The Painful Reckoning of Incumbent FMCG Manufacturers

Zurich, Switzerland | 27th November 2019

By Daniel Schmidt, Director - FMCG Loyalty, Loylogic

Big consumer goods companies face the unpleasant truth that the success of the past cannot be reproduced in the same way. Direct consumer engagement facilitated by a loyalty program is one of the answers.   

The glory days are gone. The magic formula of perfected mass-market brand building, mass production at lowest cost per unit, strong relationships with mass retailers and vast investment in growth-securing M&A just doesn’t work anymore. According to a McKinsey study, the organic growth of the fast-moving-consumer-goods (FMCG) industry has been weak over the last years, with large companies growing at 60% of total industry and 55% of GDP only1. The competition in developed markets is relentless and top-line growth is unlikely to be achieved without any bottom-line sacrifices, while in the past emerging markets were able to make up for stagnating business elsewhere. Even this is no longer the case because emerging markets are delivering slower growth than forecasted2.

After many decades of unstoppable growth, many incumbent FCMG manufacturers are struggling to adapt to the new reality. Previously successful business models are less successful in the present environment of drastic transformation. Their brands and products are no longer the cool kids in town3 and have lost their competitive footing despite ongoing investments in mass marketing and traditional distribution channels. Today, every single consumer goods category is being disrupted to some degree by new competitors applying digitized business models, aggressively stealing market share. One of the most remarkable examples in recent years is Dollar Shave Club4. In the US, Dollar Shave Club gained 16% of the USD 3bn shaving market by dominating the fast-growing online channel. While Procter & Gamble’s answer was the launch of its own shaving club for its Gillette brand in 2015, another incumbent, Unilever, acquired Dollar Shave Club for USD 1bn.

Losing the cool kids’ tag is just part of the headache for FMCG manufacturers. Another huge pain point is that they have no or only very limited direct relationships with consumers which forces them to solely depend on retailers. Unlike most manufacturers, retailers benefit from an unparalleled advantage: they have been heavily investing in direct consumer relationships through sophisticated loyalty programs. Such a holistic CRM practice allows them to capture an abundance of data on individual shoppers. They make good use of this, for the benefit of their customers and themselves. In a best-case scenario, FMCG suppliers are selectively invited to participate in the retailers direct-to-consumer-marketing activities, but pay good money for this privilege. In addition, retailers organized themselves in buying alliances and have become very powerful5. As a result, FMCG category leaders had to face the uncomfortable choice of allied retailers dictating their product pricing or finding their goods on the shelves6. It’s time for FMCG manufacturers to regain the initiative.

As a global consumer brand, when you think of how to engage with your consumers, you must be realizing that the foundation of true engagement is very thin because of your narrow CRM data base. Now imagine a world in which you directly know where your consumers buy your products, what they buy from your range and how often they repurchase. We are not talking about aggregated sell-out reports on a weekly basis, but hundreds of thousands of purchase data points on an individual consumer level daily. Getting to know your consumers allows you to build a direct relationship, to interact on an individual level and customize value proposition and offers more effectively. Such a relationship not only enables you to redirect your marketing funds, for example by reducing mass price-offs with low promotional effectiveness in retail channels, but also to communicate your latest innovation or local sponsorship directly to your consumers.

There is no two ways about it. Succeeding in the current and future marketplace requires a direct relationship with your consumers. It’s not too late, but it is time to put your consumers at the centre of your business and win back the momentum. You must encourage your consumers to engage with your brand by increasing your value proposition beyond immediate product or service. Customer loyalty programs have been operating successfully for decades in travel or payment industry and they have proven to be a treasure chest of customer insights as well as established direct communication channels.

At Loylogic, we have seen the success of such FMCG loyalty programs and the massive benefits they provide to brand and consumers. We believe that the implementation of a points-based loyalty program enables multifaceted ways to not only build your data base but also strengthen the bond between your brand and consumers. A seamless integration in your marketing mix enriches your business strategy and effectiveness along all brand touchpoints during the consumer lifecycle.

If you are interested to understand our approach better and how we could help you to get closer to your consumers, we are happy to advise you at info@loylogic.com.