We’re used to the idea that industries are disrupted by new technology. But a full scale, revolutionary disruption of the consumer products industry is gathering force in the US economy, and it’s being driven by consumers like us. We’re shifting our dollars to a new class of goods, brought to us by a new generation of companies. Much as the adoption of solar energy has been driven by actions of millions of individual home owners, consumers are shifting how they eat, dress, and care for themselves and their homes. Given the opportunity to purchase natural, organic, sustainable, and safe products - people are switching to these alternatives in ever growing numbers.
A New Generation of Consumers Has Product Heavyweights on the Ropes
As a result, industry giants, and the retailers that serve them, are in full panic, rushing to embrace the trend as their only path to survival. Traditional brands are losing consumers faster than population growth can replace them. As documented by Boston Consulting Group (BCG) and Information Resources, Inc (IRI) in their annual study, the larger CGP companies are like canoes paddling upstream in a rapid - spending huge dollars on advertising and promotion, and going nowhere. As a group, they have grown sales at around 1 percent annually - for the last six years. Meanwhile, a wave of smaller companies is capturing all the growth in consumer spending, surging like salmon up the Columbia. Companies with less than $100 million, have grown more than 5 percent over the same period, while the big guys languished.
At RightJoin, we focus on these smaller marketers, helping them understand and reach their customers and prospects by implementing Big Data strategies. With many of our natural food industry clients, we can see the shift in buyer profiles as these healthier, organic, and many times, more sustainable products become more mainstream. It used to be the ‘Whole Foods consumer’, as a parallel universe of upscale, urban young people and well-off families sustained a thriving, but small, universe of ‘alternative’ products through specialty channels. Natural brands never came to the attention of the majority of the country, and a preference for products that were organic or sustainable was viewed by most as a fringe obsession.
But this is changing...
Stepping back to view our clients collectively, we can see that a preference for natural products is moving beyond the ‘Whole Foods’ customer. Groups like millennials with moderate incomes and average levels of education living in major metropolitan areas, and middle-class women in more rural communities, looking to maintain health and appearance as they move into their post-child raising years, are infiltrating the customer sets of marketers we serve. Natural product buyers still skew toward owning an Audi or a Subaru rather than a Chevrolet or an F100, but the gap is closing. And as those Chevy and truck drivers drift into the natural product lane, the consumer products business is swerving to follow.
Traditionals shift towards Nutritionals
That same BCG study showed that the large companies that performed well, delivering growth and shareholder value, were those that successfully acquired upstart companies in their categories, and nurtured them enough to sustain the growth post acquisition.
Companies like Hershey’s, which bought Krave and BarkThins to add to its artisan chocolate brands, Dagoba and ScharffenBerger, Johnson & Johnson with Aveeno, Pepsi with KeVita, or Unilever with Seventh Generation are looking to graft growth onto the aging base of their existing product lines.
It’s just about the only strategy that’s working for big Consumer Packaged Goods (CPG) companies, although some, like Kimberly Clark, with Huggies Nature Care, are successfully embracing the natural without having to acquire the means to do it through an acquisition.
It’s worth pointing out that the current move to natural and sustainable does not mean people are shifting to products that are boring or merely functional. Tasty snacks and convenient beverages are the hottest natural categories in the food sector. For example, packaged goods category with the unappetizing label, ‘plant-based’ food, now includes flavorful, convenient, creamy non-dairy beverages and yogurt alternatives from companies like Califa Farms and Forager.
We're not in Kansas anymore
And looming on the horizon is cannabis, a monster ‘plant-based’ product that consumers as voters are enabling to join the legitimate economy. There is an understandable focus in the press on cannabis’s similarity to alcohol and tobacco as comparable products, but cannabis advocates make a strong a case for healthful benefits and characteristics of the plant, particularly as an alternative to pharmaceuticals for relief of pain and chronic conditions. So even cannabis, as it emerges from the shadows, is well-positioned to benefit from consumers’ move to embrace healthful, safer, sustainable products.
Fighting for the 'sustainable' consumer in a niche market
Last of all, an important part of the story of the growth in a new generation of consumer products is that the upstarts are finding their customers in an entirely different way. The more established set of CPG firms required large-scale manufacturing to reach unit costs that yielded acceptable margins. Enormous investments in television advertising enabled these companies to gain sufficient awareness at the time of launch to drive enough buyers into stores to justify allocating scarce shelf space to achieve high levels of sales in short periods of time. It was a system that favored the well-capitalized incumbent. Major companies like P&G, Unilever, and Pepsi carefully curated their line of products to offer consumers enough variety to maintain their market share while suppressing innovation and competition that would undermine profits.
Consumer adoption of the internet has broken this oligopoly hold on the product innovation process.
Most of the companies capturing growth today have never shot a single TV commercial. They start out life with an Instagram page, add a website and a presence on Facebook, and launch e-commerce on Amazon. They’ll recruit some ‘influencers’ who are active on social media, and work hard to get their advocates to promote them on their pages. When they get a little bigger, our upstarts will start selling their products through their own site, and will support that effort with some paid Google search and some retargeting on Facebook. As they add retailers, they will support store promotions, and might participate in the social media ad campaigns offered by those retailers, who are leveraging data on their loyal customers to promote sales to likely buyers.
Growth of upstart brands is truly consumer led: Find your audience, and encourage them to promote you on social media and in their daily life.
Breaking the mold - Where we come in...
And that's where RightJoin comes in... We help our clients get smarter about their own ad targeting, leveraging their customer data to better understand their best customers, and find and reach those prospects who have the greatest likelihood to become customers, influencers, and promoters of their products.
And so, while consumer products today is not primarily a story of technological disruption, the technological age we live in, one of personal communication and extreme, costless interconnection between people, provides an essential ingredient to the recipe for success of the challengers. Their approach offers a window into the future of marketing where customer data intersects with mass media regardless of channel.
Social media is the new mass media, and successful consumer products upstarts, among their other achievements, have mastered the art of marketing in the social media realm.
At RightJoin, we make it easy for you to truly understand your customer, and to leverage that understanding to make marketing communications more efficient and tailored, transforming YOUR customer data into marketing you can trust.
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