Forrester: CPG Consumer Engagement in a Digital World

A Forrester Consulting

Thought Leadership Paper

Commissioned By Accenture

September 2014

CPG Marketers Plan To

Seize The Digital

Disruption Opportunity A Guide To CPG Consumer Engagement In A Digital World

Table Of Contents

Executive Summary ....................................................................................... 1

Digital Capabilities Disrupt CPG Marketing ................................................. 2

CPG Marketing Has Started Its Digital Transformation With

Increased Use Of Online Channels ............................................................... 3

CPG Marketing Identifies Barriers To Overcome To Achieve Digital

Transformation Benefits ................................................................................ 4

CPG Marketing Leaders Anticipate Huge Digital Transformation

Benefits ........................................................................................................... 6

Accelerate Your Analog To Digital Transformation ..................................... 8

Appendix A: Methodology ............................................................................. 9

Appendix B: Demographics .......................................................................... 9

Appendix C: Endnotes ................................................................................. 11

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1

Executive Summary

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.

In May 2014, Accenture commissioned Forrester Consulting

to evaluate the opportunity for CPG marketing leaders to

market and sell directly to consumers. Forrester developed

a quantitative survey to test the assertion that brands

cannot deliver a relevant, effective consumer experience

without also leveraging digital channels. They will have to

engage consumers in a dialogue, serve up customized

content and offers, and blur the distinction between

marketing, sales, service, supply chain, and R&D in order to

become consistently relevant and earn consumer loyalty.

Results from in-depth surveys with 35 CPG marketing

leaders at the C-level or VP level, and with 95 at the brand

manager level, show that marketers are keenly aware of the

threats and opportunities offered by digital transformation.

While they have begun their transformation and anticipate

accelerated innovation, along with increases in both

consumer lifetime value and average order value (AOV),

they perceive local cultural, legislation, and logistical

barriers to the digital transformation of consumer

engagement.

KEY FINDINGS

Forrester’s study yielded four key findings:

› CPG marketing professionals anticipate significant

investment in digital marketing, multichannel integration,

and digitally enabled innovation to target global consumer

market segments, increasing consumer lifetime value and

the number of “blockbuster” products.

› CPG marketing professionals expect proportionately more

growth in sales through their own digital channels than

through those of eRetailers.

› CPG marketing professionals believe that digital

transformation faces challenges from local legislation and

from limited digital support for new product introduction.

› Marketing and sales do not agree about impediments to

direct-to-consumer selling. Marketing does not see the

lack of internal integration across key functions or

departments as an issue in the same way that sales does.

Digital engagement complements the

traditional sales channel, media, and trade

spend, enabling firms to market directly to

consumers, engaging them in their chosen

channels, shortening the time and path to

purchase, and simplifying fulfillment and

consumer service.

2

Digital Capabilities Disrupt CPG Marketing

Data from the study showed that C-level marketing leaders

and CPG brand managers are acutely aware of changes in

the commercial environment that present both opportunities

and challenges related to digital transformation. We asked

them about the factors that favor adoption of digital

channels for increased consumer engagement and loyalty:

› Accelerated new product introduction. CPGs

participating in our study had a median of 90 product lines

that are currently being brought to market, and more than

half said that more than 10% of these were introduced in

the past year. Two-thirds of our survey respondents, 66%,

expect the rate of new product introduction to accelerate

significantly.

› Anticipated restructuring of marketing to global market segment focus. As savvy marketers, our

respondents recognize that the relative importance of

country/regional segmentation will decline in the face of

new consumers from developing markets swelling the

ranks of digitally addressable global market segments

with (some) common behaviors, values, and brand

attitudes (see Figure 1).

› Anticipated changes in channel mix. Respondents recognize that the vast bulk of sales today are still through

retailers and distributors (see Figure 2). They anticipate

the continued importance of trade spend, estimating that it

accounts for more than 27% of promotional funds now,

with two-thirds expecting a significant increase in the next

five years across all channels. Particularly, they expect to

increase their trade spend through digital channels, as

they expect proportionately more growth in sales through

their own digital channels than through those of

eRetailers. Seventy-five percentage of CPG marketers

believe that eRetailers sales account for 6% or more of

revenue today, with 85% of CPG marketers expecting

eRetailers sales to account for 6% or more revenue in the

next 5 years. While 60% of CPG marketers believe that

sales from their own digital channels account for 6% or

more of revenue today, with 86% expecting sales from

their own digital channels to account for 6% or more

revenue in the next 5 years.

FIGURE 1

CPG Marketing Anticipates A Shift To Global Market Segments

Base: 35 marketing decision-makers at global CPG organizations

Source: A commissioned study conducted by Forrester Consulting on behalf of Accenture, May 2014

“Please indicate how your firm is organized

to market to consumers.”

“How do you expect your marketing organization to

change in the next five years?”

14%

29%

17%

9%

3%

23%

Major account

Country

Region

Global market segment

Matrix

Some categories areorganized regionally and

some globally

29%

11%

9%

43%

0%

9%

Marketing will be organizedby major account

Marketing will beorganized by country

Marketing will beorganized by region

Marketing will be organizedby global market segment

Marketing will beorganized by matrix

Marketing will organize somecategories regionally and

some globally

3

CPG Marketing Has Started Its Digital Transformation With Increased Use Of Online Channels

Our survey respondents agreed that adopting digital direct-

to-consumer marketing and sales offered attractive

advantages. They have already started to invest more in

digital marketing, selling directly through digital channels

and measuring the impact of early direct-to-consumer digital

initiatives. Brand managers and heads of marketing told us

that:

› More and more marketing spend will be committed to digital channels. Surveyed marketers reported that 28%

of marketing spend is now devoted to digital channels and

media. None of the respondents in our survey expected to

decrease the digital share of marketing funds, and 66%

expected to significantly increase investment in digital

marketing.

› Most brand managers sell through digital channels. Forty-three percent of brand managers declared that

between 6% and 10% of global revenues are attributed to

their brand, with 37% claiming 11% to 50% of their

brand’s revenue is through digital channels (both their

own online channel and through eRetailers). Furthermore,

brand managers, in contrast to marketing leaders, believe

that in five years’ time revenues from their own

eCommerce or eRetailers will exceed revenues from

sales in stores.

› Heads of marketing anticipate an increase in sales through both their own online channel and eRetailers.

Of heads of marketing surveyed, 46% have 11% or more

of sales through eRetailers and 54% expect these digital

partners to account for 11% or more of revenue in five

years’ time. While only 37% claim that 11% or more of

their revenues are from their own digital channels today,

49% expect that 11% or more of their revenues will be

from their own digital channels in five years’ time.

› Personal social networks are the most adopted and actionable social medium. Most heads of marketing

(83%) claimed to use personal social networks and

corporate blogs as marketing tools (see Figure 3), with

microblogging sites as a close second. Twenty-five of the

29 firms that use Facebook think that it is the most

actionable social media insight, with a further 21 firms that

use corporate blogs finding them to generate actionable

insight.

FIGURE 2

Marketing Leaders Expect Most Sales In Traditional Channels



“What proportion of your global gross revenue is

through brick-and-mortar retailer websites

or eRetailers’ Internet channels?

“What proportion of your global gross revenue is

through brick-and-mortar retailers

or distributors?”

3%

0%

23%

29%

46%

3%

0%

11%

31%

54%

None

Less than 1%

2% to 5%

6% to 10%

11% or more

3%

3%

14%

26%

54%

3%

0%

3%

26%

69%

None

Less than 1%

2% to 5%

6% to 10%

11% or more

Today

Next five years

Today

Next five years

4

› Consumers in traditional channels promise highest lifetime value. Brand managers offered estimates of the

lifetime value of consumers buying through the brand’s

own online channel, through online partners, or through

the best performing conventional channel such as a

broker or retailer. As expected, given the heavy emphasis

on trade funds, brand managers believe that consumers

shopping through traditional retail promise higher lifetime

value. The lifetime value of consumers in CPG firms’ own

digital channels is the next most important and higher

than consumers in eRetailers’ channels (see Figure 4).

CPG Marketing Identifies Barriers To Overcome To Achieve Digital Transformation Benefits

Marketing executives and brand managers are acutely

aware of the threats and opportunities of digital disruption

for their brands and markets and have started to shift their

focus to digital channels, digital media, and direct-to-

consumer selling. They anticipate further benefits from

further investment but also perceive barriers to overcome.

Our survey respondents identified barriers to digital

transformation in terms of:

› Limited adoption of digital technologies in new product introduction. Surveyed marketers reported a

mixed level of digital technology adoption, with 91% using

virtual designs during the “ideation” phase of new product

introduction but only 23% sharing digital product images

online with retail distribution partners (see Figure 5).

FIGURE 3

Personal Social Networks Are The Most Adopted, Most Actionable Social Medium


Source: A commissioned study conducted by Forrester Consulting on

behalf of Accenture, May 2014

“Which of the following social assets are currently in

use anywhere in your organization for marketing/

consumer engagement?”

“For each of the following social assets you use, how

actionable are the insights from each social asset?”

(Respondents who answered “extremely actionable”)

Personal social networks 83%

Corporate blog 83%

Microblog 80%

Public community 29%

Listening platform 20%

Ratings/reviews 17%

Private community 14%

Ideation site 14%

Personal social networks(N = 29) 86%

Microblog (N = 28) 79%

Corporate blog (N = 29) 72%

FIGURE 4

CPG eCommerce Platforms Offer Greater Consumer Lifetime Value Than eRetailers

Base: 95 brand manager marketing decision-makers at global CPG

organizations



“What is the estimated lifetime value of a consumer

by channel?”

$5,690.26

$4,841.25

$4,052.41

$7,495.61

Own online channel

Partner online channel

Own mobile channel

Best performing\retaildistributor/broker channel

5

› Local cultural, legislation, and logistical challenges. Of our respondents, 94% agreed or strongly agreed that

local culture presents a challenge to CPG brands selling

directly to consumers through online channels (see Figure

6). Ninety-one percent agreed or strongly agreed that

local privacy and consumer promotion legislation

challenges the adoption of digital direct-to-consumer

initiatives.

› Path-to-purchase contextual challenges. Our survey

respondents strongly agreed that their internal

organizations’ sales, marketing, and consumer service

functions are highly integrated with common goals and

well-aligned measures of performance (see Figure 7).

However, in a parallel survey of account managers and

VPs of sales, Forrester found that sales leaders believe

more strongly than marketing leaders that responding to

the threats and opportunities of digital disruption requires

greater organizational integration across functions.1

› Less than half (49%) of CPG marketing leaders strongly

agreed that content and offers are sensitive to a

consumer’s current social context. In order to meet

consumers’ expectations and rise above the competition,

brands need to orchestrate consumer intelligence, custom

content, and multichannel touchpoints to deliver the

shortest, simplest, and most compelling path to purchase.

FIGURE 5

Limited Digitization Of Current NPI Processes




“How much of the ideation-to-launch process

is digitized today?”

We use virtual productdesign during ideationto mock up products

91%

We simulate physicalcharacteristics 51%

We bring consumers intovirtual stores to look at virtual

products on virtual shelves49%

We digitally assist thepackage prototyping

process46%

We digitally assist recipe andformulation trials 37%

We share digital imageswith retail partners online

23%

FIGURE 6

Local Cultural, Legislation, And Logistical Challenges




“What do you see as the main obstacles to digital

transformation of direct-to-consumer engagement,

digital consumer sales, and directly facilitating

a purchase in one to two clicks?”

60%

57%

57%

57%

34%

34%

31%

29%

Cultural attitude to onlinepurchasing makes selling directly

through digital channelschallenging

Local privacy and direct-to-consumer promotion legislation

makes selling directly toconsumers through digital

channels challenging

Logistical challenges to sellingdirectly to consumers through

digital channels

Restrictions around selling onlinein certain markets is an obstacleto selling directly to consumers

through digital channels

Strongly agree Agree

6

CPG Marketing Leaders Anticipate Huge Digital Transformation Benefits

Our respondents showed acute awareness of digital

disruption in CPG markets. They described their aspirations

to undertake wholesale transformation of the processes that

they use to bring to market and sell their products and

services and described in detail the barriers they must

overcome. They told us that they expect to reap the benefits

of digital transformation to:

› Accelerate innovation. A significant majority (89%) of

heads of marketing strongly agreed that digital direct-to-

consumer engagement, enabling brands to directly

facilitate purchases and introduce/retire product lines

more quickly, would increase the rate of innovation (see

Figure 8).

› Boost consumer lifetime value. Most CPG heads of

marketing (77%) believe that digital transformation will

boost consumer lifetime value.

› Lift average order value. Almost three-quarters of heads

of marketing (74%) believe that direct-to-consumer

initiatives will increase average order value, using digital

channels to upsell consumers with whom the brand

develops a relationship.

› Increase wallet share. Most CPG heads of marketing

(77%) believe that digital transformation will offer the

opportunity to engage consumers in a mutually productive

dialogue, enabling brands to cross-sell and meet

additional needs of consumers they already serve (see

Figure 9). They believe the transition from analog

marketing and sales to direct-to-consumer digital

channels will deliver the degree of consumer intimacy

required to deliver consistently relevant experiences

across channels, increasing margin and loyalty.

› Deliver more blockbuster new products. Almost three-

quarters (74%) of CPG heads of marketing expect to use

digital store simulations to test new product impact on

consumers (see Figure 10). More than two-thirds (69%)

expect to accelerate new packaging development with

FIGURE 7

The Integration Challenge Is External (Context) Not Internal (Organization)




“How well integrated are your consumer

experiences today?”

(Respondents who answered “strongly agree”)

Our internal organization is highlyintegrated across marketing,sales, and consumer service

66%

Our products encourage orrequire digital interactions

63%

We collect and analyze consumerbehavior across channels toinform our digital relationship

63%

We provide a consistentconsumer experience acrossmultiple touchpoints/channels

57%

We provide a personalizedconsumer experience

57%

Our digital relationship issensitive to physical context

51%

Our digital relationship issensitive to social context

49%

FIGURE 8

Digital Transformation Offers Revenue And Margin Growth


Note: Please note that the remaining percentage of respondents

disagreed with the statements above.



“How strongly would you agree or disagree with

each of the following statements? If my organization

could directly facilitate a purchase with consumers

and introduce/retire products more

quickly, it would . . . ”


89%

77%

74%

71%

Improve rate of innovation

Increase consumerlifetime value

Increase averageorder value

Increase consumer brandengagement

7

digital technologies, reducing innovation risk and

increasing the likelihood of successful new product

introductions.

FIGURE 9

Digital Transformation Offers Accelerated Innovation, Increased Share Of Wallet




“To what extent do you agree with the following

statements regarding the main benefits

to your firm of increasing the proportion

of sales through a digital channel?”


77%

71%

66%

66%

66%

Increasing sales through digitalchannels will increase wallet share

Digital engagement will increasethe rate of innovation

Selling to consumers through digitalchannels will attract consumers

from other brands

Selling through digital channels willincrease the rate of new

consumer acquisition

Shifting some sales to digitalchannels will increase revenue and

margin and reduce selling andoperating expenses

FIGURE 10

Digital Will Deliver Blockbusters




“To what extent do you agree with the following

statements about how much of the ideation-to-launch

process will be ‘digitized’ in five years’ time?”


We will bring consumers into virtualstores to look at virtual products

on virtual shelves74%

We will digitally assist thepackage prototyping process 69%

63%

We will use virtual product designduring ideation to mock

up products60%

We will digitally assist recipeand formulation trials 57%

We will simulate physicalcharacteristics

49%

�We share digital images withretail partners online

8

Accelerate Your Analog To Digital Transformation

Forrester’s survey of marketing executives in CPG enterprises showed that marketing leaders sense that market

drivers — such as globalization, consumer demand for customization, emerging market growth, and anytime/anywhere

shopping — are prompting a shift from the importance of managing modern trade and selling through traditional retail

chains toward more digital consumer engagement and selling. In order to increase consumer relevance and loyalty,

CPG marketing leaders should evolve from analog marketing and sales to digital consumer engagement by:

› Shortening the path to purchase. Consumer brands need to re-engineer processes to minimize the jump from

browsing, enabling buying in one to two clicks. Perhaps start by helping them buy online or on a mobile device

and collect in-store, or use online eCoupons to drive consumers to stores. Or drive consumer engagement that

encourages the right channels for each interaction — for example, web, chat, and email for consumer care

services, rather than using a call center. Increasingly, brand managers will participate in forums and social media

to engage in a dialogue and help consumers solve their own problems and find new applications for brands.

› Stepping up to consumers’ personalization expectations. Consumers expect the brands with which they do

business to provide a consumer’s own device with contextually relevant content, based on the consumer’s

(mobile) location, most recent interactions, and sentiments. Marketing leaders need to capitalize on opportunities

to engage in personalized, context-aware interactions in real time before their audiences lose interest and tune

them out. In particular, firms should take account of insights from consumer behavior across channels and across

business functions like consumer service, NPI, and in-store merchandizing.

› Adapting marketing, sales, and fulfillment channels to align with consumer behavior. Consumers demand

the ability to shop at any time in any place using a device of their choice. Consumers are becoming increasingly

impatient and value near instantaneous fulfillment. They expect consistent pricing across channels and a choice

of delivery options, including prompt home delivery or a choice of pickup location. This is challenging CPG

manufacturers that have fragmented channel-specific organizations, metrics, and application portfolios.

› Building support for direct-to-consumer marketing and selling throughout the wider enterprise. The business case for direct-to-consumer marketing and selling investments rests on increasing revenues and

margins. Recruit enthusiastic sponsors including brand managers and account directors who have revenue and

margin targets and are responsible for achieving the business case. Direct-to-consumer marketing and selling

rely on the vital collaboration of all the partners in the value chain — retailers, distributors, and logistics specialists

— but will also expose enterprise data and place incremental pressure on the IT infrastructure, so early

recruitment of senior IT leadership is essential to a successful outcome.

9

Appendix A: Methodology

In this study, Forrester surveyed a total of 35 heads of marketing at VP or CMO level and 95 brand managers with

responsibility for marketing and digital marketing strategy in CPG firms around the world. Our survey respondents were

drawn mostly from firms with headquarters predominately in the US and the UK, as well as the firms in China, Germany,

Canada, Australia, and Malaysia, with most of them operating in between five and nine countries. The study began in April

2014 and was completed in May 2014.

Appendix B: Demographics

FIGURE 11

Survey Demographics — Marketing Leaders



“Where are the headquarters of your

company located?”

43%

34%

23%

US

UK

China

“In how many countries do you currently operate?”

40%

37%

23%

Between five and nine countries

Between 10 and 19 countries

20 countries or more

“For the past financial year, which of the following

most closely describes your company’s

total annual revenue?”

23%

40%

37%

$5 billion to $19 billion

$20 billion to $49 billion

$50 billion or more

10

FIGURE 12

Survey Demographics — Brand Managers

Base: 95 brand manager decision-makers at global CPG organizations


“Where are the headquarters of your

company located?”

“For the past financial year, which of the following

most closely describes your company’s

total annual revenue?”

“In how many countries do you currently operate in?”

58%

18%

13%

5%

4%

1%

1%

US

UK

China

Australia

Germany

Malaysia

Canada

Between five and nine countries 48%

Between 10 and 19 countries 24%

20 countries or more 27%

$4.9 billion or less 17%

$5 billion to $19 billion 33%

$20 billion to $49 billion 18%

$50 billion or more 33%

11

Appendix C: Endnotes

1 Forrester surveyed 56 heads of sales at VP or CSO level and 75 account directors with responsibility for sales strategy and execution in global CPG manufacturers around the world. Our survey respondents were from firms with headquarters in the US, the UK, Canada, China, and Germany, with most of them operating in between five and nine countries. The study began in April 2014 and was completed in May 2014.

Technology

Forrester: CPG Consumer Engagement in a Digital World