Digital transformation within the supply chain is well underway. But consumer-products companies are lagging many other industries in progressing toward that goal.
The disappointing results are especially evident in advertising and trade spend, encompassing such activities as Facebook and YouTube advertising, and the offering of digital coupons and discounts. According to the AlixPartners research, 60% of the money spent in that area, or around $47 billion, “failed to deliver an observable positive return on investment.”
AlixPartners surveyed 1,110 executives in the U.S., U.K., China, France, Germany and India, representing the food and beverage, household products, and health and beauty sectors. All “are or have been decision makers for digital transformation in consumer products companies,” says the firm, which asked respondents to rate their organization’s “digital proficiency” as leading, developing or emerging.
The survey identifies a number of roadblocks on the road to digitization. They include lack of talent (cited by 39% of respondents), lack of funding (35%) and an unwillingness to experiment (34%). Individuals in the trenches — those managing functional areas of the business — tended to be more pessimistic about their companies’ progress than senior management.
Brian Major, AlixPartners’ managing director of consumer products practices, says the survey focused on digital initiatives at “the tip of the spear” — go-to-market strategies and the consumer experience — rather than back-office processes.
It’s not a question of inaction. Laggards are pouring money into the effort, says Josh Hubbard, director of AlixPartners’ consumer products, transportation and logistics practice, but they lack a compelling ROI. It’s a matter of “fear of missing out” on the much-hyped digital revolution, causing companies to rush into the fray without first making a solid business case. Moreover, the failure to track results along the way causes bad programs to go on for longer than they should.
“You need to make these investments,” says Major. “The question is, how do you put them on a shorter leash?” Every initiative should yield lessons that drive the next one, accompanied by post mortems and detailed ROI analyses all along the way.
The apparent lack of talent needed to implement digital initiatives is a result of marketing organizations that still rely on “old-school” methods, Major says. They are failing to focus on the granular targeting of consumers through “micro-programming” and deep data analyses.
At the same time, says Major, the price of talent is on the rise. Younger employees want rapid career paths, “and more staid companies are struggling with how to do that.”
Old-line organizations recognize the need to go digital, Hubbard says, but they’re stymied by the complexity of the direct-to-consumer supply-chain model. The industry is undergoing a new phase that emphasizes the need for greater consumer touch, omnichannel strategies, guerrilla marketing and tapping of social media.
The stakes are enormous. AlixPartners predicts that digital sales of consumer products will roughly double between now and 2023, from $218 billion to $440 billion. The trend offers fresh opportunities for mature brands that are suffering from flat revenues in traditional channels — provided that they make the right investments.
AlixPartners has been beating the digital drum for some time now. Earlier this year, it issued a report that found most consumer-products companies failing to fully address the opportunities and threats of a digital future. In earnings calls with investors over a four-month period, one-third of the 102 largest public companies in that sector failed even to mention terms such as “e-commerce,” “direct-to-consumer,” “online,” and “Amazon.” And mid-market companies, which are likely to be most vulnerable to changes wrought by digital technology, were least likely to talk about appropriate strategies.
The key elements that consumer-products companies ought to be focusing on today include product innovation, timely delivery, supply-chain optimization and “opportunistic” mergers and acquisitions (the last as a means of mining digital capabilities), the earlier report said.
The evolving e-commerce landscape presents companies with additional challenges as they determine where to direct limited marketing dollars. Direct-to-consumer sales are crucial to the survival of online retailers, but they can also undermine sales by large brick-and-mortar retailers, on whom many suppliers depend. Then there’s the threat of Amazon, which has the power to steamroll over smaller sellers and brands that struggle to maintain individual identities. A workable omnichannel strategy must carefully balance the needs of all sellers in order to avoid channel conflict, Major says.
Given the dire nature of changes brought about by the digital revolution, it’s understandable that consumer-products companies would start throwing money at the problem. Still, Major stresses, “digital for the sake of digital will serve no one. Success is achievable over time by using more precise and targeted methods, which have greater opportunities for consumer engagement and analytics.”
In other words, move quickly, but don’t panic. “Those who are lagging need to catch up, and fast,” warns Major, “as now is the time for rapid transformation in pursuit of a share of the available prize.”