Marketing CPGs will depend on 'buying' vs 'shopping' in future: EY

To be, or not be, a commodity.

In the next 10 years, consumer packaged goods (CPG) companies will need to compete in a future wherein products will be classified between shopping and buying. The finding is part of the latest report from the consumer products & retail practice at Ernst & Young Solutions LLP, which identified hypotheses about the forces that will change consumer-facing companies in the next ten years beyond recognition and how they must create and capture value. 

Products categorised under "shopping" will be the ones where human beings will be active participants throughout the customer buying journey, with AI and bots as assistants for verification purposes. These products will be brands and high-involvement purchases. On the other hand, products categorised under "buying" will be commodities that serve a function rather than a meaning, with need identification, consideration, and purchase being automated tasks left to IoT devices that interface with e-commerce stores without human intervention.

Furthermore, the oceans of data captured over time mean that demographic-based segmentation will be a thing of the past, with more CPG companies targeting prospective customers with behavioristic and psychographic-based segmentation, depending on what story the market wants brands to say about themselves.

The conclusions in the report findings, which break the foundations of some marketing principles, may very well have been a hard sell ten years ago. In the era of Unilever purchasing The Dollar Shave Club for $1 billion in order to acquire the direct to consumer (D2C) capability and Procter & Gamble attempting to replicate the model with minimal success, the CPG companies of today can no longer pay the price for inaction nor failing to be future ready.

"We are past the stage where we have to sell this to [clients]," said Chandan Joshi, partner, global emerging markets leader, consumer products & retail, Ernst & Young Solutions LLP. "Five years ago we were trying to educate clients to think about consumers as individuals and connect directly to those individuals and not work with these generalisations as we have been doing in the past."

According to Joshi, segmentation has been a means by which marketers make sense of customer data, adding that in the heyday of demographic-based customer segmentation, the technology to target 100 million prospective customers on an individual level did not exist.

"It's mostly a question of technology and data," said Joshi. "If you are willing to share the data - that is question one and secondly do I have the capability to handle that much data."

The FutureConsumer.Now report by EY derived its conclusions after a year of extracting qualitative insights through in-depth hackathons featuring global innovators, futurists, business leaders and EY professionals, whereby over 150 drivers were identified that could shape the future consumer. Eight hypotheses relating to a key aspect of the future consumer journey were finalized for closer examination. These include how people will shop, eat, stay healthy, live, use technology, play, work and move.

A central finding relates to how consumer-facing companies may have to re-categorize product portfolio's between shopping and buying. According to Joshi, shopping will refer to high involvement products that will require human intervention during the research and consideration phase and likely represent brands of value-based pricing. AI and bots merged with the smart home ecosystem of IoT will play the role in purchasing commodities that require little or no human intervention, part of the mundane routine and will represent the cash cow of the CPG portfolio.

At present, products across categories and verticals are classified by high involvement and low involvement, with EY's research implying that the future will comprise of products and services between AI-buys and human-shopping.

Based on bespoke capabilities, objectives, and goals, businesses will decide whether they want to build high margin brands that require experiential engagement for consideration or perhaps want to take the safe and risk-averse route in becoming commodities that are part of the daily routine of the customer. The report insists that companies that want to serve these future consumers and build profitable relationships with them will have to reinvent themselves, adding that psychographic-based targeting will be the norm of the future where CPG companies will promise a lifestyle instead of a product.

"We're past that stage where companies are resistant to the change," said Joshi. "Because companies have seen the effect of disruption, the cost of their inaction, particularly in retail and even in CPG now. The [C-suite] discussion has moved on from 'I think we need to do something' to 'this is what I'm already doing and I need to do much more' - so it has clearly shifted in the last five years." 

In an era where customers are seeking convenience, advanced personalization, self-optimization, bespoke lifestyles, and data monetization, CPG companies that want to prepare themselves for this new normal will need to plan different scenarios. These include being able to deliver consistent customer journeys through multiple systems, whether it be experiential or IoT based commerce while being able to compete in a world of personalization where scale is not a competitive advantage.

"All these major companies are now investing in data infrastructure, analytics capabilities, and supply chain flexibility, which are the three big capabilities that you need to personalize," said Joshi. "[Marketers] need to have a view whether your business is evolving towards this automated buying kind of category or shopping category, and take the necessary actions depending on which bucket you're going to be in or change the bucket."