3) The CPG Industry is Moving From Linear Change to Exponential Disruption
Until now, a CPG company’s competitive advantage did not depend on having strong analytical maturity; however, the industry’s preconceived notion of change is about to be disrupted by the exponential pace of innovation. Navigating this landscape will require companies to harness data and efficiently convert it to insights.
For the last several decades many CPG companies have thrived and achieved growth without a strong analytical maturity. The strength of a CPG company’s brand – combined with creative marketing, marketing reach, and broad product distribution – has been a driving force able to sustain reasonable performance. However, evolving consumer trends, nontraditional competition, and new innovations are poised to change this. Perhaps what is most critical to understand is the changing pace and impact of innovation between the past (Wave 1) and the present / future (Wave 2 and Wave 3). In order for CPG companies to partake in this era of rapid-pace innovation (Wave 2 and Wave 3), an integrated core competency around data and analytics will be a requirement.
Recognizing and planning for the rapid pace of change will be a challenge for many CPG companies. During Wave 1, which represents the past couple of decades, the CPG industry has experienced a relatively limited number of technological and digital innovations. As such, the amount of change has been relatively limited, and the pace of change has been perceived as rather linear. The industry’s current decision-making processes have been molded and preconditioned around this manageable linear pace. However, the industry is now entering a new wave, Wave 2, which appears to be approaching the “knee in the curve” during which the industry will experience an exponential pace of change, primarily due to rapid-fire technology and digital innovation. Moving forward, linear thinking CPG companies will risk falling exponentially behind those that successfully adapt.
Furthermore, the rapid pace of change in Wave 2 and Wave 3 means CPG companies will have significantly less time to react to further unforeseen changes. Taking years to build a competency around an emerging innovation and related data assets – for example, POS – is less acceptable in an era where rapid-fire innovation is the “new normal.” Wave 2 and Wave 3 innovations may produce what was previously a decade’s worth of actionable data in the course of days or even hours. Companies that have not developed the required foundation – competency around innovation, data, and analytics – during Wave 1 will be challenged to keep up.
Another notable distinction is that unlike Wave 1, in which the innovations were driven internally, Wave 2 innovations will predominantly come from innovators outside the CPG industry. Some examples of these include external entrepreneurs, start-up communities, and technology innovation giants. This predominance of outside-in innovation presents a significant opportunity, but at the same time will likely result in an abundance of disparate external sources of data. This new wave of innovation also denotes a shift in who in the value chain owns the most important and insightful data on the consumer. Historically, the retailer has had invaluable transactional purchase data, but in the new era of innovation, consumer “app” companies are capturing an array of consumer data capable of driving tremendous insights.
This research focused on the key innovations that are driving the data for the industry in each of the three Waves. By understanding the technological and digital innovations better, the industry can understand what new and emerging sources of data (small and Big) will unlock opportunities to impact top- and bottom-line growth.
The section of the research below further expands on each Wave focusing on the specific innovations. What are they? Where do they come from? What type of data do they produce? And how can the industry harness that data, convert it into valuable insights, and ultimately drive top- and bottom-line growth?
Wave 1: Innovations and resulting data
As discussed, Wave 1 represents the technological and digital innovations that the industry has adopted over the last two decades – for example, POS, EDI, TPM, and ERP. Much of this existing small data still presents a real opportunity for companies with relatively low analytical maturity. This is in fact a Big Data opportunity because many CPG companies have accumulated a large volume of historical data from a variety of data sources over time.
There is a relatively common set of analytics and insights that the industry has been able to produce with Wave 1 data assets. These analytics range from merchandising to assortment, marketing to sales, and in the last few years, consumer social engagement (see diagram of a sample of Wave 1 insights and analytics).
Wave 2: Innovations and resulting data
Wave 2 is the beginning of a new era for the industry and should be a focus for the CPG industry. In this current and emerging Wave, the industry is being exposed to a rapid-fire pace of innovations and the related Big Data. The following video shows how average consumers are the driving force behind a deluge of data.
Wave 2 will be heavily characterized by consumer data. Many innovations will enable CPG companies to establish direct consumer relationships and engage consumers using a variety of innovative techniques – for example, gamification, crowd-sourcing, augmented reality, social media, and others. The insights from Wave 2 Big Data will be much more granular and descriptive of the needs, likes, paths-to-purchase, and emotional drivers, of an individual consumer or group of consumers. These insights will enable CPG manufacturers to ask and answer questions that were previously very challenging, expensive, time consuming, or impossible to capture (see graphic).
Wave 2 is also where the pace of change approaches the “knee in the curve” shifting from a linear to an exponential rate of change. As part of the industry research, Deloitte identified more than 250 emerging innovations that currently apply to the CPG and retail industry, each creating its own unique Big Data assets. Most of these innovations were predominantly from outside innovators, including Silicon Valley-like start-ups and technology innovation leading companies (e.g. Google, Facebook).
As part of the research, Deloitte filtered the 250 innovations down to a subset of industry-relevant innovations emerging in Wave 2. What follows are examples of these companies – mostly start-ups – explaining in their own words how their innovations contribute to the Formula for Growth. Although these are not the only "Innovators" in each category, these particular companies were selected to represent their category of innovation based on the criteria of having been adopted by two or more major CPG manufacturers or retailers.
The sample of the categories of innovation that are profiled include:
- Crowd-sourcing - Presented by GigWalk
- Augmented reality - Presented by Blippar
- Web mining and scraping - Presented by Food Genius
- Intelligent in-store monitoring - Presented by Video Mining and Shopperception
- Mobile Shopping Incentives (eCoupons) - Presented by Upside Commerce, Placecast, and Revtrax
- Gamification - Presented by Shopkick
- Printable electronics - Thinfilm
- Sensor geo tags - Presented by Intelleflex
- Self-reporting - Presented by Endorse and Over the Shoulder
- Social advocacy - Presented by SocialTwist
The following are videos of each category of innovation described by an executive from each of the represented companies:
CPG companies now have the ability to “create-your-own” data through crowd-sourcing by leveraging the wisdom and resources of groups of individuals. For example, GigWalk (www.GigWalk.com) is a crowd-sourcing innovation in which millions of everyday individuals throughout North America are using the GigWalk app to rally quickly and efficiently as a resource pool of supplemental labor. Leading CPG companies today are using this innovation to capture data on customer surveys, retail audits, out-of-stock checks, merchandising, and display activity.
CPG companies can now turn their product packaging into entertainment using augmented reality. For example, Blippar (www.Blippar.com) is an app that lets consumers hover their smartphone or tablet camera over product packaging to enjoy an entertaining augmented reality experience on the screen of their device. Data from this experience and user interaction is collected and can be used to drive consumer insights and brand affinity metrics.
There are a variety of innovations that leverage the massive amount of data that is publically available on the web. For example, Food Genius(www.GetFoodGenius.com) mines the Internet to capture data from restaurant menus that are published online. These menus, from a local hot-dog stand to a high-end restaurant, allow market research teams to use the associated Big Data to understand in real-time the emerging food trends and consumer preferences.
Retailers are using in-store video to monitor individual shopper behaviors. For example, VideoMining (www.VideoMining.com) uses sophisticated video recognition technology to generate an advanced understanding of a shopper’s “path to purchase.” This technology can be integrated with POS or loyalty data to understand how the path to purchase influenced buying behavior. Other innovators, such as Shopperception (www.shopperception.com), are using advanced 3D image recognition to develop very detailed understandings of which specific products are being interacted with on the shelf and how.
New innovations are being used by CPG manufacturers to deliver eCoupons and incentives directly to consumers. For example, Upside Commerce (www.upsidecommerce.com) and Placecast (www.placecast.net) are using a variety of techniques to target consumers with incentives before, during, and after their shopping occasion. Another innovator, Revtrax (www.revtrax.com), is building the infrastructure to converge digital and physical offers as they are redeemed within the store. The Big Data from these interactions and transactions – for example, coupon redemption – can provide significant insights into shopper and consumer behavior.
New mobile applications are being developed that incorporate game mechanics, or gamification techniques, to influence the shopper experience by creatively turning shopping into a competition or game. The shopper earns points or rewards for certain behaviors. For example, Shopkick (www.shopkick.com) gives a consumer points, or “kicks,” for just walking into a particular store or taking a picture of a UPC bar code. The consumer data that is collected from this innovation is rich in shopper and consumer insights.
Advancements in printable electronics are enabling the next generation of low-cost electronics that can be affixed to low-cost, one-time-use consumer products. This technology can take the form of low-cost sensors, dynamic displays, unique identifying tags, or interactive packaging. For example, ThinFilm (www.thinfilm.no) is producing low-cost electronics that can be affixed to an individual product with a thin, sticker-like label.
The decreasing cost of technology is allowing low-cost sensor tags to be used to understand pallet, case, or individual product-level details across the supply chain. For example, supply chain solution Intelleflex (www.intelleflex.com) enables case and pallet-level temperature sensing and is opening up opportunities for other types of sensing, including shock, humidity, and more.
New innovations are being used to ask consumers to self-report their behavior and opinions in exchange for an incentive or reward. For example, Endorse (www.Endorse.com) rewards consumers with cash-back if they report their basket of purchases across retailers. Over the Shoulder (www.OverTheShoulder.com) provides a market research capability that captures consumer’s opinions and behavior data real-time in a natural (versus staged) environment.
Innovations are leveraging the social connections of consumers to create brand ambassadors out of social influencers. For example, SocialTwist (www.SocialTwist.com), through new social referral marketing techniques, is being used by CPG manufacturers to understand their strongest social influencers and how to develop brand advocates.
The innovators listed above offer a sample of industry-specific innovations that will usher in the CPG industry’s new Big Data assets. Although these particular innovators are currently seeing traction with some leading CPG manufacturers, the “new normal” is that the competitive space for innovation will be rapid, dynamic, and fluid. Some of these companies will find sustainable models and others will fail and be replaced by another group of innovators. This research is meant to highlight and give exposure to some current industry examples and trends, although the reality is that each year a new set of technological and digital innovations will warrant the industry’s attention.
The recommendation to the CPG industry is that even though there may be a perceived revolving door of innovators in Wave 2, companies should avoid the wait-and-see mentality or trying to predict which of the innovators will be major players with long-term staying power. CPG companies should simply expect and prepare for less shelf-life on their investment for any specific innovation. While one innovator vendor or company may be out-competed and replaced by another similar innovator company, the categories of the innovations listed (e.g. Mobile eCoupons) will very likely be part of the CPG industry vocabulary for some time. CPG Companies should plan to develop competencies around these emerging Wave 2 innovations, initially through experimentation, but eventually scaling their involvement to enterprise adoption.
Wave 3: Innovations
“Wave 3” is a longer term roadmap (5 to 10 years) of technological and digital change with a focus on the Big Data produced from transformational, and at times disruptive, innovations. Although it is more difficult to pinpoint the specific analytical opportunities associated with this wave, there are some key indicators relevant to the industry. Many Wave 3 innovations are transformational technologies that are currently under development but will likely gain more rapid industry adoption in the second half of this decade. As these innovations become more widely adopted by the CPG industry, its customers, and its consumers, the industry will enter a new era of opportunity.
Connected products (the Internet of things)
Although in its early stages, companies are already starting to release Internet-connected appliances that will interact with CPG products. For example, connected washing machines, ovens, and refrigerators understand what products they are interacting with and monitor consumer usage patterns in an effort to improve the experience. A byproduct of these technologies will be vast amounts of new consumer usage and experience data.
Artificial Intelligence (AI) is already starting to be used in consumer products such as Apple’s Siri. The progress in this field and related technologies – machine learning and natural language processing – is advancing quickly as the technology itself is used to improve its next generation. It is exciting to contemplate and speculate as to the new sources of applications and utilities this will create for the CPG industry. One clear example for AI is personal shopping assistants.
There are already early signs and applications of virtual reality shopping being used in clothing department stores. The CPG industry is also seeing the beginning stages of virtual reality through fixtures in the retail environment that adapt messaging and content depending on the individual interacting with it. As this trend continues and the virtual reality technology continues to evolve, there will be a host of user preference and behavior data to drive insights for the CPG industry. Consider the following video illustrating Google Glass being used in a shopping scenario.
3D Printing Capabilities
It is expected that by the end of this decade, there will be new 3D printing capabilities that will fundamentally change the cost and process for manufacturing products and packaging. Already, there are 3D food printers – something that may have a significant impact on many product categories within the CPG industry. Perhaps more important, as unit costs come down, consumer versions of 3D printers will allow for new levels of do-it-yourself manufacturing (see link). This trend will also lead to new levels of consumer customization.
More operational processes will become digital as advanced robotics continue to transform various aspects of manufacturing, from warehouse and inventory operations, to the manufacturing plant floor.
Other: Nano-Technologies, Genetic Engineering, Molecular Engineering
Product innovation for CPG companies will change dramatically as a result of newly engineered materials used in products or product packaging. Nano-technologies will dramatically change the information landscape as computers are engineered on a Nano-scale and at favorable economics. This has the potential of making every aspect of a product smarter and more connected.