Executive Briefings

Exploiting Digital Business to Transform Consumer Products Companies

Analyst Insight: Digital business creates new opportunities for consumer packaged goods companies to transact directly to their end consumers. Digital business is information-enabled business that employs an abundance of new information in ways that better service customers. Bottom-line digital business offers the potential to transform the way that CPG companies interact with and serve their customers allowing them to create new operating models that tighten the bonds with their end consumer, which has the potential to transmogrify the CPG industry. - Dwight Klappich, Vice President, Supply Chain Research, Gartner

Exploiting Digital Business to Transform Consumer Products Companies

Gartner defines digital business "as the creation of new business designs reached by blurring the digital and physical worlds". As such, digital business represents a transformational commercial opportunity for organizations that embrace the following attributes. Digital business:

Primarily focuses on the broader business opportunity to compete (or serve), not on a singular element of technology.

Specifically focuses on the peer exchange and communication between business, people and physical things as equal entities.

Will increasingly include the connection or integration with assets beyond the control of any one company.

Historically most CPG companies were at least one echelon removed from the users of their products and retail outlets were the focal point for customer interaction, service and fulfillment. Now CPG companies leverage digital business concepts to create new operating models that connect them directly with their end consumer, which is revamping the CPG industry.

An enabling technology making digital business a growing reality across industries is the Internet of Things (IoT). Conceptually, the IoT is an ecosystem that integrates things with applications and services to achieve a benefit of some kind. Uses are varied and range from things as esoteric as smart waste bins to connected toys.

Digital business opens a new world of opportunities for CPG companies, both in the larger quantities they can sell, and in how they sell to and interact with consumers. Some leading CPG companies are on the forefront of digital business and they are changing industry operating models. One area gaining traction is direct-to-consumer selling and fulfillment. Direct-to-consumer is not new, and there have been elements of this in certain segments of CG for years; however digital business is changing the operating model, moving it from a selling-focused process to more of an automated replenishment-driven process enabled by real-time information.

A direct-to-consumer "digital business" might enable one of its devices to track a customer's product usage. Devices like Wi-Fi-enabled printers or heating and air conditioning systems could be equipped to communicate over the internet, sending usage data directly to the brand owner. The company would use this information to determine when the consumer will need a replenishment, then automatically ship the product directly to the customer. Imagine a time when your heating system monitors the filter in your furnace, automatically determining when you'll need to replace your filter, and one day it just shows up on your door step. Or imagine your computer printer automatically telling your ink manufacturer when to replenish your color ink cartridge.

Furthermore products themselves will soon be smart enough to market directly to end customers. Not companies marketing generically to a wide audience, but your product, knowing its state and something about you and generating personalized marketing programs on the fly. Diageo, a leading alcoholic beverage manufacturer, and Thin Film Electronics ASA, a leader in the development of printed electronics and smart systems, have unveiled a prototype Johnnie Walker Blue Label smart bottle. The connected smart bottle may enhance the consumer experience by using printed sensor tags that may detect both the sealed and open state of each bottle. The tags and the sensor information they contain could potentially allow Diageo to send personalized communications to consumers, which they can access on their smart phones. This could make it possible to send consumer information about promotional offers, cocktail recipes and other exclusive content.

The Outlook

Consumer goods companies must be clear about the operational impact of pursuing a "direct-to-consumer" supply chain. The changes required add operational complexity and new capabilities will need to be robust from the very start in order to ensure a successful launch. Even given these challenges, Gartner anticipates explosive growth and investment in IoT driven by digital business. IoT is expected to increase thirty-fold by 2020, from about 1 billion devices five years ago to around 26 billion units installed by 2020.

Gartner defines digital business "as the creation of new business designs reached by blurring the digital and physical worlds". As such, digital business represents a transformational commercial opportunity for organizations that embrace the following attributes. Digital business:

Primarily focuses on the broader business opportunity to compete (or serve), not on a singular element of technology.

Specifically focuses on the peer exchange and communication between business, people and physical things as equal entities.

Will increasingly include the connection or integration with assets beyond the control of any one company.

Historically most CPG companies were at least one echelon removed from the users of their products and retail outlets were the focal point for customer interaction, service and fulfillment. Now CPG companies leverage digital business concepts to create new operating models that connect them directly with their end consumer, which is revamping the CPG industry.

An enabling technology making digital business a growing reality across industries is the Internet of Things (IoT). Conceptually, the IoT is an ecosystem that integrates things with applications and services to achieve a benefit of some kind. Uses are varied and range from things as esoteric as smart waste bins to connected toys.

Digital business opens a new world of opportunities for CPG companies, both in the larger quantities they can sell, and in how they sell to and interact with consumers. Some leading CPG companies are on the forefront of digital business and they are changing industry operating models. One area gaining traction is direct-to-consumer selling and fulfillment. Direct-to-consumer is not new, and there have been elements of this in certain segments of CG for years; however digital business is changing the operating model, moving it from a selling-focused process to more of an automated replenishment-driven process enabled by real-time information.

A direct-to-consumer "digital business" might enable one of its devices to track a customer's product usage. Devices like Wi-Fi-enabled printers or heating and air conditioning systems could be equipped to communicate over the internet, sending usage data directly to the brand owner. The company would use this information to determine when the consumer will need a replenishment, then automatically ship the product directly to the customer. Imagine a time when your heating system monitors the filter in your furnace, automatically determining when you'll need to replace your filter, and one day it just shows up on your door step. Or imagine your computer printer automatically telling your ink manufacturer when to replenish your color ink cartridge.

Furthermore products themselves will soon be smart enough to market directly to end customers. Not companies marketing generically to a wide audience, but your product, knowing its state and something about you and generating personalized marketing programs on the fly. Diageo, a leading alcoholic beverage manufacturer, and Thin Film Electronics ASA, a leader in the development of printed electronics and smart systems, have unveiled a prototype Johnnie Walker Blue Label smart bottle. The connected smart bottle may enhance the consumer experience by using printed sensor tags that may detect both the sealed and open state of each bottle. The tags and the sensor information they contain could potentially allow Diageo to send personalized communications to consumers, which they can access on their smart phones. This could make it possible to send consumer information about promotional offers, cocktail recipes and other exclusive content.

The Outlook

Consumer goods companies must be clear about the operational impact of pursuing a "direct-to-consumer" supply chain. The changes required add operational complexity and new capabilities will need to be robust from the very start in order to ensure a successful launch. Even given these challenges, Gartner anticipates explosive growth and investment in IoT driven by digital business. IoT is expected to increase thirty-fold by 2020, from about 1 billion devices five years ago to around 26 billion units installed by 2020.

Exploiting Digital Business to Transform Consumer Products Companies