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Driving CPG Demand in an Era of Consumer and Retail Disruption

Driving CPG Demand in an Era of Consumer and Retail Disruption FINAL.png

Executive Summary

  1. Many CPG manufacturers are losing the battle for shelf space and margin growth unnecessarily.
  2. Changes in consumer preferences and retailer innovations are impacting this battle, and they're not keeping up.
  3. Successful CPG manufacturers are driving demand with insights from category research, product innovation research, and market simulation.


Why are CPG manufacturers losing the battle for shelf space and margin growth?

Two reasons.

  1. Consumer preferences and lifestyles are dynamic and changing, but CPG products are not
  2. Retailers and competitors are responding and innovating

Recently, two Wall Street Journal articles addressed these challenges.

Top 10 Takeaways

Here are my top 10 takeaways from those two articles:

  • Consumer products are struggling to give shoppers what they want. CPG faces challenges as they try to adapt to changing tastes.
  • Overall CPG unit sales declined 2.5% in Q1 2017. Slower consumer spending is cutting into profits.
  • Bigger brands are losing ground to upstarts and local manufacturers.
  • People are buying cheaper store brands and unique health-focused brands online.
  • Companies that sell household staples face longer-term challenges. Consumers are cutting back, seeking deals, and using up supplies at home.
  • Shoppers are shifting away from processed foods in favor of fresh and organic. The shopper preference shift to fresher/healthier started several years ago, but its impact on big food makers is intensifying now because of added pressure from retailers.
  • Intense competition is limiting the ability to raise prices. Retailers such as Wal-Mart are pressuring big brands to lower their prices to attract customers.
  • Instead of promoting canned soup, cereal and cookies from national brands, retailers are giving more space to fresh food, prepared hot meals, and specialty items from local companies.
  • Grocery chains are building new stores that have less space for traditional packaged foods in the center aisles and more for in-store restaurants and fresh meals shoppers can take home
  • Finding new ways to entice people to walk through the center aisles again is tricky. Some brands are seeking ways to get their products into the fresh and prepared foods section of stores.

Top 5 Quotes

Here are my top 5 quotes from those two articles:

 “There are some behavior changes: A lot more [shopping] is going online, people are not getting married, they’re living in smaller spaces and they aren’t having as many children. That’s not going to turn around very fast.”    
Chris Christopher, Director of Consumer Economics, HIS Markit

There are “probably more sources of volatility today than at any other time in history.”
– Jon Moeller, Chief Financial Officer, P&G

"Our next challenge is how do we leverage our relationships with retailers to reinvent the center of the store? And we need to do that in order to bring interest back to that whole cereal aisle and therefore, Quaker."
–  Indra Nooyi, CEO, Pepsico

“I stopped buying that stuff [processed and packaged food] because it has too much salt and sugar. Even the boxes that appear healthy, when you read them, they really aren’t.”
– Teresa Benande, 70-year old Chicago Grocery Shopper

“We’ve got to maximize return on our shelf space. Shoppers are drawn to steamy pasta at the deli counter, rather than a box of dried macaroni with powdered cheese sitting on the shelf for weeks."
– Don Fitzgerald, VP of Merchandising, Mariano’s (Kroger owned)

Insights that Drive CPG Demand

In the midst of these disruptions and challenges, CPG manufacturers are staying competitive, growing share, and maintaining (and even growing) margins. They're doing it with insights from market research and market simulation. Here are three core business questions that are addressed with research insights:

  • Which consumer segments within my category should I target?
  • What products will drive the most demand among those segments?
  • How can I optimize the design, packaging and pricing of each product to maximize my market share, revenue or profit?

Let's take a look at three of the most proven research solutions that yield these critical insights.

1 — Category (A&U) Research

While this research has many different names — awareness and usage (A&U), category study, market assessment, competitive assessment, etc. — the strategic value is the same: you understand which brands consumers prefer, whether and why they prefer your brand or a competitor’s, and what you must do to take share from those competitors.

Good A&U research should yield insights that you can act on both immediately and over the longer term.  Here are a few of the actionable insights from this research:

  • Awareness — Start with the most basic question: Are your target consumers aware of your brand vs. your competitors (including store brands)? Do you have an awareness problem within certain target segments?
  • Barriers — When consumers are aware of your brand but are not buying it, what are the barriers? Why are they turning to competitor offerings instead of you?
  • Drivers — What drives consumers to the category, and more specifically, to your or competitors' offerings? Do your unique features and benefits matter? Do you have brand equity you can leverage? Does pricing matter? How about packaging?
  • Segments — What are the key consumer segments in the category? How are they changing and which are best suited for your brand vs. other brands? How can you grow your share by capturing more consumers within each unique segment?

2 — Product Innovation Research

Consumer preferences and lifestyles are in constant flux, as are your competitors' efforts and investments towards innovation, packaging, pricing, promotion and distribution. This continuous change demands that CPG manufacturers keep pace with their own product innovation. At every given time within your category, you must offer a compelling value proposition to consumers in your target segments or you will lose share and/or suffer margin compression.

Product and package innovation research is the insight engine that drives growth in market share, revenue and profit. “Product” because it keeps a fresh flow of innovative products coming to market, enabling you to continuously differentiate yourself from others.  “Package” because in the majority of cases, the package on the shelf is the workhorse of a CPG’s marketing efforts.

Typically, conjoint analysis serves as the foundation for new product development (NPD) and product improvement research. Here are a few of the actionable insights from this research:

  • Features — Which features are most important to your target segments?
  • Levels — Which variations of those features  are most appealing to your target segments?
  • Benefits — Which benefits and/or messages about benefits have the biggest impact?
  • Brand — What is the relative strength of each brand in the category and how does that strength impact pricing power?
  • Price — Based on your goals (share, revenue or profit) and the relative brand strength in the category, which combination of features and prices is best?  How much more will consumers pay for your brand, your product’s features, or your product’s benefits?

3 — Market Simulation

In most cases, market simulation is made possible by the conjoint research performed during the product innovation cycle (see #2 above). When created and used correctly, market simulation allows executives and managers to make just the right calls on products, packaging, marketing and pricing.

Here are just three ways that market simulators unlock these critical insights:

  • Determine Brand Strength & Pricing Power — For starters, it's critical to understand your relative brand strength in your category. You might think you know, but you need to really know. For this, you turn to the simulator. It quickly reveals where you stand vs. all of your competitors, all other things being equal.
  • Improve Features to Take Share from a Stronger Brand — Let's assume you are facing a brand that enjoys superior brand equity such that your target consumers will prefer their product over yours. The simulator will show you which features you could improve in order to take share from this competitor.
  • Reduce Prices to Take Share from a Stronger Brand — Again, when facing competitors with superior brands and/or product features, sometimes you must turn to pricing to grow your share. If share growth is your primary goal, the simulator will show you how price reductions on your brand impacts share from each competitor in your category.

Here are some additional resources you may find helpful:

David W. Wilson
David W. Wilson
David W. Wilson

David Wilson has over 25 years of experience helping leading companies improve their marketing results using digital marketing, direct marketing, database marketing, consumer data, predictive analytics and marketing research.