Digital CPG Blog

A recent report by the CMO council highlighted the increasing importance of loyalty marketing (discussion here and here).  It appears loyalty marketing is on the rise, with 80% of marketers in the study indicating their commitment to maintain or increase program funding.

With marketers of all stripes (including a great CPG example here) ramping up their loyalty marketing, I’d like to focus on a key ingredient marketers need to design and implement effective loyalty marketing: data, data and more data.

Why is data needed?  Here’s what consumers told the CMO that they hated about existing loyalty programs:

• Too much non-personalized spam or junk mail
• Difficulties in redeeming rewards
• Too many restrictions
• Lack of personalization

In other words, the quickest way to turn off your loyal consumer is to send communications and rewards that aren’t personalized to their specific needs.

Despite the key need to “know thy customer’ the CMO study indicated that only one-third of the marketers’ companies collect the data necessary for personalization such as participants’ product/personal preferences, satisfaction levels and brand loyalty.

Liz Miller, the VP of programs and operations for the CMO Council, succinctly highlighted the challenge marketers face: “The top concern customers have with the programs is that they’re inundated with irrelevant messages and spam e-mails,” Miller said, “but the number-one thing marketers want to increase is the volume of e-mails they send. So there’s a big disconnect.”

What’s the way out of this “big disconnect?”  As one commenter suggested, “to get loyal, you must get personal.”

Marketers need programs that seamlessly collect as much consumer data as possible and they need to leverage the data to design communications and rewards that speak to the individual customer.

The devil, of course, is in the details, but I think the obvious place to start is with a web-based platform (like Alice.com) that makes it easy (for marketer and consumer) to establish a direct, ongoing relationship.

Need further proof that web-based loyalty is the ticket?  Take a look at how leading CPG manufacturers—from P&G to General Mills—are beginning to turn their attention to the promise of web-based commerce and marketing to deliver a one-on-one relationship with each consumer.  Here are a few recent quotes, by way of example:

“The eventuality is a one-on-one relationship with every consumer, and obviously e-commerce needs to be a big part of that.” P&G CEO Bob McDonald (article here)

“The beauty of digital is it’s very effective–great ROI and very efficient–to talk directly to consumers and to give them customized and more relevant information about what the brand can do for them.” General Mills CMO Mark Addicks (article here)

Clearly CPG marketers are awakening to the power of the web to deliver engagement, and I suspect loyalty marketing will be a very big part of that investment in the months and years to come.

We’ve talked before on this blog about the need for CPG brands to shift more of their marketing spend online to “go where the consumer is.”  And even though the industry is forecasting big increases in digital spending this year (see here, for example), digital CPG marketing budgets are still small as a percentage.  I think this is due in part to the challenge of finding good digital opportunities, and in part to the “inertia of advertising budget allocation.”

So just how will CPG brands ramp up digital spending in 2010?  We got a glimpse into P&G’s strategy this week, when venture capitalist David Hornik recounted a meeting in which P&G execs indicated that they are “bullish” on Facebook.  So bullish in fact that “P&G’s explicit goal for 2010 is to assure that each of its brands has a meaningful presence on Facebook.”

It will be very interesting to see what a “meaningful presence” means.  I wonder just how much “engagement” P&G can achieve for CPG goods on Facebook in 2010 and beyond.

At least one P&G exec has expressed skepticism that Facebook users will respond to interruptive commercial messages when “breaking up with their girlfriend.”  Are there enough permission-based marketing opportunities for P&G to leverage on Facebook?  Or will this digital spending simply be viewed by users as more interruptive advertising?  A user comment on the AdAge article covering this news lays out P&G’s challenge nicely “Great. I became a fan of Febreze, but the page *still* smells like advertising.”

Two big announcements this week that present more evidence of a growing trend in the Consumer Packaged Goods industry towards direct to consumer sales online:

Tuesday, January 12, 2010-Alice.com announces a new eCommerce platform that enables manufacturers to launch their own branded webstores that tie into the Alice.com retail experience (full release here and coverage in the Wall Street Journal here)

Today, January 14, 2010-P&G announces that it is testing a new “eStore” to sell its products directly to consumers online (news here)

CPG manufacturers have been talking about selling direct for years; 2010 is shaping up as the year that we finally see an aggressive move online.

For all you CPG veterans out there, did you ever think you’d see the day when major retailers would open up their stores to competitors?  A day, for example, where a small retailer could waltz into WalMart and put an identical product up on the shelf?

It’s happening online.  Today Sears joined WalMart and Amazon as the third big boy to launch a “marketplace” that opens up its online store to third party sellers (see news here, here and here).  eCommerce is certainly changing what it means to be a retailer.

For these big retailers, I can see how the marketplace concept makes sense, namely, by allowing them to leverage the power of their brand to expand their product selection for customers and gain incremental revenue without disrupting their own customer fulfillment costs (Sears, for example, charges each seller a listing fee and the seller drop ships products directly to buyers).  In many ways, it seems like a win for everyone involved.

Can this work for CPG manufacturers that are interested in selling direct to consumer?

In my humble opinion the answer is no for a very simple reason:  Shipping fees.

The mainstream CPG shopper expects to fill her basket with dozens of items from multiple manufacturers and take one bundled basket of goods home in a single trip.  That same shopper is not going to be excited about shopping online for these goods in a marketplace in which she has to pay shipping fees for 10 different manufacturers to drop ship a standalone box to her door.  10 boxes with 10 shipping fees doesn’t seem to work.

Is there a way to drop the shipping fees?  One method Amazon uses with their Subscribe and Save program is bulk CPG buying.  So instead of buying a four pack of bathroom tissue, I have to buy 48 rolls in order to get free shipping.  But is this really mainstream?  And even without the bulk, do I want a stand alone box on my door for bathroom tissue, toothpaste, trash bags, pain reliever and the dozens of other products I stock in my home on a regular basis?  That’s a lot of cardboard.

We’re taking a different approach at Alice.com, which like the marketplaces mentioned above, is open for manufacturers to sell direct to consumer.  But instead of consumers getting multiple boxes, they receive one Alice box of bundled goods from multiple manufacturers shipped free to their door.  By sharing the box and shipping costs (rather than drop shipping), the manufacturers can offer consumers the convenience and free shipping they demand.

Bottom line for CPG manufacturers?  The lines of what it means to be a manufacturer and a retailer are blurring online, and opportunities abound to innovate in how you get your goods into the hands of the consumer.

It looks like 2010 is shaping up to be a banner year (bad pun, sorry) for digital ad spending by the Consumer Packaged Goods industry. 

According to an Adversiting Age article this week (article here), digital CPG spending has seen a big upswing in the back half of 2009, with at least one agency claiming “a hockey stick of growth in CPG.”  Interestingly, most of this growth isn’t coming in measured media like online display ads.  Instead, the growth is happening in things like social media projects, digital POP, mobile, and eCommerce initiatives. 

And herein lies the huge question for 2010 and beyond: As CPG tries to scale its digital advertising, will the industry find enough high quality places to put those ad dollars? 

In my view, eCommerce will be a lynchpin to these efforts.  If CPG brands use eCommerce as a tool to energize their websites with real consumers, those sites can serve as a centralized collection point for a host of diverse online campaigns.  As always, I’d love to hear your thoughts as well.

The move towards two-way advertising has been much heralded.  The digital world has allowed advertising to become more participatory, and consumers are starting to demand the ability to interact directly with their brands (great study here).

That is why it is so exciting to see the giant $65 billion television advertising market start to give two-way advertising a spin.  The Wall Street Journal had a great article this week (Talking Back to the TV) about how major players in the television advertising industry are enabling interactive features in tv ads.  

Both Unilever and P&G were featured in the article for their early success with the new features.  Unilever’s Axe brand, for example, had more than 3.5 million users spend an average of 5 minutes playing with their interactive advertisement. 

Even more interesting, P&G’s Charmin advertisement married in a direct response component, allowing tv viewers to request a Charmin coupon through the mail.

I find this tie-in to direct response pretty exciting.  Think about the possibilities of a CPG brand being able to capture an actual sale directly through a tv ad. 

The Charmin advertisement featured in the WSJ piece delivered a traditional paper coupon to the user, but this is just the start of the possibilities.  For example, what if the user could link the coupon directly to a store loyalty card?  Or submit an e-mail address and have a digital coupon e-mailed to them for use at the CPG’s own online store (or a shared storefront like Alice.com).  In these advancements, the CPG company not only captures a sale, it is able to assign an ROI directly to the tv advertisement, and gain rich insights into the actual customer segment responding to the ad.  Accountable television advertising may (finally) be coming.     

The lack of a uniform technology platform will certainly slow adoption, but the possibilities are exciting and the development of this new digital, interactive environment will be fun to watch.

For many industries, online advertising has been a game changer.  Online search and display advertising has brought a level of accountability and measurability that marketers of past eras could only dream about, making John Wanamaker’s famous advertising saying almost obsolete (”Half the money I spend on advertising is wasted; the trouble is I don’t know which half”). 

If I sell digital cameras online, for example, I can hop onto the Google search platform and pay only when an interested person clicks on my ad.  And better still, I can set a precise return on those search dollars by tracking not only who clicks, but who ends up actually buying because my sale is online.  This can turn much of my advertising work into a math exercise.   

But what about the Consumer Packaged Goods category?  Although CPG is by category one of the largest advertisers in the world, to date, they haven’t really been able to connect the dots between online advertising and consumer sales.  Why?  Because there hasn’t been a measurable direct response platform for CPG online.  As a CPG brand, I can spend like crazy on online ads, but I’m left guessing whether the advertising actually worked in driving more sales (let alone whom it might have worked on). 

CPG shouldn’t be left guessing when it comes to online advertising ROI.  And apparently I’m not the only one who thinks so.  News today from Kantar-owned firms Compete Inc. and Cannondale associates that they are combining online consumer data and offline loyalty card data to actually tie online advertising exposure to a subsequent purchase in the grocery store aisle (post here).  What a great idea.  Here’s a quote from the news that should get your juices flowing  if you are in digital CPG:

‘It’s really finally connecting the dots, getting down to actual in-store purchase volumes, amounts spent, loyalty switching, etc.,’ Pace said. ‘Not only can we see how exposure to advertising campaigns last month had an impact…but we can compare that to the consumer’s previous purchase levels of that product.’

It is great to see digital CPG advertising take a step in this direction.  We are working on the same goal of accountable online advertising at Alice.com, but instead of tying offline purchase data, we provide the CPG brands with an actual direct response platform online.  Consumer sees the ad/coupon/free sample and responds with a purchase at Alice.com, giving the brand a direct view into ROI for that ad unit.  It is one of many efforts percolating to bring better accountability to online advertising for CPG.  We think these efforts are long overdue.

Let us know if you disagree or think there are better ways to make online advertising work for CPG.      

Mary O’Connell of Clorox gave a great interview with eMarketer earlier this week (excerpt here).  In the interview, Mary talked about how Clorox has moved aggressively into social media in the past 18 months and is “creating a new vision of digital marketing, which is rewiring and re-imagining our entire brand experience.”

Mary mentions a number of great examples in the interview, including the launching the new Clorox Greenworks line which was supported by a blog site called the Shades of Green Journal and a program called 30 Days to Natural.

Why the strong move into social media and digital?  In the words of Mary, “we went where our consumers are.”  Another great example of a CPG brand adapting to today’s consumer.

As we’ve mentioned previously, manufacturers in non-CPG industries are increasingly using the online channel to sell direct to consumer (for example, Internet Retailer recently announced that manufacturers selling direct to consumer is the fastest growing online retail category in this year’s Top 500 Guide).

Mattel, the largest U.S. toymaker, made news this week with a new direct to consumer website that offers all of Mattel’s well known brands under one eCommerce site.  The site, located at Mattelshop.com, includes a number of innovative social features (full coverage here).

It is very interesting to see a manufacturer combine its broad brand portfolio into a single eCommerce effort.  But what I find even more interesting is the analogy to the CPG industry.  Both the toy industry and the CPG industry have a retail landscape that is dominated by a few giants.  Mattel, for example, generates approximately 1/2 of its revenues from three big retailers, Walmart, Target and Toys “R” Us.  The national CPG brands have similar distribution among a few retail giants.

The takeaway for me?  A big national manufacturer like Mattel can take bold steps to go direct to consumer online without disrupting  its traditional retail relationships.  

Shouldn’t the CPG industry be in the same position?  CPG manufacturers have an assortment problem in going direct on their own (something we are trying to help solve with our shared platform at Alice.com).  Are there other pitfalls to a CPG manufacturer going direct that aren’t present for Mattel?  If not, I think Mattel is leading the way in what is sure to be a bigger trend online.

In the past week, Walmart and Amazon have been engaging in a very public war over the price of popular new books sold online.  Walmart fired the first salvo with a $10 book price, and the two have traded cuts back and forth.  Amazon matched the $10 price, so Walmart dropped their price to $9.  Not to be outdone, Amazon and Target both went to $8.99.  Now Sears has joined the battle, with a very clever promotion (free books) that trades off the price war (more on Sears’ strategy here).

On the surface, this battle may not appear to be about CPG brands, but there are important lessons to take away.  At the end of the day, this isn’t about selling more books in the fourth quarter.  Instead, this is a battle for brand leadership.  These companies are fighting to be the most trusted, top-of-mind brand for consumers.  It is a battle worth billions.

The national CPG brands are fighting a similar battle in the face of increased competition from private label, retailer sku rationalization, media fragmentation, and a consumer focused on spending less in a tough economic climate.

Herb Sorensen recognized this fact in a very interesting commentary on the price war over on the BrainTrust blog.  In the post, Dr. Sorensen concludes that the way out of this “paying of customers to buy” is to “genuinely engage individual ’shoppers’ in personal ‘conversations.’”  The result will be an engaged and highly profitable consumer who trusts your brand and seeks our your products and marketing.

Importantly, Dr. Sorensen points out that this one-on-one strategy isn’t available exclusively to retailers.  In fact, he argues that the national brands have an even greater opportunity to use one-on-one marketing to engage consumers across all their channels of trade and realign the balance of power between manufacturers and retailers.

Will the national CPG brands respond to this opportunity?  P&G announced a clever social media campaign with its Charmin brand yesterday, and I expect we will see many more efforts like this as national brands continue to evolve their marketing to stay top of mind with consumers.  Mark Addicks, the CMO at General Mills, laid out the challenge nicely in a recent interview in The Hub Magazine: “Part of the next frontier of brand identity is how brands are going to continue to grow in this world of consumer engagement.”  It appears that national CPG brands are ramping up their digital and social media marketing to do just that.