of its spirits products. Consumers will be able to access this information by scanning a QR code that will be present on the back labels of all its bottles. This method also if different by the traditional adopted by Diageo, will enable consumers to quickly display all main info on their smartphones.

The trend started by Diageo is going to have big effects for the alcohol industry. First of all, this will enhance transparency between producer and consumer. A buyer entering a shop will trust brands who put on black and white calories and direct effects of consuming a glass of alcohol. Secondly, will strongly promote responsible drinking in the society improving as well relationship between key stakeholders such as government and regulators. Thirdly, this will boost sales for companies who will adopt this strategy, differentiating brands between other competitors and at the same time winning market shares in the market.

Sources: Euromonitor, Diageo, US National Institute of Health

How supermarkets are adopting the multi format model

How supermarkets are adopting the multi format model

After massive development in suburb areas, until saturation, the modern trade retailers gradually return to the conquest of the downtown.

Indeed, urban consumers with limited budgets and smaller homes often prefer to buy small amounts frequently, both for immediate consumption and for stocking up. And where trading space is constrained, proximity formats offer a more realistic view of economic returns for retailers. Modern retailers benefit from their experience operating smaller urban formats in developed markets to create a multi format model like banners such as Albert Heijn’s AH to Go in the Netherlands or Tesco Express and Sainsbury’s Local in the United Kingdom.

millennial supermarket

The multi-format business model allows to meet the different needs of customers and provide better shopping experience more adapted to urban consumers.

1/ Carrefour leading the multi format model

Even if the phenomenon is not new, it’s probably Carrefour which marked in 2010 this new trend to the declination of the multi brand formats, under the impulse of Lars Olofsson. The development of the grocery brand under different labels (Carrefour Market, Carrefour City, Carrefour Contact, Carrefour Montagne; Carrefour Urbano) is undoubtedly what the CEO of the time, a marketing specialist, has done better (even if his successor, Georges Plassat, tends to attenuate this initiative somewhat). According the name of the store, the offer is adapted, as the pricing policy, but the strategy has the merit of being easily decryptable by consumers.

carrefour enseigne

Recently after fifth consecutive year of sale growth Carrefour multi format model was gaining momentum: In its domestic market of France, shoppers using several Carrefour formats now represent two thirds of sales and half of the total client base, despite a French challenging market.

Following this successful strategy, Carrefour keep investing intensively in premium food & drinks with Carrefour Gourmet and Shop & eat in Europe.


2/ Monoprix trolling Amazon Go on proximity services

Monoprix (Casino Group), with its complementary formats Monop ‘, Monop’daily, or Monop’beauty, Franprix is in the same background in France targeting convenience top trends like cosmetics, bio, grocery premiumization.

And to show its confidence, Monoprix didn’t miss the opportunity to create the buzz and parody Amazon Go launch video. Its copy of the famous video goes so far as to reproduce the actors of the video, or the sequences, like the one with the cupcake. Whereas Amazon focuses on the absence of cash at its Seattle outlet and boasts mysterious technological armada to achieve this, Monoprix recalls that it has been 10 years since it was possible to leave the store without pay. By simply relying on the human.

But there is nothing very comparable between the two brands mostly when the 21,000 references of Monoprix crushes the 3,000 of the American.

Amazon may have global resources, lots of technology and deep pocket investment. But Monoprix already has the stores, the customers and a home delivery service that works reasonably well. Monoprix would eventually focus transforming Amazon Go’s promises into a universal standard, well before this last one opens a store on French soil.


The new modern trade model seems to be developing and multiplying proximity points of contact with this multi format model (eg by franchising or affiliation, especially in city center) around a regional pilot platform and Flagship regional brand.

The multi-format model will still the grocery trend in mature market

Coop vs Amazon Go : supermarket innovation

Coop vs Amazon Go : supermarket innovation

12
MARCH, 2017

Two different formats but the same objective: revolutionizing the shopping consumer experience through new shopping innovations for Coop and Amazon.

Source: Coop (2016), ” Il supermercato del futuro diventa realtà quotidiniana a Milano ” Forbes (2017),  

“Amazon Go is about payments not grocery” 

Coop supermarkets of the future

1. Coop: the “supermarket of the future”

Coop opened in December 2016 a new format called “supermarket of the future”. The model was already tested at Expo 2015 in Milan and since it is a great success, the Italian retailer decided to open its first store located in Bicocca the business district northeast of Milan. 

The format is a supermarket with a sales area of 1000 sq m. full of fresh food and beverages products and private labels brands. The innovation of the store is especially the presence of 54 interactive monitors able to show to the consumer all information he needs to be more aware of the ingredients of a product, but also on the country of origin, the recycling, on promotions, on similar products or on complementary products. To get all this information the consumer just have to take a product in his hand and he can immediately receive all instructions on a screen in front of him. The store is also equipped with

Also, the store is equipped with 46 totem-touch spread out the store where the shopper just has to scan the product to get the same information mentioned before. The store also includes the click and collect service (Coop Drive) as well as the restaurant branded “Fior Fiore” the premium private label of the Italian retailer (E-Coop, 2016).

The Coop objectives through the supermarket of the future are basically:

  • Enhance and increase the shopping experience by allowing consumers to get access to all information (that he can alternatively find out only on the Internet) on products he wants to purchase.

 

  • Increase the awareness of its own private labels. Coop, as other retailers, has the goal of increasing the private labels business in coming years and the supermarket of the future is a great way to do that through monitors and totems showing transparent information on the quality of these products by also proposing alternative solutions (probably other private labels)
Coop supermarkets of the future

2. Amazon Go

Amazon announced the launch of its first physical store in Seattle in 2017, Amazon Go, a new innovative convenience store with no checkout and no lines for shoppers. Consumers have just to check in with their Amazon Go app when they want to go to the store and just shopping.

When the shopper leaves the store, Amazon automatically charges the shopping in the smartphone app.Indeed thanks to RFID sensors which can automatically identify when a product is added to the cart shoppers don’t have to do anything else later on. This new format generated numerous critics, especially for the risk of cutting human jobs due to this huge automatisation (no cashiers and fewer vendors).

 

But, are we sure that is not still happening somehow?”

Of course there is no an existing model such as Amazon Go but, firstly, automatic cashiers are spread out through many retail formats (convenience stores, supermarkets, hypermarkets, etc.) across many countries with the difference that the shopper still has to do some actions to conclude its checkout, by scanning on the automatic cashier all its products.

There are also some retailers which are already offering self-checkout through their apps. For instance Coop in Italy, thanks to its mobile app Salvatempo enables consumers to quickly shop inside the store. The consumer has to open the app and scanning all products he wants through the QR code. At the same time, thanks to the app, he can also decide to check, to use coupons and to be informed on promotions and to pay to the automatic cashier.

To summarize, Amazon objectives through the Amazon Go are:

  • Increase the presence in the grocery business through a more profitable investment. Indeed as happened for many bricks and mortar stores even Amazon with Amazon Fresh faced the issue of the high delivery cost, which can only be reduced by making stores as Amazon Go, collection points.

 

  • Increase the distribution and the awareness of its own private labels. Amazon Go will be a way through which Amazon will be able to better test and to expand its grocery private labels, which, will help the retailer to get higher margins vs manufacturers branded products.

 

  • Selling items that shoppers are not buying online. Through Amazon Go, Amazon wants also to sell items (as fresh fruit or vegetables) which consumers are struggling to buy, by making easier the shopping with no checkouts and no lines and by making sure that consumers can physically test the quality of fresh food they want.

 

  • Improve and expand the Amazon Pay service(Forbes, 2016), launched in 2013, by allowing consumers to shop through different websites thanks to their Amazon account. Doing this in its store will avoid issues with other retailers, which have currently struggled to accept a service provided by a direct competitor as payment method in their stores

 

  • Increase the traffic on Amazon.com. By taking advantage of all traffic data coming from the app Amazon will be able to improve and to increase customization to its users, as it is already doing online on Amazon.com.
Coop supermarkets of the future

3. Two different stores designed for future consumers

Both stores have the goal to improve the consumers shopping experience, although through a different way.

Amazon wants to address its first physical stores to urban innovative consumers whose main goal is to save time by avoiding checkouts and queues. They are young and adults (between 18 -50), Amazon users, studying or working most of the day and with few time to spend in a store and loving a proposal which can make more efficient their daily time. Concerning the technology the American retailer innovation is focused on mobile, where all info are contained and the store works.

Concerning the location, the convenience store is perfect for urban and center areas of big cities, as Seattle. The test will be made in USA, the main market for Amazon, where the digitalisation is higher than any other country worldwide and where shoppers, since the high e-commerce penetration, are used not to always have a human contact when they are shopping.

The situation is the opposite for Coop in Italy. Regarding the location, the difference is firstly the urban area. The supermarket selling area requires a bigger area that it is complicated to find in the city center. For this reason Coop chose a periphery that, however, it is full of students and professionals (since one of the biggest Milan universities and many companies are located there). Concerning the technology, the one chose by Coop is a different story vs Amazon. Firstly the technology is not embedded in any shopper device and it can work automatically. The goal of Coop through this new store it is not using the technology to save the time of shoppers but it is to make shoppers more informed since they are increasingly demanding for more information and instructions on what they are consuming. This new format is not only for young and professionals with high education and with a high digitalisation (despite the location) but it is, basically, for all generations, which can also decide to avoid the usage of the store technology when they are shopping.

“What will be the winning models? We cannot know who will be the most suitable model for the future. Both models show advantages and disadvantages that should be declined and analyzed depending on the countries and markets where these models are launched and to the targeted consumers that as we know are not the same everywhere. Only the time will let us know more…”  Amazon Go vs Coop 

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Is premium the future of FMCG?

Consumers are looking for premium brands and premium brands are the most successful worldwide. Premium products grew by 21% in Southeast Asia, by 23% in China between 2012 and 2014 and 26% in the USA from Apr 2015 to Apr 2016 across the home care and personal care...

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How FMCG brands can win with their own e-commerce

How FMCG brands can win with their own e-commerce

FMCG brands need to enhance their online presence

Although the relevance that physical stores still play for FMCG brands, manufacturers need to enhance their online presence through a successful e-commerce model. On one hand even though online sales are currently representing only 3.7% of the total (offline and online) global FMCG sales (Kantar 2015) if FMCG players will be able to overcome the main barriers are currently blocking the e-grocery success the online grocery sales might have the potential to rise to 28 % if 60 % of global households would buy online at least once a  month (Kantar, 2015).

This growth will be facilitated by the rising of Internet users globally[1], by a better and superior customer service (e.g. thanks to the enhancement of the last-mile delivery autonomous ground vehicles[2]) and by solutions will be able to deliver amazing experiences and fun to consumers (e.g. the experience of virtual stores in South Korea or the availability of smart electrical appliances – e.g. smart fridges or smart washing machines).

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Sum up :

• Online shoppers look for a selling model based on cost, time, availability and fun

• FMCG companies can overcome some of their barriers through the e-commerce

• FMCG companies need to take into account local differences across categories, consumers and retailers [/mks_pullquote]

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In order to reach these goals manufactuers have a wide range of choices available. Most of them are improving their online presence through better websites (most of them also finally optimised for mobile devices) and a better usage of e-mails and social media (e.g. through targeted campaigns and initiatives).

That said, among manufacturers only few players in few markets are currenly selling their products online through their online proprietary website with a DTC (direct-to consumer) model.

The aim of the article is to show the advantages and disadvantages of the direct-to consumer models (i.e. the possibility to create and sell their own brands and products online) and in the end, the management implications concerning the usage of this model.

1. Direct-to-consumer (DTC): advantages and disadvantages

The FMCG industry is mainly affected by the following peculiarities:

  • Non durable and low value products
  • Low-switching costs
  • High purchase frequency
  • High impulse purchase

This four peculiarities imply a high competitive marketplace, where competition is high (both manufactures and retailers are offering their own brands), where it is hard to create brand loyalty (because of the low switching costs and impulse purchase) and where it is always more complicated to increase prices and getting higher margins.

For this reason consumers can have a wide range of choices available to satisfy their needs and, at the same time, even manufacturers can have different options to sell their products.

Historically physical stores represent the main selling channel for manufacturers. Since the physical surfaces belong to retailers, over the years, their power highly increased, while the one of manufacturers massively reduced, by forcing most of them (especially small and medium firms) to produce for retailers. However, the rising of the Internet allowed manufacturers to get a new channel to exploit, despite some barriers must still take into account.

Nowadays the online FMCG marketplace is quite fragmented across different regions and countries, due to cultural, local, legal and technologic differences. That’s why solutions implemented by FMCG manufacturers are different accordingly.

 

pg-shop

 

unilever-shop

 

The following table tries to show the main advantages and disadvantages of a direct-to consumer model (Table 1).

Table 1: Advantages and disadvantages of a direct-to consumer model (Source: Techingrocery, 2016)

table

Among advantages FMCG manufacturers can build a direct relationship with consumers. Indeed they can get a better knowledge of their consumers, getting valuable information to better invest in innovation, communication, distribution and measuring the ROI, building brands, testing new products, pricing, etc.

Moreover, with the higher power of retailers (e.g. the launch of private labels), the rising of competition (more local brands) and the last distribution trends (e.g. physical store downsize) the online channel allows FMCG manufacturers to solve some of the main issues they have in-store (i.e. troubles to increase prices, to list products, to leverage a repeat purchase, to reduce the impulse purchase…) with the competition and the market.

 

Regarding the disadvantages, the channel conflicts with all retailers (bricks-and-mortars, click-and mortars and pure players) are one of the main risks. Indeed, since retailers are still the main buying channel for consumers (both offline and online), especially for the wider range of products available, they could react delisting products or getting better trades terms. Being online also implies different supply chain models; indeed, if in the past manufacturers were used to sell a double volume of products to retailers, with the e-commerce the order from consumers will be only a small fraction sold to retailers. Other risks concern the probability that consumers might compare prices (e.g. dynamic prices) more easily, as well as the risk of a price fragmentation. Indeed compared to a physical store, where prices to compare are limited at the physical space available, the online marketplace allows consumers to check an unlimited number of prices and products across different websites. Regarding the price fragmentation, it is quite high the risk that consumers will find different prices in the physical store and in the online website, creating confusion and reducing the trust of consumers towards brands. Indeed, while in-stores prices are quite different and flexible across locations in the same country, online prices are the same among all consumers that live in the same country.

Last but not least the channel cannibalization and the consumer experience. Regarding the channel cannibalization, firms are both offline and online might have internal problems. For example managers (responsible for different channels) might have different goals in terms of volume sales, even to the detritment of others managers. Thus, the responsible of a specific account (a traditional retailer) with a remuneration based on sales results towards that account (a traditional retailer) might impact on the goals of the manager in charge of the direct-to-consumer website.

In the end the consumer experience. Nowadays there are no existing apps or devices that are able to replace the powerful sensory experiences (this is especially true for fresh food) and the human interaction that physical stores can provide. Furthermore, consumers like visiting stores with the family or with friends and have fun by doing shopping. For this reason retailers are increasingly investing  in digital innovations to improve the in-store experience (e.g. through virtual reality or beacons).

 

2. Management Implications

 

  • Take into account cultural and local differences among consumers and retailers: differences across countries and regions are quite varying and require specific actions. For instance in the UK the main channel is the “indirect e-commerce (i.e. selling products through clicks-and-mortar stores and pure-players)”, where retailers show a high power even online. In emergent online markets, as Italy, FMCG manufacturers decided to focus on all existing channels (even launching direct-to-consumer products), because the online channel is not well-developed as in the UK for example. Even retailers peculiarities and differences (e.g. in terms of trade terms costs) should be take into account and might vary depending on countries and regions). Regarding consumers, try to adapt your online service to local peculiarities (e.g. offering specific payment methods)
  • Take into account differences across categories: not all categories show the same online growth. Among varying categories food and beverage products are the smallest category, while consumer healthcare products (e.g. razors, creams, OTCs, etc.) represent the main one. Consumers still show uncertainty to buy fresh food and beverage online), where the sensory experience still plays a key role.
  • Successful e-commerce models focused on cost, time, availability and fun: In terms of cost and time consumers find more convenient buying online, since they can save relevant costs (e.g. transportation costs and time, finding more convenient prices having, at the same time, a wider range available). That’s why it is also essential offering different delivery options. In terms of availability consumers can buy online whenever they want with a wider range of products. They can also customise their purchase solution, choosing for the one they need in a specific moment. In terms of fun consumers require amazing experiences online. For instance Peapod’s virtual stores in the US are able to simulate the store experience making funny and unique the buying experience.
  • Take into account analytics, content and targetization: Analytics is essential to figure out new consumer and shopper insights that might help crucial implications in terms of branding, communication, innovation, etc. Content is also relevant: internal information, ratings and reviews, tutorials, mobile applications, etc. are key to add value to the shopper experience. Last but not least targetization: a right targeting approach allows manufacturers to better reach targets with different socio-demographic and psychographic characteristics . This is needed to reach mass audiences online and getting a right ROI.
  • Build a right organisation: developing its own e-commerce implies a more structured organisation (PwC, 2012), where digital shopper marketing teams should cooperate more closely to the marketing teams and along with traditional shopper marketing teams in order to create a better coordination to take advantage of resources might be used in common to take different actions (traditional shopper marketing teams to drive traffic in-store and post-purchase, while digital teams to increase the shopping cart and drive traffic in the e-commerce website)

[1] Kantar estimated that global Internet users will be 48 % of the total global population in 2017 (Kantar 2015)

[2] Mckinsey (2016) estimated that autonomous vehicles (including drones) will deliver approximately 80% of the total B2C items (across to all existing B2C categories) sold online.

 

SOURCES

Kantar (2015), Accelerating the growth of e-commerce in FMCG

McKinsey (2016), How customer demands are reshaping last-mile delivery

PwC (2012), A strategy for omnichannel success

 

 

 

2017: Top key trends that will obsess the retailing business

2017: Top key trends that will obsess the retailing business

In 2017 retailers willl face as usual numerous consumer behaviours changes and will need more than ever to focus on new disruptive trends to maintain their position. Herunder is a selection of 5 retailing priorities for 2017 :

1 – Pursuit of the omnichannel quest: 

The global retailing landscape is evolving quickly with the rise of omnichannel retailing. Omnichannel retailing is a customer-centric approach to retailing through which retailers provide seamless shopping experiences across all of their physical and digital channels. Shoppers increasingly value convenience when shopping and omnichannel capabilities allow them to seamlessly switch from one channel to another. By the end of 2016, the vast majority of retailers were struggling to be omnichannel. The most common challenges that retailers face include tracking sales, inventory planning. However, retailers will continue their quest to achieve omnichannel proficiency in 2017.

Retailing 12 – Adapting to the evolution of convenience:

 The ways in which retailers are delivering convenience is evolving as demand for convenient retail offerings continue. Drivers of convenience include global urbanization, growth of smaller households, ageing population, and hyperconnectivity.. Retailers from various channels in retailing are adapting to the demands of the modern and digital world to offer convenience, leading to channel blurring as well as advances in various online commerce options. Meanwhile, existing convenience stores around the world are responding by modernising and evolving to become more than a place to buy a quick snack and beverage and aiming to become a key part of the daily activities of shoppers. Retailers will continue to innovate to offer added convenience to shoppers’ daily lives.

Retailing 33 – Target the conversational commerce:

 Chatbots and voice-activated assistants that are designed to work with existing digital devices to perform tasks are on the rise. Although their impact on retailing landscape is still in its nascent stage, they are likely to create new opportunities for retailers in the near future. 2016 was the year of chatbots. Facebook launched chatbots for Messenger and Apple’s iOS 10 gave iMessage an app store in which developers can add chatbots. Google launched its new messaging service, called Allo. Allo uses artificial intelligence, like the chatbots, to respond to a user’s questions. Amazon sold a record-setting number of its Echo devices in 2016, and others such as Google and Lenovo are introducing their own voice-activated assistants.

retailing4 – Continue the efforts on Marketplaces: 

Marketplaces continues to experience growth globally, playing a major role in the future of both small and large businesses online. Online retailers that host third party merchants are the leaders of internet retailing and are continuing to gain share. Third party marketplaces enable all types of retailers and tech companies to take advantage of the growing e-commerce through existing infrastructure that is already trusted by shoppers. Despite challenges that marketplaces face like the fight against counterfeit goods and overall quality control, they are expected to continue becoming a larger portion of all online sales.

Retailing 7

5 – Focus on Mobile commerce: 

In 2016, mobile commerce accounted for US$514 million in sales (approximately 44% of online retailing). The figure is expected to nearly double by 2021 to US$1.1 billion in sales (approximately 56% of online retailing). In addition to retailers making many of their promotions online and on mobile, and making some of these promotions only available through mobile apps, there are larger factors at play driving mobile sales. Smart phones and tablets’ penetration rates continue to rise, smartphones are becoming bigger and easier to use, and retailers and technology companies are investing to improve the mobile shopping experience, such as launching in-app payments. Additionally, with smartphones being the sole way of access to the internet for many households, especially in low income households, mobile commerce is positioned to see continued growth in 2017 and beyond.

Retailing mobile

To discover more about the 2017 consumer goods trends in general follow the link