‘The most important single thing is to focus obsessively on the customer. Our goal is to be earth’s most customer-centric company. Jeff Bezos
One of the key reason why Amazon will become soon the most valuable company in History is surely Consumer Centricity. It is this visceral founder mentality. This is surely the same spirit that animated once the founding fathers of our industry: William Procter, James Gamble, William Colgate, Henri Nestle, Robert Wood Johnson, John Pemberton and many more.
If those founding fathers will be with us today. Who will they recognize as their true heirs? The management teams running their companies? The Amazon of Jeff Bezos? The Chobani of Hamdi Ulukaia?
If those founding fathers will be with us today. Who will they recognize as their true heir? The management teams running their companies or the Amazon of Jeff Bezos? Hard to tell but definitely worth a thought. What is clear is that we need to rediscover our founders mentality. We need to win the battle of Consumer Centricity. This is our challenge as an industry.
The time of one article, let’s pause the incessant noise about ‘Voice ordering’, ‘Artificial Intelligence’, ‘Blockchain’, ‘Advanced and Predictive Analytics’, ‘Programmatic buying’, ‘Direct-to-Consumer’… those are undoubtedly very important ‘How-to’ but they have been lately over-shadowing the most important: what one of our client calls rightly the ‘mother of all our problems’: Consumer Centricity
‘Consumer centricity is the mother of all our problems. If we take care of it, all our other problems will get solved by themselves’Division President Top 20 FMCG company
The time of one article, let’s think whether we could deliver much more with much less and free-up resources to invent the New
‘We spend the majority of our resources on innovation (75% of employees’ time, 40% of our A&P) but our innovation success rate remains appalling (<10%). If we could dramatically increase this success rate AND minimize the resources consumed for each launch, we could reinvest much needed resources into our ‘exponential’ action plan’Group CEO Top 10 FMCG company
Let’s stop and think what it would take to re-build again those consumer obsession muscles
‘Digital, e-commerce, voice, AI, etc… are not the end game, those are only ‘enablers’ or even ‘acid tests’ that reveal the weaknesses of our brands. Our sole objective should be to become the most consumer centric organization in the world. We need to work backwards from our purpose and from the consumer, from his/her drivers and barriers not backwards from gimmicks and fads’ Group CMO top 5 FMCG company
Gillette has been steadily losing shares (from 67% in 2012 to ~50% in 2017) against DTC players in the US because it has been ‘milking’ a captive market. If Gillette would have done a better job with the consumers (less outrageous prices, range covering all price points, value adding vs. incremental innovations …), they will not be in such a position today.
If Zevia is currently winning online on the better-for-you soda segment in the US, it is because it gives to consumers what they want: a credible (indie brand), natural (Stevia flavoured), preservative free, zero-calorie tasty soft drink. PepsiCo can certainly trade better the online channel but it may not be enough to win over such a competitor without addressing the product mix
We tend to forget that the largest case of disruption in the FMCG industry to-date is still Chobani, old good yogurts manufactured in an old good factory and sold through old good retailers. It is the FMCG company that reached the fastest the $1.7bn revenue mark. Faster than Rodan+Fields, higher than Younique or even Three Squirrels. Addressing consumer drivers and barriers and investing ruthlessly behind those (still) go a long way.
We tend to forget that the largest case of disruption in the FMCG industry to-date is still Chobani, old good yogurts manufactured in an old good factory and sold through old good retailers.
On March 16th 2018, we invited 12 senior FMCG executives in our Zurich office to exchange on the topic of ‘exponential growth and how to fend-off the Red Queen Effect’. One key theme emerged: the need to become holistically more consumer centric.
It is a topic we feel extremely passionate about, it is at the heart of everything we do as a Firm. Here below are our (very summarized) thoughts. The below framework is surely neither exhaustive, nor perfect. It may even need to be further tailored for each company but it offers a good starting point. Cracking consumer centricity requires to intervene across strategy-execution-culture-velocity. Here is our take.
i) New ways to generate consumer insights (CI)
It has to start from the consumer and CI in particular. Too often this is going wrong:
a. The rise of consumer research platforms:
In the same fashion Uber has been disrupting the taxi industry, Streetbees, founded in 2015 by Tugce Bulut, is currently disrupting the market research industry
In the same fashion Uber has been disrupting the taxi industry, Streetbees, founded in 2015 by Tugce Bulut, is currently disrupting the market research industry with a faster (few weeks vs. few months), cheaper and richer (more interactive content, mix of pictures/videos…) service enabled by a platform connecting at scale FMCG clients with consumers across the globe. It is not a coincidence if it succeeded to raise $12m in a Series A funding in March 2018.
The global intelligence platform start-up Streetbees has announced today it has raised $12m in Series A funding, from some of Europe’s top investors. The start-up, led by CEO Tugce Bulut, is changing the market research industry.
b. DTC insurgents:
Some DTC comapnies have become masters at generating consumer insights and leveraging their audience to continuously improve their 4P strategy. Glossier and Warby Parker (articles below) are the poster children of those DTC insurgents generation that are recognized for their consumer-centricity: from pitching new products online before manufacturing them to leveraging consumer feedback to propose new services, they turned consumer-centricity into their ultimate competitive advantage
They turned consumer-centricity into their ultimate competitive advantage
Eyewear brand Warby Parker continues to disrupt its sector by offering affordable products both online and offline, innovating and taking a “do well by doing good” approach, its co-founder and CEO told an audience at IRCE in Chicago. Dave Gilboa was still a graduate student in 2010 when he and co-founder Neil Blumenthal launched the company out of their apartments.
Correction: A previous version of this article misstated that Glossier last month received $25 million in a series c funding round. We regret the error. LAS VEGAS – Customers don’t just need to feel heard, retailers need to actually listen to what they’re saying and promote information sharing – something the $4.3 billion beauty market has long neglected if you ask Emily Weiss.
ii) Demand Spaces mapping, Hyper-segmentation and Hyper Personalization at scale
a. Demand spaces mapping
Generating consumer insights is a good start. Turning them into clear and actionable demand spaces is better. A good example of a demand space approach is how RB succeeded to move from a molecule approach (Ibuprofen) to an occasion-based segmentation on Nurofen (see below) to protect its price premium vs. generics and capture profitable growth through expanding its range across the aisles (cold and flu, period, back…). Naturally it has to be substantiated by product differentiation and it has to be in line with regulatory requirements. If RB was fine $6m in Australia in 2017 for misleading claims, it still turned out by and large to be a successful strategy at a global level.
b. Hyper-segmentation at scale:
What we call hyper-segmentation is the action to take a category, a demand space or an occasion and to segment it with SKUs that are so specific and so targeted that they will never meet the minimum rotation requirements (rate of sales per point of sales) in store.
What we call hyper-segmentation is the action to take a category, a demand space or an occasion and to segment it with SKUs that are so specific and so targeted that they will never meet the minimum rotation requirements (rate of sales per point of sales) in store. It is a very effective way to tackle large categories that are ripe for online disruption as it enables to capture a smaller but also more profitable segment. The perfect example is BEVEL that focuses on the male grooming African-American segment that has been able to command an average transaction value 8 times greater than Dollar Shave Club ($49 vs. $7 – Slice study below)
c. (Hyper) Personalization at Scale
The rapid progress of additive manufacturing and the exponential nature of AI that underpins those businesses both suggest that hyper-personalization in Beauty is here to stay and will be ripe for mass adoption within the next 5 years.
Led by entrepreneur like Arnaud Plas at Prose – few companies (Prose, Proven, Curology…) and many more have become the poster children of this rising trend in Beauty. If we are only at the beginning of the journey. The rapid progress of additive manufacturing and the exponential nature of AI that underpins those businesses both suggest that hyper-personalization in Beauty is here to stay and will be ripe for mass adoption within the next 5 years. If today hyper-personalization is mostly happening on beauty, it will happen also very soon on Food.
In 2018, it’s less about fitting into a category and more about creating your own. We caught up with two experts to find out why customizable beauty is finally getting the shine it deserves, and to spotlight the brands doing it best.
iii) New/Renovated Brand Growth Model :
Once consumer barriers/drivers are understood, demand spaces are mapped, segmentation is completed, time has come to translate the overall into a compelling 4P strategy (some calls it 5P, 6P or even 10P – on few things at least, we tend to be traditionalist within the Firm). At a time 4P strategies have involved incrementally, we saw the emergence of tremendously successful FMCG companies that invest ruthlessly behind few key consumer drivers/barriers, even if it involves taking radical 4P choices.
Chobani has been for a long-time the poster-child of the better-for-you revolution investing everything in cost of goods, pricing at average cost at full capacity and started only investing in ATL when it reached $750m yearly revenue. Many followed (Rx, Kind, the Amplify Brands,…) the same approach on the back of a successful and innovative use of digital marketing
As Hamdi Ulukaya sums it up in the below video: ‘If it is authentic, people will know, you do not have to say much about it’. Which echoes Jeff Bezos views on marketing: ‘In the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world, that inverts’
The problem is that most legacy Brand Growth Models (BGMs) are now rapidly becoming obsolete. Most are not designed to survive in an environment with low-to-zero barriers-to-entry. Today there is a need to apply a zero-based mindset to BGMs/4P strategy and re-align them to the key consumers barriers and drivers.
The problem is that most legacy Brand Growth Models (BGMs) are now rapidly becoming obsolete. Most are not designed to survive in an environment with low-to-zero barriers-to-entry. Today there is a need to apply a zero-based mindset to BGMs/4P strategy and re-align them to the key consumers barriers and drivers. The problem today is that BGMs are getting destabilized, Most brands are A&P addicted and nose-dived when A&P is cut because the 3 other Ps are too fragile/have been optimized to the max (maximum pricing, minimum COGS…) and cannot support the brand.
iv) Product and business model innovation
If there is one FMCG company at the moment that is really demonstrating how fast a business model can evolve, it is Mars PetCare
If there is one FMCG company (outside the big tobaccos) at the moment that is really demonstrating how fast a business model can evolve, it is Mars PetCare. The Why, the What and the How of this transformation go much beyond this current article and would deserve a dedicated article in itself.
Mars PetCare moved from a transactional petfood business to a holistic consumer centric eco-system of products/services centered on delivering a better world for pets. Looking at Mars PetCare yearly revenue (estimated at $17bn) and their last 24 months string of acquisitions (VCA the pet clinic chains in the US for $7.7bn, in Europe – Anicura – announced last week, connected objects, DNA testing…; most of them for undisclosed amounts but collectively likely to be well over $14bn),
This is a great example of a company playing on categories/countries ripe for online disruption (Petfood, large footprint in NA) with the need to hedge exposure, recreate barriers-to-entry and renew competitive advantages.
In a world where the profit will leak at an exponential pace from assets owners to path-to-purchase owners, the best way to renew competitive advantages is to assemble a consumer centric eco-system of complementary products/services to earn the right to own the consumer relationship and own the prescriptors
Beyond strategic considerations, in a world where digital marketing cost is expected to grow yearly mid double-digit in the foreseeable future, it is also very smart to transfer A&P from its P&L to its Balance Sheet with the acquisition of pet clinics in the US and in Scandinavia.
In a world where digital marketing cost is expected to grow yearly mid double-digit in the foreseeable future, it is also very smart to transfer A&P from its P&L to its Balance Sheet with the acquisition of pet clinics in the US and in Scandinavia
i) Get consumers in and employees out
The Bacardi case below may be anecdotal but it is also a sign that FMCG companies have been losing touch with the consumers, delegating consumer understanding to a dedicated function and fragmenting/diluting the 4P strategy ownership between functions
The Bacardi case below may be anecdotal but it is also a sign that FMCG companies have been losing touch with the consumers, delegating consumer understanding to a dedicated function and fragmenting/diluting the 4P strategy ownership between functions (sales, marketing, trade marketing…) and between entities (local, regional, global).
On February 8, Bacardi Limited will shut down normal operations and ask its 5,500 employees worldwide to go hang around in bars for a while. Well, not just hang around, exactly. The “Back to the Bar” campaign combines boots-on-the-ground consumer outreach with social media.
ii) The right organizational muscle at the right place
a) Unilever 70-20-10:
Most FMCG organizations have been suffering of ‘over-centralization’ in the last decade, especially at the Food companies where the demand is so locally driven. If most are coming back to a more decentralized or lead-market model, there is a need to strike the right balance across local-regional-global levels.
While it is unlikely that there is a one-size-fits-all approach to innovation, Unilever 70-20-10 approach (70% global innovations, 20% regional, 10% local – presented by Graeme Pitkethly in Q4 ’17 at an investor event – slide below) is interesting and reveals the need to strike the right balance.
b) Nestle cluster approach in India
Naturally this balance cannot be the same everywhere. Nestle approach to innovation in India is a good example
Naturally this balance cannot be the same everywhere. Nestle approach to innovation in India is a good example. To take the most of the country that will account for 15% of the global FMCG market growth in the next decade, it has decided early 2018 to cluster the market in 16 strategic units to really finetune its 4P strategy at a regional level.
At the end of the day, many FMCG organizations have >16+ local organizations across Europe and its 700 million consumers. Having such a set-up to cover such a strategic market like India with its 1.3bn consumers makes a lot of sense. It will surely hurt the P&L over the short-term but it is an investment that will likely pay-out: consumers in Kerala have little to do with consumers in Rajasthan or even in Himashal Pradesh.
Virtual teams set up to develop tailor-made brand, marketing and distribution strategies
iii) Small autonomous teams and the the 2 pizza rules:
With 30 people in the room, how is any decision ever going to be made?’ Alyson Lewis, Global CMO J&J
It is not only in frontier markets where reorganization takes place, it is also in the largest markets of the largest FMCG companies. J&J Consumer in the US is a great example. It put in place earlier this year ‘squads’, team of 10 people to flatten the organization, shorten the decision taking process and rebuild ownership.
As Alison Lewis, the CMO, puts it:
‘A learning we got from Amazon was the two-pizza rule – a clear person who is the decision maker and no more people on a team than could eat two pizzas in a meeting, which is probably seven to 10. Each of those people has unique accountability and experience. With 30 people in the room, how is any decision ever going to be made?’
It’s a small world, or a Petite Planet, after all – even if you’re a consumer-products business with $13.6 billion in annual sales inside a $76.5 billion global healthcare behemoth. Johnson & Johnson is trying to act more like the digitally enabled local players that collectively have become its biggest competitive threat.
iv) Dual value chain:
This is surely one of the most (if not the most) important point in the entire wheel. We are firm believers that ‘the How will prevail on the What’.
This is surely one of the most (if not the most) important point in the entire framework. We are firm believers that ‘the How will prevail on the What’. What do we mean? In a world that is getting increasingly complex, where the premium for speed-to-market is increasing, it is more important to have a value chain (from R&D to production) that can start/fail/iterate fast than spending a longer time securing a marginal improvement in innovation success rate.
It is more important to have a value chain that can start/fail/iterate fast than spending a longer time securing a marginal improvement in innovation success rate
Here is a simple example. One Food company was very clear on the new product strategy required to turnaround its largest market. It requested a $20m CAPEX to proceed with a large scale launch and it failed. Why? The strategic intent was spot on. The specific consumer insights and 4Ps execution were just poor. 12 months after, the $20m were written-off. The global management team swore not to explore again this specific opportunity.
Although it is tempting to throw the baby out with the bathwater, it is missing the point. Supply chains are increasingly the key bottleneck of strategy, especially on Food categories (more local driven consumer demand translating into larger growth gap between local and global players, comparatively higher capital intensity and lower gross margin…). Here are our thoughts on the question:
a. First, set-up a dual value chain
It is not unusual to see those days FMCG manufacturing facilities with less than 60 or even 50 percent capacity utilization in developed markets
It is not unusual to see those days FMCG manufacturing facilities with less than 60 or even 50 percent capacity utilization in developed markets. From turning permanently spare manufacturing capacity into start-up/test facility to investing into run-down private label assets, there are many ways to set-up dual value chains.
The case of a President of a large FMCG division that went up to taking a pot of paint and painted a demarcation line between the mass production area and the start-up/test area was saying of the increasing level of frustration in some c-suites
b. Then, cut drastically the CAPEX budget…. to boost revenue
This could be counter-intuitive for some, it was once suggested by the Chief Supply Chain Officer of one of the world largest FMCG company and it is now executed in a number of large FMCG companies: let’s cut drastically the CAPEX budget, it will reduce considerably the speed-to-market, we will execute faster, we will fail faster and for cheaper. We will reduce our write-offs. It could be counter-intuitive but it makes a lot of sense.
c. Spend back on supply talents
We see increasingly FMCG companies ‘spending back’ on supply talents and increasing their seniority
We see increasingly FMCG companies ‘spending back’ on local supply talents and increasing their seniority. Profile with work experience outside Supply and with a commercial mindset are highly sought-after.
Well, this last section may not be very diverse when it comes to the source of the selected quotes but we feel FMCG companies could learn a great deal from Jeff Bezos/ Amazon.
i) Take bets all along but not bet-the-company bets
What really matters is, companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence. Whereas companies that are making bets all along, even big bets, but not bet-the-company bets, prevail. I don’t believe in bet-the-company bets. That’s when you’re desperate. That’s the last thing you can do.
This is critical, especially in our times of transition and acceleration. This will separate increasingly winners from losers.
ii) Giving up the self-preservation culture
Leonid Sudakov mentions it several times in the Mars PetCare video. This is the make or break of a transformation.
iii) Consumer vs. competitor focused
If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering. Jeff Bezos
For example, this has been a lot true on Food where many companies have just been busy imitating Kraft-Heinz tactics and lost steadily market shares. It is not a coincidence if CEOs at Kellogg’s, Campbell, GenMills and MDLZ to name few all changed over the last 12 months.
iv) Frugality and accept serendipity
I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out. Jeff Bezos
It’s not an experiment if you know it’s going to work. There’ll always be serendipity involved in discovery. Jeff Bezos
Those 2 things are critical to make it work. We still see many organizations failing there: Being too impatient, setting too short-term goals, showering teams with resources…
This sets apart exceptional organizations to good ones. The speed at which CI are generated, turned into minimum viable 4P strategies and tested in-vivo with consumers can be extremely different. We know FMCG companies that complete the whole cycle in 48 months, some in 18 months and some others in 6 weeks. It is all about understanding the bottlenecks in the consumer-centricity wheel and acting surgically to remove them
At a time the industry is rapidly moving away from the Retailer Age to the increasingly disintermediated Consumer Age, it is more important than ever to reclaim Consumer Centricity. It is the mother of all our problems, let’s take care of it and the rest will follow. This is our exciting challenge
For the one keen to hear more and continue the conversation, we will host an exclusive and unique European Senior FMCG Executive Conference on ‘How To Become The Most Consumer Centric FMCG Organization In The World’ on Friday, October 5th 2018 from 11 am to 3 pm in Geneva in the exclusive Four Seasons Hotel Des Bergues (lunch will be served). The event is exclusively reserved to senior executives in the FMCG industry (managing a P&L > €1bn or Head of Strategy) and is strictly limited as usual to 12 attendees. For more information and to RSVP, please contact: firstname.lastname@example.org
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Frederic Fernandez does not own any stocks or financial instruments of any FMCG companies or companies mentioned in the above article. All the above information are public information.
About the author:
Frederic Fernandez is an expert and thought leader in the FMCG industry. He is the Managing Director and Partner of Frederic Fernandez & Associates a global bespoke Strategy Consulting Firm exclusively focused on the FMCG industry. Its purpose is to co-create the future of the FMCG industry, one client at a time. The Firm helps the CEOs and the Boards of the world’s largest FMCG companies on selected areas: Growth and Profit turnaround, Exponential Growth strategy (New Retail, Omnichannel, DTC, Ecommerce, Business Model Innovation), Disruption Hedging/Leapfrog and M&A strategy. The Firm’s head office is located in Zurich, Switzerland. The Firm’s team intervenes all across the globe.