How digital is shaping customer experiences for FMCG brands

FMCG brands have historically generated the lion’s share of their sales offline, with consumers typically buying their groceries, toiletries, and other consumables from supermarkets or third-party retail stores.

In recent years, however, the rise of digital technologies has resulted in changing consumer expectations, and a greater demand for convenience, better brand relationships, and an omni-channel experience.

According to Kantar Worldwide, global FMCG online sales grew seven times faster than total FMCG sales in the year ending June 2019. But it’s not just ecommerce that brands are investing in either; FMCG brands reportedly spent an average of $79bn on digital marketing in 2018.

So, what impact is digital having on CX for FMCG brands? This briefing will delve into the opportunities afforded by digital, the challenges, and whether it’s paying off.

This briefing will cover:

• The direct-to-consumer opportunity
• The Amazon effect
• An evolving marketing mix
• What future for promotion?
• Changing channels for discovery
• Loyalty in a digital landscape

The direct-to-consumer opportunity

The direct-to-consumer (DTC) model has revolutionised the retail space in the past five years, with brands ranging from Kylie Cosmetics to Warby Parker generating huge growth. The success of most DTC brands stems from an ability to build meaningful relationships with consumers, and is often underpinned by a clear value proposition (such as convenience, quality, or price-point).

Essentially, these brands are customer-focused and create experiences which are frictionless and that drive loyalty.

The majority of FMCG companies do not have a direct-to-consumer model, and instead partner with third-party retailers both online and offline to sell products. However, many are now taking heed from the success of DTC companies, and beginning to see it as a profitable sales channel.

Of course, there are still big challenges for FMCG brands in this space, particularly in terms of ingrained customer behaviours. In short: consumers still want the time-saving convenience of buying all of their FMCG products from one place, meaning they’re less likely to be inclined to visit a dedicated website for a single product or specific category. This is why the subscription-based DTC model has been particularly appealing for FMCG brands. As well as enabling brands to become a part of customer’s lives (with a regular delivery of a product, paid for via direct debit), the insights derived from data also help to create a highly personalised experience.

Unilever is one of the most notable FMCGs to have experimented with DTC, having launched a subscription for Hellmans mayonnaise, as well as ramping up investment in a number of DTC acquisitions. Unilever snapped up the healthy snack subscription service Graze in 2019, and made an unsuccessful bid for beauty brand Drunk Elephant (which went on to be acquired by Shiseido). Of course, Unilever’s 2016 acquisition of Dollar Shave Club has been one of its most high-profile investments. At the time, Dollar Shave Club had claimed a 54% share of the online shaving market, overtaking former market leader Gillette. In 2018, Dollar Shave Club had an estimated 8% of the men’s shaving industry in the US. The acquisition allowed Unilever to compete in the lucrative male grooming market, as well as simultaneously take aim at long-standing rival, P&G.

According to Keith Weed, former CCO of Unilever, the company has taken learnings from its acquisitions of DTC brands and applied it to strategy for legacy brands. He explained to Warc: “With Maille mustard, the opportunity to give real selection is out there. What we’ve learned from Dollar Shave Club is that data play.”

Here, Weed appears to be referring to the opportunity to provide variety to consumers in a way that isn’t possible on retail sites or store shelves; capitalising on niche interest (and the insight it provides in terms of data). He continues: “Subscription selling is part of it, but it’s more than that. I think it’s really exciting, because this is the way brands and businesses like Unilever will remain relevant into the future.”

Indeed, data is one of the main benefits for FMCGs experimenting with a DTC model. This is because customer data has typically been owned by the retailers that sell the items – not the FMCG companies themselves. The DTC model turns this on its head, providing FMCGs with data and insight into who is buying, what they’re buying, and how exactly they’re going about it. Naturally, this informs marketing and communications, and a more personalised customer experience as result.

Other FMCG giants have blazed a trail. Nestlé’s Nespresso is a particularly good example, with DTC being just one strand of the FMCG giant’s omnichannel strategy. Not only can customers replenish their coffee pods through the brand’s direct-to-consumer website, but they can also shop from its brick-and-mortar boutiques, as well as on Amazon. With a product that relies on customer loyalty to the brand (and its machines) as well as convenience, Nestlé has ensured that it’s as easy as possible for customers to repeat their purchases.

Elsewhere, Nestlé has also launched similar subscription services for its petcare brand Purina, its skincare brand Proactiv, and created a beverage supply service called ReadyRefresh. Crucially, each service helps the brand to generate first-party data (and deliver personalisation). According to the company, 8.2% of its sales came from direct-to-consumer business models in 2018.

This kind of success is not likely to come so easy to all FMCG companies, especially considering the costs involved in launching and scaling up a DTC model. For some, such as Kelloggs, DTC has been an exercise in data and customer engagement rather than profit. Speaking at Millennial 2020, Richard Gibbons, director for global ecommerce customer development at Kelloggs said: “We’ve built a direct-to-consumer platform, not really with the objective of that platform being the most profitable part of our business but the kind of platform that will be engaging to shoppers and enable us to understand the latest trends. The trouble is it is very, very expensive to run these operations.”

The Amazon effect

Around 80% of consumers are now said to use Amazon to discover new brands and products. Unsurprisingly then, many FMCG companies are considering the retail site as an additional sales channel, as well as a way to drive brand awareness.

There is certainly an ‘if you can’t beat them, join them’ mentality with this, largely stemming from Amazon’s attempts to disrupt the FMCG market itself, which was highlighted by its purchase of Whole Foods and the subsequent launch of Amazon Fresh. Amazon’s dominance in other areas (like technology and books) has undoubtedly concerned FMCG companies, or at the very least, highlighted the fact that ecommerce is an area which cannot be ignored. Interestingly though, Amazon’s own foray into FMCG has been a mixed bag. It’s not been easy to convince consumers to shop for food (and particularly fresh produce) on the site, despite potential discounting on repeat purchases and the convenience of same day delivery. The requirement of an Amazon Prime membership is certainly still an obstacle for consumers, as is geographical limitations, and the absence of brick-and-mortar stores.

Speaking about Amazon’s attempts to disrupt the UK grocery market, Mintel’s Nick Carroll told Food Navigator: “Even if Amazon accounted for 100% of online grocery sales within the UK, it would still only be a quarter of the size of Tesco. If Amazon does have ambitions, be it in the UK or wider Europe, it does need to have stores, and probably the quickest way to do that would be to acquire someone.”

Indeed, ecommerce accounts for just 2% of FMCG sales (predicted to rise to 5% by 2022). Additionally, sales of groceries wavered for Amazon in 2018, growing just 45% compared to 60% in 2017. Out of its $3bn grocery sales in 2018, nearly half was generated by coffee, cold beverages, and non-perishables, perhaps indicating that consumers are still heading to Amazon on an ad-hoc basis (rather than the way in which consumers consistently shop from supermarkets or physical retail stores). 

Perhaps the real reason why more FMCG brands are getting on board with Amazon then is its advertising clout, and its ability to drive real awareness (as well as direct and in-direct sales).

Indeed, Gartner wrote in April 2019 that ‘in the past year, brands have boosted their share of ads on Amazon by 9 percentage points’. Meanwhile, another study by The Grocer into coffee capsule sales found not only a strong repeat purchase effect on Amazon’s own platform but also ‘a significant impact on in-store sales of the coffee capsules in supermarkets, meaning that advertising with Amazon also created an additional uplift in the grocers.’

Ultimately, with consumers flocking to Amazon for its promise of convenience, fast shipping, and customer reviews – it makes sense that this credibility and authority lends itself to advertising, too.

Another FMCG brand to generate success through Amazon’s advertising solutions is UK tea brand, Twinings. To launch its new ‘Cold Infuse’ line in 2019, it launched an Amazon campaign involving Sponsored Products, Amazon DSP, and video ads. The result was a 100% uplift on sales through Amazon.co.uk, and an 11% uplift on Cold Infuse sales in traditional supermarkets, giving Twinings its strongest ever attributable return on investment.

Customer data is of course another benefit of advertising on Amazon, with brands able to take advantage of the deep insights generated by campaigns (and the ability to target specific audiences). Unless brands do indeed expand into DTC, Amazon provides one of the easiest and most cost-effective ways to collect such valuable data.

An evolving marketing mix

The FMCG industry has continued to heavily invest in digital marketing in recent years. However, according to new research by AlixPartners, around 60% of this spend by FMCG companies is still being wasted. The study – which involved asking 1,110 decision-makers from unnamed global FMCG companies to rate their organisation’s digital proficiency – concluded that out of the $79bn spent globally by FMCG’s on digital marketing in 2018, 60% failed to deliver any noticeable ROI.

This stems from much bigger issues, of course, namely transparency within the digital media supply chain, coupled with problems relating to brand safety. Essentially, FMCG brands (and indeed those in other sectors) have typically invested huge sums of money in digital advertising that isn’t seen, or worse, is seen alongside controversial or harmful content.

From a consumer perspective, this equates to irrelevant and often entirely overly negative experience.

Consequently, some FMCG companies have attempted to create change. P&G, for example, slashed its annual advertising expense by $350m in 2019, instead focusing on performance marketing in order to reach consumers in a more meaningful way. A P&G spokesman commented how the company has been focused on brand building to go “from wasteful mass marketing to mass one-to-one brand building fuelled by data and technology, reinventing advertising from mass clutter to ads consumers look forward to.”

Unilever has also taken steps to improve brand safety and enhance customer-focused strategy. In March 2019, it launched the’ Unilever Trusted Partners’ network to better tackle transparency issues, as well strengthen its position as a brand that cares about society rather than products and services. Since, Unilever has also appointed Conny Braams as chief digital and marketing officer (to replace former CMO Keith Weed). CEO Alan Jope said in a statement. “As our new Chief Digital & Marketing Officer, her experience will be critical to the transformation of Unilever into a future-fit, fully digitised organisation at the leading edge of consumer marketing.” Indeed, the addition of ‘digital’ in Braams’ title indicates a new focus on digital engagement for Unilever, and the aim of creating a more conversational relationship with consumers.

So, with FMCG companies typically relying on mass-media, are we seeing a step away from traditional channels like TV? Interestingly, Magna Global reports that global TV advertising sales were down as a whole in 2019, seeing a decline of nearly 4%. This is likely due to the wider decline in reach; in 2018 Ofcom announced that there are now more UK subscriptions to streaming services – like Netflix and Amazon – than to ‘traditional’ pay TV services. One of the consequences of this is that advertisers are forced to pay more for much less reach.

According to Chris Worrell, head of strategy at Wavemaker, this will be the main dilemma for FMCG brands in future. He suggests that “TV will increasingly be the preserve of the master brand, building fame and maintaining brand salience and distinction, while shorter, more rational product messages will be distributed and optimised in precision-based channels to efficiently deliver short-term sales.”

Essentially, TV remains one of the most powerful advertising channels for FMCG brands, but only where data, technology, and content is nuanced and highly targeted to different audiences.

What future for promotions?

As more consumers shop for groceries online, we’ve also seen a decline in traditional FMCG promotional strategies, such as end-of-aisle displays and high levels of discounting.  Back in 2015, Nielsen reported that six out of ten grocery trade promotions were losing money for FMCG suppliers. A more recent study focusing on Australian FMCG brands once again highlighted that promotions are largely failing to generate ROI, with the majority of grocery items selling the same whether they are promoted or not.

It’s not the case that customers no longer want to bag a bargain, of course, but over time it’s become clear that – while discounts and offers might yield short-term results – the strategy is ineffective when it comes to long-term impact. Consequently, brand building has come to the forefront for FMCG, with emotive and impactful marketing enabling brands to better reach and engage consumers long before the point of purchase (as well as after). This is unlike promotional activity, which typically focuses on in-store signage and flash marketing.

Mr. Kipling is one brand that has shifted its focus to building connections with consumers in recent years. In 2018, it launched a TV campaign that aimed to re-position the brand for modern families, effectively ditching its former and somewhat outdated image. According to reports, the campaign helped sales of Mr. Kipling cakes to increase 10% the following year. It also heralded a new confidence for the brand, which went on to release a new premium range of ‘Signature’ cakes, designed to appeal to adults looking for an after dinner dessert.

Another factor for legacy brands moving away from in-store promotions has been the emergence of smaller and arguably more ‘authentic’ FMCG brands, which deliver on the consumer demand for ethical and quality products. Indeed, it is no longer the case that consumers automatically buy in to the biggest brands. Rather it is the consumer’s desire – be it for healthier, more ethical, or functional products – that is now shaping the market.

We’ve seen examples of this in the alcoholic drinks category, with legacy brands like Heineken and Gordon’s now competing with the likes of Camden Town, Brewdog – and even non-alcoholic beverage brands like Seedlip. The latter appeals to more health-conscious consumers, as well as younger generations who are reportedly drinking less but wanting to socialise more. In the ice cream category, we’ve seen Halo Top challenging Haagen-Dazs, largely due to its clever branding, and the suggestion that it allows consumers to eat larger quantities of what they love.

Essentially, consumers are basing their decisions on far more than just price, meaning that promotions are now a small and perhaps arbitrary part of wider FMCG strategy. Again, this is why brands are investing more in digital advertising, and not just in terms of Amazon, Facebook, and Google. Walmart Media Group is another platform gaining traction, largely due to its dominant omnichannel presence; the number of US consumers who visit Walmart’s 5,000 retail locations each month reportedly outperforms monthly traffic to online giants such as Google, Facebook and Amazon. This enables Walmart to track customer behaviour in-store (as well as online), making it a valuable option for FMCG brands focusing on physical retail environments.

Changing channels of discovery

With fewer consumers watching mainstream TV in 2020, how are people discovering FMCG brands? Kellogg’s head of digital, Julie Bowerman, suggests that “search is replacing TV as a means of discovery”.

Interestingly, data from Gartner confirms that FMCG brands are seeing a rise in positive results from search, revealing that ‘while organic visibility is muted across most FMCG categories on Amazon, Index brands have found greater success on Google through search engine optimisation’. One highly-effective category for FMCG tends to be ‘how-to’ content and on-site tutorials, which Gartner reveals Index brands have increased their adoption of by 25% in the past year. This type of content has been particularly successful for homecare brands, with average monthly visits to dishwashing sites growing from 10,000 to 26,000 year-on-year for 2019.

Alongside search, social media is another area that’s increasingly on the radar for FMCG, particularly when it comes to engaging a young and more diverse audience. Kellogg’s has massively increased investment in social media marketing, with ‘digital’ accounting for 60 to 70% of its overall marketing budget in 2018. Interestingly, Kellogg’s chose to host its first big digital campaign on YouTube, which is a platform it had previously ignored. Using YouTube’s Director Mix – a tool that allows creators to scale up video ads to custom audiences – Kellogg’s created a campaign to promote its Rice Krispies Treats.

According to Marketing Dive, Kellogg’s 250 personalised videos (which delivered different messages depending on context) doubly outperformed generic banner ads. What’s more, the campaign generated a 29% lift in ad recall, a 15% lift in purchase consideration, and a 4% lift in sales and market share growth. The ability to personalise video ads certainly elevated Kellogg’s campaign, and helped to generate good amounts of engagement.

Other brands such as Fanta (a Coca-Cola owned company) have been focusing on immersive and creative campaigns to engage a younger audience, with one example being the AR-driven ‘It’s a Thing’ campaign.

Aligning with the quirky and creative content that’s popular on Snapchat, Fanta’s campaign involved shareable AR filters and Snapchat codes, which could unlock further digital content on OOH billboards. Fanta also created ‘finstas’ on Instagram, which were designed to highlight the different personalities of its various flavour options.

Social media platforms like Snapchat are relatively new territory for some FMCG brands. However, this type of targeting can be hugely valuable, especially considering the influence that younger consumers can have over their family’s spending habits. According to a study by NRF, 88% of Gen Z parents say that their children have influence over spending on food and drink (or spend their own money on it). What’s more, 56% of Gen Z parents say that children directly add products to their online shopping basket, and 54% say that children regularly read online product reviews. This suggests that targeting younger consumers doesn’t only result in real-time engagement, but tangible brand awareness and purchase consideration.

Loyalty in a digital landscape

According to Criteo’s 2019 Customer Loyalty Survey, 41% of FMCG shoppers have spent more than eight years being loyal to their grocery brand. However, the survey also discovered that 71% of FMCG shoppers are also more open to trying a new brand than in any other industry.

Finding ways to instill and maintain loyalty remains a big issue for FMCG brands, particularly those that rely on third-party stores or supermarkets to drive sales – and to whom customers are more likely to show their loyalty to. For instance, a customer might consistently buy a particular FMCG brand during their weekly shop at Waitrose, but they’re far more likely to be a member of MyWaitrose than a specific and separate branded loyalty scheme. Indeed, this is the reason why FMCG brands choose to partner with third-party loyalty programs to capitalise on reach and usage. One third-party example is British Airways, which allows its loyalty members to spend reward points with Laithwaites Wine.

There are exceptions to this strategy, with some large FMCG companies setting the bar when it comes to their own digital loyalty schemes. L’Oréal and its ‘Worth it Rewards’ program is certainly a prime example. Launched in 2017, it allows consumers to access rewards on purchases across its cosmetics, hair colour, hair care and skincare categories.

Crucially, customers can access these rewards regardless of where they purchase the products; they simply need to upload their retail receipt in order to do so. Most importantly, this also enables L’Oréal to collect vast amounts of data on its customers, which feeds back into marketing and CX.

For supermarkets – as Criteo’s survey indicates – loyalty is becoming less of a sure thing, with factors in ecommerce (such a price of delivery or quality of produce) overtaking proximity to stores or discounting in terms of importance to customers. Changes in how regularly people shop, such as partaking in top-up or ad-hoc shopping rather than a weekly store visit, is likely to also play a part. Ultimately, however, this means the opportunity to reach, engage, and persuade FMCG consumers is bigger (and more competitive) than ever before.

Read more on FMCG and customer experience.

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