The document discusses five key digital transformations in the consumer packaged goods (CPG) industry: 1) Establishing direct consumer relationships through digital and social media platforms, 2) Harnessing data and predictive analytics to gain insights, 3) Leveraging mobility, social media, and location-based services, 4) Driving demand through digitally-enabled innovations like online ordering and home delivery, and 5) Adapting to consumers' multi-channel shopping behaviors across digital and physical channels. The CPG industry is rapidly adapting to remain relevant in the new digital landscape and directly engage with consumers.

1. Consumer Packaged Goods (CPG)
Industry - 5 Digital Transformations

2. Over the past decade, the Retail & Consumer Packaged Goods (CPG) landscape and
shopper behavior has changed significantly as the result of digital advancements, the
introduction of the smartphone and the explosion of social media. It will not be an
exaggeration to state that we have rapidly evolved from "Cardboards to Connections" with an
onset of the digital age. CPG companies in particular have begun to think beyond cardboard
boxes and are actively considering how digital touch points could create and enhance the
shopping experience of today's shoppers. A little over decade back, consumer reach was
limited to traditional channels like TV commercials, newspapers, magazines, billboards, etc.
as a primary means to get introduced to new products or receive branding information.
However, with advent of Mobile technology and Internet, consumer behavior & needs changed
rapidly. CPG companies will have to quickly adapt & innovate to stay digitally connected with
the new millennial consumer. In fact, Retailors lost little time in jumping on the digital
bandwagon, using social & digital media effectively feeding information like upcoming sales,
promotions, digital coupons, etc. to smartphone savvy consumers.
One area that stands to see a major impact from mobile tech is shopping for consumer-
packaged goods. CPG brands and Retailers alike are eager to leverage mobile technology to
communicate with target audiences throughout the customer journey as well as enhance the
overall customer experience. One challenge that marketers face, however, is understanding
how exactly consumer use mobile tech while shopping and how best to message them
Nitin Jain
Global IT Delivery Leader | 15+
Years Exp Engagement &
Program Management |
Customer Centric | Expertise in
CPG & Retail

3. According to Patrick Hadlock from The Boston Consulting Group:
“Consumers are embracing technologies, devices, and services that make everyday tasks such as
shopping, cooking, and even commuting quicker, easier, more fun, and more efficient. This is
fragmenting the purchasing pathway as consumers regularly switch back and forth between
digital and physical channels, and they interact digitally both in and outside of stores”
So far I have been using Retailor and CPG in the discussion without much differentiation and
some of you must be wondering, is there really a difference between a Retail and CPG and the
way they interact with a consumer? well, the answer is yes and let me quickly touch upon that
before getting into further details.
What is the difference between Retail and CPG?
Retail refers to the sale of products to its end users/consumers whereas Consumer packaged
goods (CPG) refers to a broad spectrum of manufacturers, sellers, and marketers of physical
goods (typically packaged in some way, shape or form) used by consumers and sold through a
retailer. The easiest way to think of retail is anyone selling to the end user, typically through
brick-and-mortar retail stores, online e-commerce, or more outdated channels such as
catalogs and phone orders. Popular examples of retailers include Walmart, Target, Amazon,
Costco, and basically every store you see at a shopping mall. Restaurants are also a form of
retail since end users buy and consume the food to be eaten.

4. CPG is a broader space that encompasses companies one step earlier in the supply chain involved in
the development, production, marketing, and selling of products targeted for end user
consumption. Typically, CPG is involved at the wholesale level, so CPG companies are
manufacturing the products sold to and that sit on the shelves of retail stores. Popular examples of
CPG companies include Proctor & Gamble, Johnson & Johnson, General Mills, and Clorox, all of
whom have a huge portfolio of brands. You can oftentimes find that CPG companies also have an
element of retail. For example, fashion brands such as Gucci, Prada, or Dolce & Gabanna are all
technically CPG companies since their primary business is creating and selling handbags, oftentimes
to high-end retailers such as Barneys, Saks, and Neiman Marcus. However, they also have retail
stores where they exclusively sell their own products. Hence, the lines between these two industries
can oftentimes be blurred which is why they are so frequently referred to in conjunction with one
another.
Changing Landscape of CPG and Emerging Trends
Global consumer packaged goods (CPG) firms face a world in which their accumulated brand value
is threatened by the relative decline of the importance of mature markets serviced by “modern
trade.” These firms are faced with relative decline in Europe and American markets, pressure to
accelerate new product introductions (NPIs), and competitors’ exploitation of direct-to-consumer
marketing and fulfillment. CPG brands need to transform from the analog marketing and sales
model that served them so well in developing and consolidating modern trade to a new combination
of direct marketing, digitally enabled product innovation, and multichannel selling. Direct-to-
consumer initiatives will help them improve margins and loyalty, accelerate NPI, fully service the
vast developing market opportunity, and more effectively win and serve a new wave of digital
consumers in developed markets

5. As information intensity grows, world-class IT in CPG companies requires more than just cost-
effective service provision. Companies seeking to seize the commercial potential of technology will
need to invest in key areas to keep pace not just with their competition but also with the
expectations of their retail customers and information-savvy consumers. The possibilities created by
technology should spark innovation in business processes and product offerings, and data-driven
insights should help shape business strategies.
Digital’s impact is all encompassing and unavoidable. A recent report produced by The Boston
Consulting Group, Google and Information Resources Inc. (IRI), for the Grocery Manufacturer’s
Association warns of the tipping point of digital media that the CPG landscape is quickly
approaching. The marketplace will likely become a “1-5-10” market, with digital’s present 1 percent
share of CPG sales increasing to 5 percent by 2018, and speeding to 10 percent soon after. To avoid
going the way of Blockbuster and Circuit City, a renewed focus on adaptability and innovation are
paramount for grocery retailers and CPG brands. Digital penetration of 5 percent represents nearly
one-half of total CPG growth during the next five years, meaning that companies without an
effective digital capability risk stagnation, loss of share, and even shrinking sales. Early movers, on
the other hand, have the opportunity to establish leading positions that will be difficult for others to
infiltrate. Digital penetration rates will vary in different locations and categories. Some categories
could see digital penetration of 30 percent or more by 2018.
Let's explore a few key areas in which leading CPG companies are transforming business
environment using IT enabled digital technologies, thereby creating new commercial and
operational capabilities.

6. Digitally Driven Demand
Some consumers may remember the days, a half-century ago or more, when milk, eggs, and butter
were delivered daily to the door. A few might even recall horse-drawn, ice-cooled carts on those old
milk runs. Gone are the horse-drawn, ice-cooled carts, but millions of people today, in cities from
Austin to Boston and from San Francisco to New York, live an updated version of home delivery from
such e-commerce services as AmazonFresh, FreshDirect, and Google Shopping Express. Millions
more receive regular deliveries of household staples through online subscription services such as
Amazon’s Subscribe & Save. Technological advancements in retail and other sectors have raised
consumers’ expectations by demonstrating new ways that companies can deliver convenience,
choice, and value at their doorsteps.
There was a time when you had to search through cook books for new cooking recipes, make a list of
ingredients and go shopping before you could try your hands on a new recipe. Today, you could
receive healthy recipe suggestions daily on computers, tablets, or smartphones, order the
ingredients online, and have them delivered or pick them up, already packed, on your way home
from work. There are several new entrants across globe such as Greenling, in Austin, Texas, that are
reshaping the value chain by delivering fresh, locally produced meats, dairy products, vegetables,
and other items directly from farms to consumers, without anyone having to set foot in a store.
Technology-enabled innovations will drive much of the growth in CPG. As consumers embrace
new experiences, their habits shift. Evolving purchasing behaviors in one category can soon transfer
to others, driving those segments toward their own tipping points. Take for instance, not so long
ago, trying out footwear or clothes was an essential part of shopping experience, in which the
consumer tends to be highly engaged in the purchase decision by first trying out the products before
making purchase decision - online penetration rose to 10-12 percent, likewise personally checking
the freshness and arrangement of cut flowers was a central part of the flower-buying experience.
Telephone ordering enabled long-distance delivery, but the consumer’s inability to see the actual
arrangement was a serious constraint. In the early days of Web-based commerce, 1-800-Flowers
leveraged its lead in flowers ordered by phone, recognizing that the digital option offered a better
experience for customers. The company invested heavily in digital content, bringing flower
shopping to life and helping to drive the cut-flowers market to its digital tipping point.

7. The category now has an online penetration of 15 percent and is growing. In each of these segments,
digital sales rose to a tipping point, then took off once the industry got the digital offering right. As
technology and innovation drive digital interaction more deeply into consumers’ daily lives, CPG
categories are approaching a similar juncture. Digital channels currently have the greatest influence
on purchases of home care and general food products but are likely to expand in importance over the
next five years as the market moves to a 1-5-10 world.
Multi-Channel Buying Behavior
With the evolution of mobility and digital shopping, consumer behavior has undergone a
fundamental shift and is continually evolving as new digital platforms emerge. Consumer may
not shop for the same products the same way, visiting the grocery stores or multi-brand retail stores
multiple times every week but may chose to use new digital medium. In not so distant past, people
still bought CDs in record stores, rented videos and DVDs in video stores, read print newspapers and
magazines, and purchased airline tickets and hotel rooms from travel agents. However, as each of
these industries reached their digital tipping points, they changed rapidly& quite dramatically, to
the extent that today all of these products and services are available online on our digital devices all
the time. Digital shopping has evolved very quickly into a highly complex ecosystem that has
fundamentally reshaped—and continues to redefine—the way consumers engage with brands and
purchase products. The digital experience has already upended every stage of the traditional
purchasing pathway: discover, search, locate, buy, and post purchase. The new pathway is much
more fragmented and dynamic, thanks to the ability of consumers to share their experiences and
knowledge. At every stage, they can switch back and forth between digital and physical shopping
channels, interact digitally in and outside of stores, and make use of numerous channels over which
the retailer has no control.

8. Today, the impact of digital is felt most acutely
at the early stages of the purchasing pathway.
As per BCG research, almost 40 percent of off-
line shoppers and more than 30 percent of
online shoppers reported that technology’s
impact is greatest during the discovery phase.
More than a quarter of both offline and online
shoppers said that its biggest impact is in the
search phase.
Manufactures' brands still matter to buyers,
and brand websites can have a significant
impact, especially for in-store shoppers early on
the purchasing pathway. While Amazon leads
in consumer engagement for e-commerce
shoppers during the discovery, search, and
locate phases, its advantage drops away for
online consumers making in-store purchases
(and, of course, for offline shoppers,
too). Manufacturers and retailers alike have an
opportunity to substantially enhance their
influence and impact by providing great
content online and building direct
relationships with customers. Let's take this
thought to our next section and discuss in
greater detail.
Establish Direct Consumer Relationships
CPG industry is increasingly relying on digital
& social media platforms to create direct and
maintain lasting relationship with consumers.
Studies have shown that the proportion of
consumers who have returned to branded
goods since 2008 has been lower than after
previous recessions. Engaging directly with

9. consumers can counteract this development by increasing loyalty and by improving insights on
individual consumer needs, which can in turn lead to more accurate targeting of products and
promotions. Many companies have found ways of going directly to consumers by offering them
online services rather than just products. Kraft, for example, created a service available through a
Web site and an app, much like a social network, where consumers share recipes. Johnson &
Johnson’s BabyCenter provides an online community where parents share advice and product
recommendations.
Many CPG companies are becoming engaged with their consumers on external social-media sites.
McKinsey’s research across 40 companies found ten distinct methods to interact with consumers
on social media throughout the product decision-making process. These range from passive
techniques, such as monitoring blogs and social networks for references about brands, to direct
engagement in the form of targeted marketing, new-product introductions, or consumer
outreach during public-relations crises. Coca-Cola, for example, monitors what consumers are
saying about its products in real time. Coke was the first brand in the world to reach 50 million
Facebook “likes,” while Diet Coke had 225,000 Twitter followers as of the end of 2012.
Technological ability to maintain social brand presence, monitor consumer conversations, and
respond in real time requires a complex and evolving set of technology solutions, which CPG
companies are focusing more and more. I am going to touch briefly on this aspect in next
discussion point.
Harness DATA Power using Predictive Analysis
CPG companies have traditionally relied on channels like historical performance, past metrics,
channel demands, market sentiments, market research etc. for determining price, promotions,
new market launch, and positioning of products. With the consumers moving to digital
platforms, the tried and tested methods to gauge markets and consumer behavior became
obsolete and a good number of CPG companies started to turn to Data Predictive Analytics to
realign their Go-To Market strategies. By taking a multi-pronged approach, the company behind

10. brands like Orville Redenbacher, Chef Boyardee and Marie Callendar’s successfully harnessed the
power of data to mine for insights from its most vocal advocates and critics on social media.
Through these insights, ConAgra found that consumers desired to be part of the decision-making
process. Leveraging social listening tools gave ConAgra the capacity to receive online feedback in
real-time without squandering money or time offline on focus groups and market analyses.
However, many retailers and CPG firms are either drowning in a deluge of data without being
quite sure how to gain insight from it or skeptical about the much-hyped potential of data
analysis. However, big data and advanced analytics are among the most important battlefields for
retail and CPG companies today, according to a blog post by Peter Breuer, director of McKinsey &
Co.’s retail practice in Germany
“Recent research by McKinsey and the Massachusetts Institute of Technology shows that
companies that inject big data and analytics into their operations outperform their peers by 5% in
productivity and 6% in profitability,” Breuer notes. “Our experience suggests that for retail and
CPG companies, the upside is at least as great, if not greater.”
Here are some of the potential ways companies can achieve these gains:
• Data analysis lets them understand a customer’s behavior throughout each step of a shopping
journey. This allows them to bolster up-selling and cross-selling activities.
• Companies can “listen” to how customers talk about their products via social media, including
the features they like and if they would purchase the same products again.
• Data analysis allows companies to better track customer responses to promotions and media
campaigns so they can make decisions on refining those campaigns for the highest success
rate.

11. Tesco systematically integrated analytics and consumer insights to build a sustainable competitive
advantage. By analyzing data from its Clubcard loyalty program (which comprises more than 1.6
billion data points, ten million customers, 50,000 SKUs, and 700 stores), the retailer could better
segment and target customer occasions.P&G recently announced that it is increasing its analytics
workforce fourfold. The company clearly believes that the way information is used in the business
world is fundamentally changing and sees analytics as a core source of competitive advantage in the
coming years. It is widely expected that many other CPG players will soon follow suit.
Mobility, Social Media and Location based services
In today's smartphone age, majority of consumers are digitally connected most of the time, retail
store's sales & service workforce are also similarly connected via smart digital devices, providing CPG
companies a unique opportunity to leverage these new digital tools & interaction models to connect
with retailers and individual consumers wherever they are and whenever they want. Mobility has
greatly enhanced "Direct-To-Consumer" marketing strategies of CPG companies in recent years.
Mobility combined with location based services are widely being used these days by retailors and
CPG companies alike to send consumers promotional alerts, digital coupons, notification on new
services or products availability based on their prior shopping habits and behavior. For instance, a
consumer heads for the drug store with a quick hit list of health and beauty items she wants to
purchase before a weekend trip. She enters the store and opens the retailer’s mobile app, which
knows the store location, based on geospatial data pulled from her phone. The app syncs up with
consumer's shopping list app, which then highlights those items on an interactive map of the store.
Within minutes, she easily finds everything she needs, aside from one item that is out of stock. Not
to worry – she selects the “home delivery” option and that item is on its way. Levi Strauss, for
example, uses social media to offer location-specific deals. In one instance, direct interactions with
just 400 consumers led 1,600 people to turn up at the company’s stores—an example of social
media’s word-of-mouth effect.

12. Like many businesses, food and other, Tyson sales struggled after the 2008 recession. Shifting its
business model to include a range of channels to reach consumers both online and offline was key to
moving past sluggish years. For the launch of a recent product, Tyson focused its marketing strategy
on retention and loyalty, rather than going after new customers. A focus on storytelling was created
through a profusion of social actions like an influencer campaign, Twitter parties and more. The
brand paired this with mobile initiatives like geo-targeting in an effort to link in-store and digital
marketing efforts. The result? Triple-digit growth in sales. Mobile solutions are also increasingly
important within the enterprise itself. One CPG manufacturer, for example, equipped its
merchandisers with tablet apps that use pictures and data entry to track on a daily basis how much
shelf space it was allocated in comparison with the competition and whether retailers were
complying with promotion agreements. By measuring and acting on this data, the company doubled
its shelf space within a single region and increased retailer pricing and promotion compliance.
As the emerging technology capabilities make the mobile device the primary personal shopping
tool, with which consumers discover, try, buy, and share experiences with new products, the cost of
product launches will decrease and their impact will increase.
There are a few more equally important CPG areas like Supply Chain management, Idea to
Product Speed, Safety & Regulations that are also being transformed by incorporating digital
technologies and driven by new age consumer behavior. Consumer-goods manufacturers are
increasingly moving toward demand-driven supply-chain systems in order to minimize inventory
levels, improve service performance, and reduce stock-outs. Adopting this approach has required
companies to develop new algorithms to integrate near-real-time demand data with traditional
forecasts and develop new IT systems to facilitate data sharing with customers and distributors. For
most consumer-goods companies, introducing new products faster, at lower cost, and with greater
likelihood of market success is the constant but elusive goal.

13. CPG companies are also increasingly using radio-frequency identification and bar codes, and
additional authentication such as holograms and nanotags to trace its products through the various
stages of the supply chain. There is an ongoing effort in CPG industry to leverage available digital
platforms to integrate Omni-channel strategies with seamless shopping experience for
the consumers.
while many CPG companies have established a digital presence — a website and social media sites
and some digital advertising — most have yet to fully integrate digital into their operating model,
build a big-data analytical capability, pursue a multichannel strategy or tailor their product offerings
to the digital or e-commerce marketplace.
“All CPG companies can make a series of low-risk, 'no regret' moves that will better prepare them for a
1-5-10 world,” the BCG report states.
However, there is a big cost to inaction, too. CPG companies will not only abdicate to retailers the
opportunity to shape the evolution of e-commerce in the sector but also risk losing control of their
own margins, share, and brand equity in the fast-growing digital channel. Researchers warn that
companies that do not play in the digital game are likely looking at flat or shrinking sales. The
combination of dynamic pricing and consumers’ ability to receive real-time price comparisons and
notifications will squeeze margins.
I think that the Jury is still out...Do you think CPG industry is ready for the digital transformation?
References: gmaonline.com, mckinsey.com, bcgperspectives.com
Images: www.progressivegrocer.com