Challenges faced by CPG Marketers and the road ahead !!

As the retailers are gaining more control of the customer because of their closeness to the them in the value chain, it is becoming more and more difficult for CPG marketers to woo the retrenching customer spend on their brands. 

In this article, we would identify the major challenges faced by the CPG companies and the improvement areas to gain the diminishing trust. In coming blogs, i will discuss more on the solutions to overcome these challenges which are discussed here.  

Challenge 1: Consolidation in the retail industry

Only few of the big retailers are now driving the retail market as they grow bigger in size, either through organic or inorganic expansion. But the main agent to this growth has been due to consolidation happening in retail industry.

As retailers grow in size, they pose a bigger challenge & threat to the consumer packaged goods companies, which are primarily the suppliers to these retailers who actually own the customer. Thus, retailers enjoy more bargaining power and could put increasingly more pricing pressure on already constrained CPG suppliers.

Obviously, the balance of power is more skewed towards the Retailers when it comes to customer relations. CPG industry needs to acknowledge this and should work towards building closer relationships directly with the customers. This could be achieved with innovation in branding, point of sales interaction, niche products etc.

Challenge 2: Varied retail formats

The retailers are experimenting with different retail formats so as to appeal to different customer segments and grab their share of wallet. The CPG suppliers need to understand this phenomenon and consider this fact while designing their marketing strategies so that right brands are placed at the right formats and also the branding communication is relevant to the business objective.

Challenge 3: Emergence of Private labels / Discount labels

In a recent study, it has been observed that in recessionary era customers prefer private labels / discount labels over their branded counterparts. Retailers are also pushing these labels as they offer better margins, merchandise differentiation and direct control of entire supply chain. The branded CPG products are under profound pressure on margins, shelf space and customer’s share of mind.

Challenge 4: Offering value to customer

The retailers have commoditized the products under the price war. Now, Customer is well trained to just look for value in lower pricing. CPG marketers need to overcome this challenge by redefining the value for the customers by being closer to them by offering better products and branding innovation.

Challenge 5: Capturing the consumer surplus

The rising income levels in the emerging markets and already richer developed world, consumers have more income surplus than ever. CPG Marketers need to capture this by delivering differentiated products to this segment. As they are already purchasing across normal product categories, for which huge number of suppliers are competing and the demand for these products from this specific segment has already saturated. A differentiated product offering could be a good bet to capture the customer surplus. A good example of such product offering is health drink or organic food.

Challenge 6: Understanding consumer behavior

It has always been a big challenge for the CPG companies to understand the clear motive of the consumer who could buy a certain product. CPG companies spend millions to research on this. They have been quite successful in their approach so far but with increasing competition, newly emerging channels and rapidly changing customer behavior with access to information than never before are pushing CPG companies to explore better ways to understand the customer.

The companies are now betting on ethnographic studies to understand consumer behavior and to win, they need to implement the learning in product innovation, branding and marketing.

Challenge 7: Tradition marketing is not relevant

The traditional mass marketing is not at all relevant to engage customers as they always have option to avoid the advertisements. Moreover, there is a clutter of media channels with emergence of satellite and cable TV. With the emergence of new medium like internet and mobile, marketing landscape is changing from mass marketing to one - to – one marketing. The new tech savvy consumer would like to be engaged with the brand on different platforms through social media, mobile, TV and rich media campaigns. The CPG marketers need to frame their strategy with consideration of these new emerging channels and maintain consistency of message across the channels.

CPG Marketing Transformation: An approach

Most of the challenges faced by the CPG industry could be addressed with the implementation of right marketing tools and technologies aligned with the strategy.The CPG marketing transformation need to address a few key areas listed here in order to be effective and face the industry challenges.

CPG companies need to focus on these areas to overcome the above discussed challenges, we would explore further on these solution areas in next few blogs.