How CIOs are Innovating for the Consumer Packaged Goods Industry
By Tom O'Reilly / June 2017Insights
*This article was originally published in the May 2017 edition of CIO Review magazine.
As closely related industries, retail and consumer packaged goods (CPG) trends must be closely monitored by retail CIOs. New technologies and consumer preferences have a significant impact on retailers’ business strategies. CIOs must juggle competing priorities, such as managing costs and operating more efficiently, while continuously innovating to appeal to loyal customers and attract new shoppers.
In addition, as technology evolves, the traditional lines between functional areas have become blurred. For CPG and retail industries specifically, the role of the CIO must include a deep understanding of finance, marketing, advertising, and promotions. They must use their expertise to design systems that streamline workflow and facilitate promotional processes but also integrate consumer data to provide a seamless omni-channel experience to the customer.
The Boston Consulting Group (BCG) and Grocery Manufacturers Association conducted a study on how the IT function in CPG companies is responding to ongoing technology and industry transformation.
According to the study, “Many CIOs aspire to drive innovation, shape digital and eCommerce business decisions, and play a pivotal role in the success of the business overall. But day-to-day operations, burdensome legacy technologies, talent shortages, and a relentless focus on costs are significant hindrances.”
BCG’s IT Benchmarking Study identified three key attributes of IT innovation leaders to overcome some of the daily obstacles CIOs face.
1. Funding Novel Technology – IT advancements require more broadly scoped budgets to support development, experimentation, and integration with current systems. IT must fund consumer websites, mobile apps, eCommerce technology, content management, data analytics, and other initiatives.
2. Testing IT Innovations – Progressive leaders must experiment with new application-development frameworks and tools, new software and cloud-based IT infrastructure regularly. Being nimble is a priority, requiring CIOs to deploy non-relational databases to replace traditional tabular, relational databases, as well as moving from code- heavy, monolithic applications to self-contained microservices.
3. Investing in Various Business Processes – In addition to budgeting for supply chain, finance, marketing, and other business- critical areas, forward-thinking CIOs fund technology-based innovations for eCommerce, customer service and other updates that accelerate overall business objectives.
Where are CIOs uncovering additional funding for IT initiatives? Here are two proven practices that involve working with technology partners:
• Collaborate with technology partners – Most technology vendors have aggressive R&D programs and CIOs can visit select firms annually to get a preview of emerging technologies and trends.
• Ask current vendors to provide proofs of concept and demos – Work with a technology partner to co-fund a project that can enhance the business and open opportunities for additional joint efforts. Examples of joint projects include developing an app, enhancing an e-commerce site, or creating a sensor that will prevent stock-outs.
What other areas are CIOs looking to innovate? Gigya, a customer identity management platform, spotlights three ways CIOs are rethinking CPG.
1. Mobile and Location-Based Services: Supporting both customers and in-store team members, mobile- and location-based services allow CPGs to be more responsive and relevant to consumers. The right technology allows CPG companies to add shelf space, manage pricing, and enhance promotion strategy. Using appropriate tools allows CPGs to monitor the amount of shelf space brands were allocated compared to competitors and whether retailers are complying with promotional agreements. Mobile- and location-based services provide essential data that CPGs can measure and speed response time.
2. Direct-to-Consumer: To enhance customer loyalty and engagement, CPG brands must reach shoppers on at least two platforms, including websites, mobile apps, social media accounts, or online communities. Data from social logins and other frictionless authentication processes allows CPGs to know their customers more authentically and deliver strategic, relevant promotional messages.
3. Predictive Analytics: Going beyond historical data, predictive analytics enhance forecasting and long-term planning. CPG companies must hire or train data analysts to manage the mountains of information.
Looking ahead, where else will CIOs need to monitor and modernize? PwC provides 2016 Retail and Consumer Products Trends based on its 2016 Global CEO Survey.
Trend 1: Digital-Only Brands
New online only retailers are gaining traction with well-defined niches and cannot-ignore promotional strategies. For these brands, their products often become an art form and their customers participate in the communications. Examples include Dollar Shave Club’s irreverent video ads that have gone viral and Birchbox’s entertaining shopping experience, which led to a powerful word-of-mouth campaign.
Trend 2: In-store and Online Presence
As sales per square foot continue to decline, retailers and CPGs must pay attention to productivity and profit per square foot. In addition to digital technologies enabling more efficient use of real estate, more technology investments and creativity should be focused on improving the online shopping experience. PwC advises to think of the physical store as another “screen.”
Trend 3: Personalize and Localize
Savvy CPGs are opening physical stores to gain direct to consumer access and deliver a full brand experience. Brands such as Burberry, H&M and Sport Chek have created technology-enabled outlets with limited inventory but immersive environments. Offered as an experience alternative to restaurants, coffee shops and movie theaters, these stores feature interactive video displays, retail tables with touch- screen technology, and digital memory mirrors for 360-degree viewing in fitting rooms.
Trend 4: Retail and CPG Collaborations
PwC labeled the complicated relationship between retailers and CPG companies as “frenemies” who have partnered for years even as retailers develop their own private-label brands that compete directly with manufacturers. With a more transparent supply chain, PwC says the “frenemies” are uncovering opportunities to grow together. Retailers and manufacturers are now sharing customer data, analysis, and insights as they identify margin improvements and supply chain efficiencies. Another plus point is performance-based trade promotions will become more common place as manufacturers ask retailers to support instore product campaigns in return for sharing profits and shopper data. PwC predicts further strengthening of the symbiotic relationship between CPGs and retailers.
Trend 5: Global Brands and Social Issues
Responding to consumer concerns, large CPG companies are offering healthier products, cooperating with local non-governmental organizations to improve economic conditions, paying employees fair wages, and embracing sustainability initiatives by minimizing CO2 output and water usage.
Consumers have a strong and active voice that CIOs must address. The CPG and retail industries are facing disruption in every aspect of shopping with the dominance of mobile and digital. Since virtually, anything consumers desire can be purchased online, new niche sellers are going to market every day. For CPG brands to remain relevant and thrive in this new norm, they need forward-thinking, customer-focused CIOs.
Contributed by Tom O’Reilly – President and CEO, Aptaris
Tom has a deep understanding of the retail business from both the store and vendor perspectives. He brings decades of hands-on experience in advertising and promotions including new media innovations. As an entrepreneur, he has transformed each organization he has worked with. Tom is a forward-thinking leader with a history of driving innovation, growth and profitability. As an avid reader, Tom is always enthusiastically sharing cutting-edge ideas with clients and colleagues.