Digital strategy has to be carved out. Although there are frontrunners in the sector, they have to think of doing things differently for FY16.
The coming year can be a game changer for the FMCG sector if the companies realize the potential certain micro trends offer.
Today, many companies are able to tell the exact preferences and behavior patterns of particular customers. And then, identify a certain set of audience and move ahead by targeting them. The advantage is that the company can promote a particular product to that group.
This method, when first made its appearance, was highly successful. But now companies need to use analytics to make more impact and gain competitive advantage.
Bain & Company’s study of digital impact on FMCG sector reveals three FMCG categories online.
Digital frontrunners: Customers are already heavily engaged in this category. Digital impact is high on both pre-purchase and purchase.Digital Emergents: Customers engage online heavily during pre-purchase but buy offline.Digital Laggards: Customers have engaged only minimally with digital media.
The innovation on the sales side can happen when the digital marketing strategies for the three sections are different. Companies will have to block emerging disruptors in the frontrunner section. The emergent section will see significant growth in the next three to five years. Hence, FMCG companies will have to make appropriate interventions using social media to gain customers’ attention and wallet. The digital laggard category is tougher. Companies operating in this area will have to realize the importance of occasion-based purchasing and target customers by offering deals that coax them to buy online.
Another area where innovation can happen is the reach of the product. Though earlier there was a problem of poor visibility of the supply chain at the grass-root level, with technology, people are able to have a better control of it.
“The big gap in innovation in the FMCG was because of the B2B and B2C model. But progress is visible now and it isn’t restricted to the sales side, it is also diving into product innovation,” says Malhotra.
FMCG companies have already started work in the product innovation department. But Malhotra predicts the comeback of smaller SKUs in the industry. This, he says, will kick start opportunities in rural areas. Smaller SKUs will help in increasing reach and these will eventually become part of the company’s overall strategy to boost its consumer products business.
“Smaller SKUs give us better in-store visibility, and get us fresh consumers who want to try quality products, especially in the smaller towns,” said Richa Arora, chief operating officer, consumer products business, Tata Chemicals, in an interview to Livemint. This is a part of the company’s plan to increase the direct retail footprint to 2.5 million outlets from 1.43 million by 2020.
Therefore, the strategy of FMCG companies for 2016 in terms of product innovation will change from “what you make to sell it better” to “how to make to sell it better.”
Another area where innovation can happen is the reach of the product. Though earlier there was a problem of poor visibility of the supply chain at the grass-root level, with technology, people are able to have a better control of it. Hence, N. Rameshkarthik, deputy general manager-Systems, UB Global, predicts that in-memory will be huge in FY16.
“In-memory analytics is needed to make quicker decisions and be right on time. Therefore, its growth in FMCG is visible and a thing to look forward to,” says Rameshkarthik.
Though the buzz is to move ahead with digitization, the focus should also be pulled to another important aspect. “Securing the digital systems will be top priority in the coming years.
Over the next five years, the way the products are delivered and consumed will change. EY’s Malhotra gives an example of how 3D can affect consumption and can be a huge disruptor in the FMCG sector. “When you use 3D printing, you aren’t necessarily manufacturing the product and passing it through supply chain. In fact innovation happens at the wholesale level. The product is produced and given to the customer the instance he needs it, rather than subjecting it to various levels of supply chain and delaying the delivery,” says Malhotra.
Though the buzz is to move ahead with digitization, the focus should also be pulled to another important aspect. “Securing the digital systems will be top priority in the coming years. As the move to digitization progresses, security too becomes important.”
There is a great deal at stake for FMCG companies in FY16. The year is also filled with opportunities, thanks to digitization and scope for product innovation. But FY16 is also critical as companies that have been holding back on many fronts will have to initiate changes this year. The clock is ticking and there is lot to do. So, get going.