Tag Archives: retail

How direct-to-consumer brands are revolutionizing the consumer-packaged goods (CPG) industry


From Amazon to Apple, technology has disrupted traditional commerce companies, where technology solutions have enhanced the experience of the product or services for consumers. However, certain industries, such as consumer packaged goods (CPG), have remained relatively stable. In the past, innovation in CPG has been focused on products’ functionalities (e.g., a fast-action dish soap, or advanced whitening toothpaste). Despite CPG’s brand legacy and R&D capabilities, younger consumers are increasingly drawn to emerging micro-brands, small-scale brands tailored to niche markets (The Economist, 2018). In the rise of consumer-technology solutions, how do CPG companies stay relevant in delivering consumer-centric solutions? The answer lies with direct-to-consumer (DTC) brands. 

Overwhelmed with options in your local supermarket

What is a direct-to-consumer distribution?

Direct-to-consumer is the practice of selling to consumers directly, without the need of a third-party retailer or middleman. Adopting a DTC model has numerous benefits, including reducing costs associated with working with a middleman and furthering a company’s brand equity, where companies can further develop their brand relationship with customers on an e-commerce website or brick-and-mortar store. 

Direct sales also allow for a better understanding of customer data (Chonsksi, Caldbeck, and Jordan, 2019). When selling to a third-party store, consumer brands know how much volume they are selling to a store, but they do not know how well a certain product is selling in terms of individual sales. Thus, DTC sales enable greater understanding of sales data and valuable insight for marketing purposes.

An example of a successful DTC company is Warby Parker, the online retailer of prescription glasses and sunglasses. Founded in 2010, the company emerged as an online-only model, where customers received different styles of glasses in the mail to try at home, and purchase the style that best fits them (O’Connell, 2012). Priced at $95 per frame, the glasses were substantially more affordable than glasses in stores. Furthermore, the company established a donation program, where for each pair of glasses purchased, a pair is donated in partnership with the nonprofit, VisionSpring. Thus, consumers associate Warby Parker with affordable styles and social consciousness, messages of the brand that may not be conveyed through a third-party retailer. Warby Parker has also grown its presence to stores across the United States, extending the brand experience.

Warby Parker home delivery

How traditional CPG companies can innovate

While many retailers are adopting a DTC model, it is difficult to see this model applied with CPG brands because they are stapled goods. Household products have become part of ones’ routine, so there is little room for large-scaled innovation as such changes may not be accepted by consumers. At the same time, new “startup consumer brands” are emerging with an emphasis on an online-store or subscription model (Duguay, 2018). 

The shift to e-commerce reflects changing consumer behaviors, where consumers are increasingly attached to their computers and mobile devices. With the rise of grocery delivery services, it is evident that consumers find grocery shopping a hassle. As a result, these emerging consumer brands complement the shift in consumer purchasing habits. 

CPG companies can learn from this model by expanding their marketing channels and service delivery methods. While CPG brands have a presence on television and digital media, many consumers discover products and deals through their local supermarket. As a result, the supermarket plays an integral role in consumers’ perceptions of the brand. A DTC model would give CPG companies greater control of customers’ interaction with the brand. One way to accomplish this is through pop-up stores. For example, St. Ives, the skincare brand under Unilever, launched a pop-up store in New York City, where customers can purchase products and mix customized scents. Similarly, Kellogg’s, the iconic American cereal brand that has stocked grocery stores for a century, has opened a café in New York, where patrons can have a bowl of cereal with toppings. Both examples prove that traditional brands with a long legacy can continue to innovate by directly reaching the customers. 

From cereal box to cafe

CPG brands are also partnering with emerging brands to expand their portfolio capabilities. In 2016, Unilever purchased Dollar Shave Club for $1 billion (Cao & Mittleman, 2016). Although Unilever has an existing portfolio of shaving products, the company was interested in Dollar Shave Club’s subscription model and its capability of developing a strong following quickly. Similarly, Colgate acquired a minority stake in Hubble, an online subscription company for contact lenses, in 2018 (Copeland & Terlep, 2018). With Hubble, Colgate is exploring innovative ways to deliver its legacy products (think a subscription model for toothpaste). With Amazon and Walmart expanding their footprint and capabilities, traditional CPG companies are looking for innovative solutions to remain relevant. 

A $1billion acquisition

Implications for other industries

Aside from CPG companies, it would be interesting to see whether a DTC model applies to other traditional industries such as household appliances and electronics. Unlike CPG brands, there is not a high turnover for the product. You will not go through a washing machine as you would go through laundry detergent. Household appliances and electronics innovate with new functionalities are advancements in their existing technology (think a faster food processor). The challenge is that the average customers are not enticed to purchase the newest model of an appliance item because they are satisfied with a product that serves its fundamental purpose. As a result, household products are not agile to customer needs.            

However, a DTC model can still be applied in this industry. Purchasing appliances is still an experience, and many consumers want to see the product before purchasing it. Similar to Warby Parker, household appliance brands can have dedicated retail stores to showcase their line of the product instead of going through a third-party retailer (e.g., department stores). Another benefit of having dedicated stores is that customers can ask specialists questions about the product. Household appliances can also consider an e-commerce model, where users can test a product at home before committing to purchase the product. The limitation of this proposal is the cost of shipping and greater risks associated with larger products.

Looking Ahead

DTC distribution has proven to be successful, especially for emerging brands that have gained a loyal following. By selling products directly to the consumer, brands can control the messaging of the product. When it comes to CPG brands, there is are a lot of avenues for further growth including launching pop-up stores or partnering with emerging brands. Ultimately, a better understanding of the customer will position CPG companies for greater growth. 

References

Cao, J. (2016, July 21). Why Unilever Really Bought Dollar Shave Club. Retrieved March 8, 2019, from https://www.bloombergquint.com/business/why-unilever-really-bought-dollar-shave-club#gs.0ippbt

Chokshi, S., Caldbeck, R., & Jordan, J. (2019, February 25). A16z Podcast: Who’s Down with CPG, DTC? (And Micro-Brands Too?). Retrieved March 8, 2019, from https://a16z.com/2019/02/15/cpg-dtc-microbrands-grocery-online-offline-commerce/

Copeland, R., & Terlep, S. (2018, July 02). A Toothpaste Club? Colgate to Invest in Online Startup. Retrieved March 8, 2019, from https://www.wsj.com/articles/a-toothpaste-club-colgate-to-invest-in-online-startup-1530537593

Duguay, A. (2018, March 15). If The Consumer Is Strong, Why Are CPG Brands Struggling? Retrieved March 8, 2019, from https://www.forbes.com/sites/forbesfinancecouncil/2018/03/15/if-the-consumer-is-strong-why-are-cpg-brands-struggling/#3bfb3fcb4728

O’Connell, V. (2012, July 19). Warby Parker Co-Founder Says Initial Vision Was All About Price. Retrieved March 8, 2019, from https://www.wsj.com/articles/SB10000872396390444097904577535111565440718

The growth of microbrands threatens consumer-goods giants. (2018, November 08). Retrieved March 8, 2019, from https://www.economist.com/business/2018/11/08/the-growth-of-microbrands-threatens-consumer-goods-giants

Augmented Reality Finally Becoming Reality?


Though it has been under development since the 1950’s, Augmented Reality (AR) is only now becoming practically applicable (PwC, 2016). In the last decade, AR has been in the centre of attention among academics, resulting in numerous studies analysing the (dis)advantages derived from the many possible AR applications. AR offers an enhanced perception to help people to experience the environment in new and enriched ways that will benefit in the fields such as education, health, design, and retail (van Krevelen et al., 2007).

While different definitions of AR still exist, it’s objective is clear; enhancing the user’s perception of and interaction with the real world. The business opportunities of this novel technology seem promising, as people can look at operations from a combined view of digital and physical operations while externalizing the burden of the task (PwC, 2016). Since AR is one of the novel technologies that could support new business activities and generate new business opportunities, it is of great value to investigate AR’s business potential. AR is a technology that could revolutionize the way companies do business and consumers buy products (Azuma, 1997). Specifically, AR has the potential to reshape the world of retail with its’ influence on the shopping experience of consumers. Major benefits of AR in the retail industry are that users can virtually visualize the products they would like to purchase, explore virtual showrooms, and create a more appealing shopping experience (Guven et al., 2009). But how exactly does AR affect the retail user experience? Will it eventually result in higher user satisfaction or will the limitations of the technology outweigh the opportunities?

According to Poushneh et al. (2017), AR-enriched applications empower users to better perform their tasks and appreciate the functionality of the product more. This is because AR-enriched applications are more entertaining and it enables consumers to have endless interaction with virtual information (Poushneh et al., 2017). Not only does AR produce higher user satisfaction, but also higher user willingness to pay (Poushneh et al., 2017). However, these benefits of AR will only become available when the technology application is practical, easy to use, easy to learn, organized, symmetric, attractive, and pleasant, in order for it to provide relevant information to the users (Poushneh et al., 2017). If companies fail to do this, it could actually negatively affect the user experience after all.  Therefore, developing such applications is not feasible for every company. As can be seen from the figure below, only 3 percent of the retailers has already implemented a well-working AR application (Business Insider, 2019). Companies that have already implemented such applications in their business model are therefore considers the first movers, of which IKEA is one.

(Business Insider, 2019)

Business model

IKEA is a Swedish multinational group that designs and sells (ready-to-assemble) furniture kitchen appliances, and other useful home accessories. Launched in 2017, the IKEA Place app helps customers to visualize how over 2.000 furniture items would look like in their homes (IKEA, 2019).

(IKEA, 2019)

Currently available on the app are large furniture such as sofas, armchairs and storage units (IKEA, 2019). Other products are still in development to become available in the app. The main objective for IKEA according to Michael Valdsgaard, leader of digital transformation at IKEA, is to allow shoppers to make more reliable buying decisions. According to Michael, most people postpone a purchase because they are not entirely sure that the colour is going to match or fit the room (IKEA, 2019). With this app, he hopes that this insecurity to purchase gets replaced with entertainment and security. It saves the customer a lot of time and consideration before placing a purchase. Furthermore, IKEA (2019) automatically scales products based on a room’s dimensions and claims that is able to do so with up to 98 percent accuracy (IKEA, 2019). Even allowing customers to see the texture of a fabric and the interplay of lift and shadows on a specific location.

Efficiency & Limitations

As mentioned before, AR-applications must be practical, easy to use, easy to learn, organized, symmetric, attractive, and pleasant, in order for it to provide relevant information to the users (Poushneh et al., 2017). Looking at the IKEA Place app, it seems to fulfil all these criteria. With easy to follow guidelines that help people to use the app while offering 98 percent accuracy, the app is able to provide additional value to the shopping experience of the users.

From a joint profitability perspective, the IKEA Place app offers both additional value to IKEA as well as to its customers. IKEA is able to help the customer in their shopping journey in order to make it more enjoyable. Furthermore, it also helps the customer to make more correct purchasing decisions and thereby reducing the number of products being returned, lowering costs, and increasing customer satisfaction. With IKEA’s large customer base, the company is able to grab a large share of the online home furnishings market, boosting its sales and giving an advantage over its competition (Business Insider, 2019). On the other hand, app users are able to enjoy a 3D-visualization of potential furniture, reducing uncertainty and the time needed to make a purchase decision, since there is less hesitation regarding the colour, size, fabric, and overall fit.

From a feasibility point of view, the company is not facing any legal or political issues. Rather, IKEA’s biggest challenge would be the social aspect. While IKEA claims to offer 98 percent accuracy to the app users, there is a chance that the app might not visualize a piece of furniture correctly to the user. For example, when the user tries out a sofa in his/her living room and the app shows that the product should fit, however, once it arrives it results to be too big. The customer has then wasted time, money and effort while relying on the advice given from the company. In such a case, will the customer bear the costs or will IKEA be held responsible?

(IKEA, 2019)

Another drawback of the IKEA Place app could be linked to consumers’ cognitive limitations discussed during session two (Tsekouras, 2019). When customers are offered many options, they find it difficult to search through all of them. There is a fear of regretting the ‘wrong choice’. This could also be the case with IKEA, since the app allows the customers to compare thousands of products and have them visualize it in their room, making it hard t consider all relevant attributes when choosing between alternatives.

References

Azuma, R. T. (1997). A survey of augmented reality. Presence: Teleoperators & Virtual Environments6(4), 355-385.

Guven, S., Oda, O., Podlaseck, M., Stavropoulos, H., Kolluri, S., & Pingali, G. (2009, March). Social mobile augmented reality for retail. In 2009 IEEE International Conference on Pervasive Computing and Communications (pp. 1-3). IEEE.

IKEA (2019). A better Reality. Retrieved from Https://highlights.ikea.com/2017/ikea-place/.

Poushneh, A., & Vasquez-Parraga, A. Z. (2017). Discernible impact of augmented reality on retail customer’s experience, satisfaction and willingness to buy. Journal of Retailing and Consumer Services34, 229-234.

PwC. (2016). Augmented reality: the road ahead for augmented reality. Retrieved from

Tsekouras, D. (2019). Session 2: Consumers’ Cognitive Limitations. Erasmus University.

Van Krevelen, D., & Poelman, R. (2007). Augmented reality: Technologies, applications, and limitations. Vrije Univ. Amsterdam, Dep. Comput. Sci.

Customer information and promotions: Quid pro quo


Ahold is an international retailer that operates supermarket chains in various countries, amongst which Albert Heijn (Netherlands) and Giant Food Stores (United States), in which they implemented BonusCard programs, respectively introduced in 1998 and 2000. Both cards are required to receive discounts, but while the AH card can be kept anonymous, Giant card holders have to reregister their card, giving their full name and home address every fall, to avoid deactivation. It appears that the amount of personal information required in these programs is directly related to the discounts that can be obtained. The more information is required, the more discounts are awarded.

GiantCard_small

Whereas in US, customers’ privacy concern seems relatively low when the BonusCard was just introduced it faced active protests. These ranged from mass e-mailings to Giants then CEO, to online BonusCard swaps where people could exchange their cards’ barcodes. This probably has to do with the many advantages of the card, which does not only give discounts but which through the A+ school rewards program also donates 1% of the total purchase price of each customer to a school of their choice. On top of that, the card also gives significant discounts on gas, up to $2.20 discount per gallon (which amounts to a 60% discount) at Shell.

The Albert Heijn’s customers received the BonusCard with more suspicion. Of the 10 million new BonusCards that were handed out since bonuskaartOctober 2013, only 2.5 million were activated online. Each customer receives discount if they have a card, but if they link this to their e-mail address they can also view the groceries they have purchased in the past, which of these are on promotion, and receive personalized promotions. Entering further personal details is not required.

Continue reading Customer information and promotions: Quid pro quo