Up until now, it paid to be the underdog. Startups, mostly digital natives born in the cloud, have garnered more than $329.5 billion in funding between 2020 and 2021. With their agility and massive war chest, digitally native brands have been threatening the market share of even the most established, well-funded companies. This is true for consumer-packaged-goods (CPG) brands across every sub-vertical, including household care, personal care, food, and beverage. Digital natives captured the hearts of Millennials and Gen Zs, (valuable consumer segments) by appealing to sustainability, quality and pricing transparency or disintermediation, all while simplifying and customizing the user experience.
The underdog startups have plagued the CPG giants with share-stealing, superior product launches over the last two years. But established CPG companies can become nimbler by investing strategically in technology that will consolidate comprehensive customer data to drive faster innovation and margin enhancements.
The Digital Landscape is Changing
Digitally native brands may soon lose the edge that helped them grow so fast, despite the scale of established CPG players. Until now, these nimble startups relied on third-party cookies that follow prospective customers around the internet. By purchasing this type of data from Google, Facebook and other third-party data providers, startups gained valuable insights into customers and could segment them accordingly. But the ability to leverage third-party data will soon change drastically in a cookieless world.
Thanks to a few massive consumer data breaches and a collective desire for more privacy, cookies will be archived into marketing history books. With this change, how will CPG advertising and marketing investments evolve in a cookieless world? And how will investment in the MarTech (marketing technology) stack need to change as a result? As brands struggle with answers to these questions, this might be just the catalyst that the established CPG giants need to pull ahead of the ankle-biters that have threatened their market share over the last several years.
Invest in New Tech to Replace Cookies
In preparation for a cookieless marketing environment, established CPG brands can reclaim their consumer base and drive growth through investment into technologies that digital natives may not be able to scale as easily. These technologies include:
Wipro surveyed 1,100+ executives at CPG companies (small-, mid- and large-cap companies) to understand where companies are currently investing and where they plan to invest in the next two years. The survey revealed that AI is the top current investment, with data warehouse management and the internet of things (IoT) the top future investments that are anticipated over the coming two years.
Imagine a product innovation pipeline fueled by smart investment in AI. Raw material trends could be sourced more easily. What was historically a manual and tedious process – R&D and marketing teams traveling around the world in search of the latest ingredients; procurement teams struggling to engage and negotiate selected raw materials within the timeframe of the launch; and finance teams working to forecast and create viable P&Ls – could now possibly be simplified into a few simple steps. Classical in-house use-testing could be scaled more easily, and packaging aesthetics could be tested through VR rather than manual and costly in-person testing. Custom or stock packaging can be sourced and developed collaboratively through AI and virtual reality.
Lockdowns Highlighted Process Inefficiencies
When running product innovation for a CPG company, I observed that it was very challenging for the cross-functional teams of R&D chemists, packaging engineers, innovation managers, marketers and visual merchandising designers to collaborate on a multi-million-dollar new product launch during the pandemic lockdown. Packaging options were reviewed on Zoom, which was particularly difficult for the custom-tooled portion of the design. The R&D team mailed the formulation submissions to each team members’ homes via FedEx and sent a survey to help prioritize the formula options. The team took turns driving into the office to look at elements of the new product that could not be replicated and mailed out for review.
This process is the bread and butter, so to speak, of how packaged goods companies create and market new products. The pandemic highlighted the vulnerabilities of these basic CPG practices. New product development commercialization is costly, time-consuming, manual and hit-or-miss. And while AI probably won’t replace the creative genius of successful cross-functional product development or a marketing team, it will certainly help streamline processes and drastically shrink the expense and timelines from concept to shelf, cupboard or bathroom vanity.
Lessons Learned from the Old Ways of Working
As products are commercialized, cross-functional teams work with finance partners and consumer insights teams to set the right price that the market will bear (with the retailer having the final say) and forecast product demand accordingly. If only one lesson was learned from the pandemic, it was that supply chains need to be nimbler to avoid both stockouts and over-production. In the future, better, more accurate forecasting will be available through advanced neural networks. This new technology is far more accurate than the traditional CPG forecasting models of the past. It not only incorporates lift metrics from marketing levers and historical averages of competing products, but also factors in industry outlook, competitive moves, cyclical factors, and demographic changes making it faster and far more accurate than traditional forecasting models. This will become even more relevant once cookies are out of the picture because advertising lifts will change (and will potentially be harder to measure).
Perhaps the biggest antidote to the cookieless problem is the advancement of first-party data. With data privacy laws and regulations tightening globally, the responsibility of owning and learning from internal data will fall directly on CPG companies. The good news is that most CPG companies own volumes of data across the omnichannel, including from internal call centers, DTC commerce sites, in-store retail, and social media properties, to name a few. The challenge lies in integrating these disparate sources of data to gain the most value.
Imagine an internal data source that incorporates consumer insights from every touchpoint and uses AI to filter through the noise and categorize findings for quick and easy insights. This end-state will also change the relationship with agencies, which used third-party data to develop media recommendations. The onus of understanding how best to acquire, retain and maintain customer relationships will fall more squarely on internal marketing departments. With a well-oiled internal customer data platform, analysis and decisions will become clearer.
If there was ever a natural selection test for the CPG industry, marketing without cookies will weed out the weak and the unprepared. The companies who are investing now are the ones who will win. And that’s just the way the cookie crumbles.
Sector Domain Head, North America Consumer Goods Consulting, Wipro Ltd
Manini has 24 years of experience in line management roles at companies including Estee Lauder, L’Oréal, and Mondelez, as well as management consulting experience in both the retail and CPG sectors, at Kantar and PwC. She has advised clients on creating the store of the future using technology to drive shopper engagement across the omnichannel. Manini is an adjunct professor of retail and marketing at Columbia Business School and NYU Stern School of Business, where she teaches Omnichannel Retailing and Retail Merchandising Strategy, respectively.