Consumer Packaged Goods Manufacturers and Consumer-centric Supply Chains

Consumer packaged goods (CPG) manufacturers and their end-customers constantly engage in a complicated dance with few choreographed steps. During this dance, sometimes CPG manufacturers take the lead and sometimes consumers take the lead. When retailers join in — which is most of the time — dance steps become even more complex. To help manufacturers and retailers better understand what steps they must take, business consultants them to become more consumer-centric and demand-driven. In order to achieve that kind of outside-in focus, organizations must begin with a clear understanding of consumer behavior. That’s no easy task, even during so-called “normal” times. Today’s consumer picture is even more confusing as a result of low unemployment rates (which generally means higher demand) and rising inflation (which generally means lower demand).

Michael Baudendistel (@FWavesRail), an analyst and Market Expert at FreightWaves, reports, “There were some interesting, if perhaps intuitive, highlights [in a] University of Michigan Surveys of Consumers [report]. According to the study, consumer sentiment fell in [late 2021] to its lowest level in a decade due to escalating inflation and a growing belief that no effective policies [had] been developed to reduce the damage caused by surging inflation. ... That bodes poorly for consumer packaged goods, particularly the more expensive national brands that took share during the pandemic.”[1] With mixed messages constantly being generated about consumer behavior, only real-time data can help CPG manufacturers and retailers keep in step with consumer behavior.

Changing Nature of Consumer Behavior

Lisa Johnston (@thatljohnston), Senior Editor at Consumer Goods Technology, writes, “Much has been written about the extreme shifts in consumer behavior patterns.”[2] Changing consumer behavior, however, is nothing new. The Consumer Goods Technology/Retail Info Systems (CGT/RIS) Executive Council, points out that consumers have always demonstrated a mix of stable and transient behaviors. The Council observes, “Consumer expectations, and the ability to deliver upon them, have never been one-size-fits-all, but the pandemic served as a once-in-a-lifetime transformation. For many retailers and consumer goods companies, product shortages and new behaviors resulted in scores of new consumers discovering and relying on their goods and channels. And with some of these changes slated for permanence, both retailers and CGs must rethink manufacturing, marketing, and fulfillment in order to retain them.”[3]

Stable Consumer Behaviors

Taking the Digital Path to Purchase. One stable behavior which has been identified is an increased reliance on e-commerce. Johnston observes, “Perhaps unsurprisingly, e-commerce as a preferred way of shopping topped the list of pandemic-prompted changes that [some executives see as] a permanent trend.” It should be noted, however, as shoppers returned to physical stores, online spending has more or less plateaued. What this means for manufacturers and retailers is that they must continue to focus on mastering omnichannel operations.

Using Home as a Hub. Another trend that appears to have staying power is hybrid work, which makes the home the hub of more activities than ever before. Ramon Laguarta (@ramonlaguarta), PepsiCo chairman and CEO, told Johnston, “We foresee a flexible working model where consumers are going to spend more time at home and they’re not going to go back to the office kind of every day of the week — obviously certain type of people, not everybody.”

Supporting Corporate Social Responsibility. The CGT/RIS Executive Council cites surveys that found consumers have a growing awareness of corporate behavior and increasingly “are more likely to buy from a brand that aligns with their values.” Along those same lines, surveys have found a strong majority of consumers “believe brands must positively change the world.” This is especially true when it comes to efforts aimed at addressing climate change and human trafficking.

Demanding Great Customer Service. According to the CGT/RIS Executive Council, consumers are more likely to buy from enterprises that offer fast shipping and customer loyalty programs. There is also growing interest, however, in direct-to-consumer sales, customized products, and online “try out/try on” products. As online retailers struggle with the cost and hassle of returns, however, "try out/try on" consumer options may come with a price.

Transient Consumer Behaviors

Buying Out of Curiosity. The CGT/RIS Executive Council notes that during the pandemic “consumers have certainly been curious and eager to try new brands.” Some of the willingness to try new products resulted from out-of-stock situations early on in the pandemic. The Council notes that nearly half of consumers “were new to a CPG brand in 2020.” And, over two-thirds of consumers “switched brands during the pandemic due to supply chain issues.” Inflation may once again motivate consumers to try different, lower-cost brands as their pocketbooks are pinched.

Discarding Brand Loyalty. Joe Mandese (@jmandese), Editor in Chief of MediaPost, reports, “The erosion of brand equity has been a constant force as the number of brands and consumer options have proliferated over time, and as many leading brands have shifted their focus from building long-term brand equity to boosting short-term sales. But some startling new research from GroupM’s Wavemaker unit reveals that those behaviors become much more exaggerated when the consumer’s ‘path to purchase’ journey takes place online vs. the physical world.”[4] One reason brand loyalty is abandoned once a consumer goes online is because price becomes a huge factor. Daniel Shapiro, Vice President of Brand Relationships at Red Points, explains, “Since CPG are used regularly, consumers do not always spend time researching a product or its quality. Instead, they end up ‘snap shopping’ to save time. This has inevitably led to consumers buying fake goods. Consumers often use the ‘lowest price first’ feature when searching for products online and may choose the cheapest goods, especially if they are generic items.”[5]

Purchasing Out of Necessity. The pandemic witnessed consumer behavior transform through several different stages as conditions changed. The initial lockdown stage saw consumers load their pantries with shelf-stable goods and other necessities. As lockdowns eased, they returned to buying more fresh foods and perishable items. The pandemic isn’t the only disruption resulting in changing consumer behavior. Natural disasters associated with climate change and diseases, like avian flu, also have had an impact on what consumers buy.

Buying What’s Hot. Just because consumers have been sheltered in their homes doesn’t mean they have been out of touch with the rest of the world. Streaming services, cable, and social media have all been active during the pandemic and ever-conscious consumers are always looking for the latest trends and items. The fact that consumers flocked to this year's CES in Las Vegas is anecdotal evidence that they are still on the hunt for the next big thing.

Keeping Up with Consumer Behavior

Because consumer behavior continues to change rapidly and dramatically, relying on historical data is not always a good strategy. The CGT/RIS Executive Council insists organizations not only need to rely on real-time data, but on new sources of data as well. They explain, “Many companies are looking to external data sources like weather, traffic patterns, and Google search trends into order to better predict demand. Weather prediction models, for example, can help retailers prioritize shipments of stock to stores, determine appropriate staffing levels, and manage product promotions and markdown strategies and timing.”

Because so many variables can affect consumer behavior, enterprises need a platform that can handle a large number of variables and provide actionable insights at the speed of today’s business. For most large companies, cognitive computing platforms fit the bill. Cognitive solutions, like the?Enterra Global Insights and Decision Superiority System? (EGIDS?), can help organizations keep track of global trends while other cognitive solutions, like the?Enterra Shopper Marketing and Consumer Insights Intelligence System?, can provide organizations with more consumer-focused insights. The CGT/RIS Executive Council concludes, “In order to improve demand planning and their ability to predict the wants of the future consumer, CGs must improve inventory visibility and demand sensing technologies as close as possible to the point of sale, as well as connect directly with consumers through loyalty programs.”

Footnotes

[1] Michael Baudendistel, “Consumer Data Shows Mixed Messages,” FreightWaves, 23 November 2021.

[2] Lisa Johnston, “PepsiCo CEO Ramon Laguarta’s 4 Consumer Behavior Trends Here to Stay,” Consumer Goods Technology, 14 July 2021.

[3] The CGT/RIS Executive Council, “Retaining the New Consumer Through the Power of Technology,” Consumer Goods Technology, 2021.

[4] Joe Mandese, “Wavemaker Finds Consumers Becoming Less Attached To Brands, Especially Online,” MediaPost, 21 June 2021.

[5] Daniel Shapiro, “Four online shopping trends every CPG brand should know in 2021,” World Trademark Review, 8 July 2021.