Digital CPG Blog

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.