By Keith Anderson, VP Strategy and Insight, Profitero
Most CPG firms are aware of the tremendous growth we’re seeing in the eCommerce channel from both a volume perspective and the disproportionate influence it has over offline retail.
According to an IRI/BCG/Google study for the GMA, within the next 5 years, 50% of growth in CPG is expected to come from eCommerce, and that’s not taking into account the impact of the online channel on physical stores. Deloitte Digital suggests that almost two-thirds of every dollar spent in brick-and-mortar stores is now influenced by a digital interaction.
eCommerce is essential but difficult
A growing consensus among leading CPG firms is that online is a channel that can’t be ignored but fundamental challenges remain. As the channel’s importance grows, so do budgets, but it becomes increasingly difficult to make informed decisions about where to invest without transparent performance metrics.
Lack of eCommerce data is one of the greatest challenges facing CPG firms: data on the total online retail market such as category size, growth rates, and brand shares are largely unavailable at the level of detail and frequency that CPG manufacturers have come to expect for brick-and-mortar retail.
There are also some challenging economics when it comes to selling online: making money both as a retailer and a supplier when shipping costs $6 or $7 and the price point of one of your SKUs may only be $4 or $5.
And equally, the pace of change is another significant challenge: new retailers such as Jet and Boxed continue to emerge, as well as devices such as Amazon’s Echo and Dash that have implications for how brands interact with shoppers.
Where are you?
Key to growth for CPG and FMCG brands in 2016 is a roadmap to better represent your brand in the online channel, as well as building the toolkit you need to outperform your competitors.
But how ready are you to not just participate in the eCommerce channel but win?
One of the very first steps is to build awareness and support within your organization among senior executives – those who have direct influence over resource allocation and strategic direction.
Assuming you have internal support and an eCommerce strategy in place, you then need the team and toolkit to execute.
Profitero works with more than a dozen CPG brands globally and encounter many more, and in our observations less than 20% of the industry’s firms rate as “advanced” in their readiness – that is, have executive support for eCommerce, well defined KPIs and a clear strategy, and dedicated resources for eCommerce – both in terms of people and tools to help drive performance.
We estimate that around two thirds of the industry are progressing – they may not have all these boxes ticked but they’ve made a stated commitment to success in the online channel – while 10% are just getting started.
So let’s take a look at what we believe are the 5 critical steps to gaining widespread internal support within your organization.
1. Define success
Before you can even think about winning in the online channel, you need to start by defining success. Is success about incrementality and eCommerce sales growth, or is it more about maintaining brand equity – ensuring your brand is best represented in the online channel to help influence offline sales?
Whatever your definition of success, it’s also important to consider the growing risk of doing nothing.
What we see in our monthly Amazon FastMovers reports, which rank best sellers in more than 10 categories, is that some of the fastest moving brands and products are emerging brands – and not necessarily the incumbent market leader in the brick-and-mortar channel. These brands have nothing to lose by investing aggressively online: establishing a compelling foothold and starting to displace ‘traditional’ leaders in the physical world.
Always estimate the size of the prize and understand how you compare to established competitors, but be aware that there are emerging brands playing offense aggressively in the online channel.
2. Define your strategy and focus
Once you have a clear picture of success, you need to prioritize, as no CPG brand manufacturer has infinite resource. This means assessing markets, retailers, categories, and brands for their current and future potential in the online channel.
This is a complex process, but for most CPG companies with shelf-stable products, we believe Amazon is one non-negotiable priority, with its share of the total online market in the US estimated to be somewhere between a third and 40%, (which varies by category).
Amazon is also increasingly focusing in the CPG space both in terms of its growing portfolio of products such as Pantry and AmazonFresh, as well as new devices and interfaces oriented to CPG products like Dash and Echo.
Planet Retail predicts that Amazon will see the highest growth between now and 2020 against all major retailers, so without question the e-retailer should be core to your online strategy.
3. Build a world-class team
In the early stages of maturity, many CPG companies assign responsibility for eCommerce to leaders with many other responsibilities. But it’s difficult to plan and grow without dedicated staff who are measured and motivated to focus on channel success.
As companies begin to prioritize ecommerce and dedicate budgets to hiring, we often see two different profiles of candidates considered to lead the initiative:
An experienced CPG/FMCG leader who has often come up through the ranks in disciplines such as shopper marketing – but who now needs to learn eCommerce on the job
An eCommerce/digital/social native who doesn’t have traditional FMCG skills but has a deep understanding of technology and eCommerce
Both models can be successful. But considering how essential widespread internal alignment and support is to executing on a solid eCommerce plan, domain experience in the FMCG/CPG industry combined with a passion for innovation, improving the customer experience, and retailer partnership is a formula for building credibility both inside and outside of a CPG organization.
More brands are also hiring from Amazon and other key online retailers to help them navigate exponential growth with perspective from the other side of the table.
4. Equip your team with the right toolkit
Once you have someone who is responsible for the overall direction of your eCommerce strategy (and ideally designated people on individual account teams to support this strategy), you’ll soon realise that there is an abundance of eCommerce solution providers in the marketplace to support your performance.
While keeping up with and evaluating the growing field of technology vendors is a monumental challenge, one priority should be to identify an eCommerce performance analytics partner. Most CPG companies’ leaders expect standardized reporting on performance – after all, you can’t manage what you don’t measure.
Analytics from Profitero focus on critical performance drivers in areas like pricing and promotion, product and assortment attributes, product content (images, titles, descriptions, ratings & reviews), and search and category ranking.
After all, true performance measurement must focus on outcomes, not just inputs.
5. Continuously measure and optimize
Defining KPIs and building a scorecard is critical to how the eCommerce channel is viewed broadly within an organization and how the leaders that own its success ultimately execute.
When Profitero begins working with a new customer, we conduct an initial assessment of their eCommerce performance to understand their starting point versus leading practices and specific competitors.
From there, the focus shifts to setting targets and continuous improvement.
What to measure?
While most global CPG companies’ eCommerce scorecards are quite detailed and nuanced, here is a selection of the most common metrics:
Sales & Share: While data on category size and growth and individual brands’ share of category data are still unavailable at the total market level and for most retailers, new approaches like Profitero’s Sales & Share estimates are helping CPG companies measure their ecommerce efforts through familiar metrics.
Discoverability in search and category rankings: can a shopper easily find your product, particularly on Amazon? 44 percent of US online shoppers now start their product search on Amazon, and just 30% of searchers click past page 1.
Accurate and optimal product content: once a consumer lands on your product page, is your product’s information accurately displayed to increase the likelihood of them buying?
In-stock availability: if your product is not in stock, shoppers simply cannot buy. An FMI-GMA joint study from 2015 (not focused explicitly on eCommerce) reveals that the first time a shopper encounters an out-of-stock product, 70% substitute a different product; the third time this happens, 70% switch stores.
Activating your customers: once a shopper has a bought your product, you have the opportunity to leverage brand advocates by encouraging them to rate your product and write a product review – helping you to drive more customers. According to a recent survey by UPS and comScore, 73% of shoppers say product reviews are influential when shopping online.
Future-proofing your business
As you get started on this journey to eCommerce success, plan to spend half or more of your time building internal alignment and support within your organization – especially if you’re the designated leader of eCommerce.
Wherever you can, translate familiar concepts from the brick-and-mortar world to the online channel. For example, if you’re talking about the importance of retailer search in the online channel, you might compare it to aisle placement in the physical store, where it’s important to be at eye level for the shopper to find your product.
And in the near-term, emphasize the risk of doing nothing as the online channel and its influence on physical retail continues to accelerate. New brands are continuing to emerge and investing aggressively online. With eCommerce set to represent between 5-10% of all CPG sales over the next few years, it’s essential to plan for success now to ensure you don’t get left behind.
Want to see how you stack up to your peers? Take our short eCommerce survey to understand the organizational strategies and priorities of the most successful eCommerce leaders.