Navigating the new normal in consumer goods

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.

1. Gain a clear understanding of the most likely future growth scenarios for key categories and brands, grounded in quantification of underlying business drivers

2. Quantify the shifts in consumer needs and behaviors to identify, size, prioritize and dimensionalize key growth opportunities

3. Activate with speed and precision across execution levers to deliver against unmet customer needs and emerging behaviors

4. 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

   

1 – Gain clarity into future category growth trajectory and scenarios

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.

2 - Quantify and dimensionalize opportunities to drive enduring growth

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.

3 – Activate with speed and precision

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: 

• Gather new market information rapidly and continuously, driving to actionable insights in a matter of weeks (not months)
• Share new learnings and knowledge quickly across the set of relevant stakeholders/decision-makers rather than compartmentalizing information
• Avoid excessive centralization of decision-making, empowering smaller teams that are closer to the ground to operate with a high degree of independence and accountability for results
• Have flexible resource allocation processes providing the ability to shift priorities rapidly to capitalize on emerging opportunities
• Accept a degree of risk (and failure) in order to capture outsized reward
• Focus on rapid experimentation/piloting and iterative improvements rather than perfectionism

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.

4 – Upgrade “sense & respond” capabilities

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.

Capturing growth in the new normal