Jun 16, 2020
Over the past few months, we’ve observed tremendous volatility in demand and varying performance across consumer goods categories. Drastic sales fluctuations have been seemingly impossible to predict given the complex interplay between panic buying, household inventory loading, and pressure on discretionary spend. There have also been noteworthy changes in shopper behaviors across the path-to-purchase, including shifting channel behaviors (e.g., rapid e-commerce growth), stronger preference for longer shelf life and larger pack size offerings, and dramatically increased brand trial.
Consumer goods manufacturers and retailers have reacted with admirable speed by adjusting their supply chains, production capacity, assortment priorities, and commercial strategies to better align with shifts in customer priorities and behaviors. That said, reactive approaches will not be enough to drive success over the coming year. Given likely persistence of high unemployment rates and widespread caution in resuming group activities (e.g., eating out, large gatherings), indicators suggest life will not return to pre-pandemic norms in the near-term, if ever.
Instead of waiting patiently for the return of pre-pandemic norms, companies must be proactive in playing offense, positioning themselves to win in the “new normal” characterized by a protracted, gradual economic recovery (“swoosh-shaped”) and the persistence of many newly adopted shopping/consumption behaviors.
To navigate this “new normal” with confidence and success, we believe organizations should follow a structured process with four key steps.
Gain a clear understanding of the most likely future growth scenarios for key categories and brands, grounded in quantification of underlying business drivers
Quantify the shifts in consumer needs and behaviors to identify, size, prioritize and dimensionalize key growth opportunities
Activate with speed and precision across execution levers to deliver against unmet customer needs and emerging behaviors
Invest in building best-in-class “sense and respond” insights/analytics capabilities, in order to get out in front of – rather than chase – enduring demand shifts
While there is a significant degree of uncertainty regarding how the future will unfold, it is still possible to construct a robust forecast of future business trajectory and the most likely growth scenarios (baseline, conservative, optimistic).
The most significant disruptive factors impacting omnichannel sales performance are well known: expected strength/duration of distancing mandates, avoidance of high-risk social activities, and discretionary budget pressure. The future values of these factors can be estimated with reasonable confidence and the impact of each factor on future business performance trajectory can be quantified (see disguised example below).
The first step in building a robust forecast is creating an integrated factbase drawing on multiple data sources (e.g., economic forecasts, virus spread scenarios, point of sale/panel data, e-commerce sales, consumer survey data). Application of analytic techniques can quantify the impact of each business driver on consumer demand, providing clarity into likely future business performance.
This process is immensely helpful for demand planning and near-term resourcing decisions across categories, brands, and sales channels. Given the rapid pace of change, it is critical to ensure your forecasts are dynamic, enabling rapid incorporation of new data and seamless updates as new information becomes available.
While gaining clarity into future business trajectory and performance drivers is critical, it is even more important to develop a quantified understanding of how consumer behaviors and needs are changing, in order to get out in front of demand and outperform the competition.
In periods of disruptive change, companies often adopt overly defensive mindsets, focusing on reactively addressing near-in business challenges. In these times, however, it is important to not overlook potentially massive emerging and unmet demand opportunities. As Benjamin Franklin reminds us, “out of adversity comes opportunity.”
Recent actions taken by Campbell’s help illustrate this offense-oriented mindset. Following a 10 point quarterly increase in soup brand household penetration, Campbell’s noted that “many of [these] households are younger and represent significant incremental growth for our brands. We are now mobilizing behind retaining these new consumers as we look ahead.” They increased advertising/promotion expenses 19% and designed a custom campaign celebrating the role brands play “in comforting people together during this period of separation.”[i]
To identify the most attractive opportunities, organizations should move as quickly as possible to answer the following set of strategic questions:
To identify attractive opportunities, it is critical to use a data-driven, customer-centric approach, augmenting traditional market intelligence data (e.g., purchase data, brand trackers) with custom primary research and behavioral tracking (e.g., consumer journey mapping, usage occasion tracking, digital ethnographies). This will help ensure you have clarity into which demand shifts will “stick” and provide guidance on how to activate across execution levers. After defining the opportunity set, the next step is quantifying the size of the prize (revenue, incrementality, profitability) for each opportunity in order to prioritize near-term growth initiatives.
Given the dynamism of the current consumer goods environment, it is important to recognize that this will be an iterative process, so designing a process enabled by dynamic tracking will be key to adjusting priorities and tactics as new information becomes available.
Annual planning cycles may work well in stable, slow-changing markets. At this juncture, however, adhering too rigidly to drawn-out, traditional planning processes raises the risk of “missing the boat.” Sometimes moving quickly with 80% confidence is better than delaying action until absolute certainty is achieved. This is one of those times.
Organizations can respond to opportunities incredibly quickly when they fully mobilize behind a clear goal. PepsiCo recently developed two new direct-to-consumer websites (PantryShop.com and Snacks.com) in less than 30 days.[i] While it is still early to assess the financial impact of this initiative, the pace of execution was incredibly impressive.
Nimble organizations that adjust their commercial strategies/tactics and act quickly will have a significant first mover advantage in the “new normal.” The cycle time to shape an initiative, pilot, iterate, and launch must be dramatically reduced. New demand activation initiatives must be deployed at pace.
Agile organizations will be best positioned to succeed. These organizations typically share the following key characteristics:
While becoming a more agile organization takes substantial time and effort, several best practices related to insights/analytics “sense and respond” capabilities, described below, can be implemented on a much shorter timeline.
To make prescient, impactful decisions, best-in-class information gathering and analytics capabilities are required. We refer to these as “sense and respond” capabilities, inspired by the 2017 book published by Jeff Gothelf & Josh Seiden. Best-in-class organizations can detect and quantify early indicators of material shifts in consumer behaviors and preferences, separating temporary fads from trends with true staying power. They share information quickly across the organization, present findings in an actionable way, and make it easy for leadership to make high impact decisions with confidence.
Levi’s CEO, Chip Bergh, recently highlighted deployment of a digital 3D rendering tool to showcase garments/materials and solicit rapid feedback/insights in virtual meetings with merchants and marketers from around the world. By leveraging this new tool, Bergh said, Levi’s was “able to engage everyone simultaneously and complete this process in one meeting, taking weeks out of our go-to-market cycle.”[ii]
In our experience, organizations with best-in-class “sense and respond” insights & analytics capabilities share the following characteristics.
As a case in point, we recently helped a snack foods client bring all four of these steps together to drive growth amid unprecedented changes in consumer demand due to the pandemic. Our forecast identified that our client would suffer significantly from a decline in impulse purchasing and a shift to e-commerce (a channel in which they were significantly underpenetrated), due in part to misaligned pack types and sizes. At the same time, we identified an attractive but underserved snacking “job-to-be-done,” characterized by demand for new product benefits, including larger multi-serve offerings with resealable packaging to preserve freshness longer.
With this new information, the client team quickly repurposed some existing packs to solve for online purchasing needs while moving a prototype for resealable packaging ahead rapidly. The team shifted ad spend online to make its most valuable consumers aware of the new changes and to intercept them as they made decisions across the online shopping journey.
Early results have exceeded expectations as the client continues to monitor progress to make ongoing iterative improvements. Importantly, this early success encouraged our client to aggressively explore other opportunities to solve emerging pain points consumers are facing in the “new normal.”
As the country begins to reopen this summer, we will continue to see rapid change. Some recent trends will stick while others will fade away like a summer breeze. In these times of great change, there is tremendous opportunity. The companies that will be most successful in navigating the “new normal” will be those that have an offense-oriented mindset, taking a disciplined yet agile approach in aggressively pursuing the unique growth opportunities this new era is presenting.
Jim Eckels is a Managing Partner with The Cambridge Group. In over eleven years at TCG, he has helped clients across a broad range of industries unlock profitable growth through marketing, innovation, sales, M&A and organizational strategies. He is now responsible for leading strategic client engagements along with overall management and leadership of the firm.
Matt Gonwa is a Partner with The Cambridge Group. He focuses on identifying profitable opportunities to improve top-line performance across execution levers, including positioning, innovation, go-to-market strategy, pricing and media activation. He primarily serves clients within the consumer goods, retail and media sectors.
[i] Increased Marketing During Pandemic Lifts Campbell’s Core Brands, MediaPost, June 3, 2020
[i] PepsiCo Launches Two Direct-to-Consumer Websites for Snacks and Beverages to Meet Demand for At-Home Eating, FoodNavigator, May 11 2020
[ii] Levi’s, Digital Sampling, and “The Best Assortment Meeting Ever,” Essential Retail, May 20, 2020