Half of Advertising Budgets Are Being Wasted!

Consumer goods manufacturers waste half of the funds spent on promotion and advertising

An international study conducted by Salesforce shows that the consumer goods sector is undergoing significant changes today. Manufacturers must adapt their strategies to market shifts resulting from the growth of e-commerce, increasingly strong private labels promoted by supermarket chains, and rising customer expectations. Customer data and new data-processing technologies are expected to help in the fight for market share.

Digital transformation is changing companies' operating models – including in the consumer goods sector. According to research conducted by Salesforce in early 2019, the B2C sector must face strong competition and increasingly high customer demands. The findings were included in the report "Consumer Goods and the Battle for B2B and B2C Relationships." Currently, consumer goods manufacturers consider the following to be the greatest challenges:

• the need to compete with e-commerce giants that benefit from advanced and innovative supply chains and offer delivery terms attractive to customers. This requires B2C companies to continuously strengthen relationships with both retailers and end customers. In particular, D2C (Direct to Customer) sales is becoming a priority – today 99% of B2C companies are investing in it;
• the need to implement innovative solutions, especially given the continuous improvement of the customer service model. Companies must not only ensure the ongoing introduction of new products to their offerings but also focus more strongly on maintaining high quality in the process of building customer relationships;
• the need to acquire as much useful customer data as possible, no longer only based on their own sources but also on data from external entities. This brings another challenge: the need to efficiently process this data into useful and dynamic information that supports customer service quality in sales, marketing, and post-purchase service processes (covering both online and offline processes);
• attention to brand image in the context of the need for transparent operations (which customers demand) and the area of CSR – the company's social and pro-environmental engagement.

An uneven fight with e-commerce platforms

An uneven fight with e-commerce platforms

As many as 79% of B2C executives believe that e-commerce platforms such as Amazon, Alibaba, and eBay have a significant impact on the evolution of customer expectations. According to 51% of respondents, Amazon is one of the most serious competitors in the consumer goods industry because, by taking customers away, it captures their market share. Although half of customers make their first purchases directly from a retailer and 31% on Amazon, 47% will make repeat purchases on Amazon, while only 34% will return to the retailer. The reason for this trend is simple – e-commerce offers greater product variety, better prices, and more convenient delivery. So what can companies do to fight for the market? Above all, focus on product and distribution model innovation. Unfortunately, currently only half of the management boards surveyed by Salesforce believe that their companies effectively develop new products…

Retail challenges: competing with private labels and better allocation of funds for in-store promotion

Retail challenges: competing with private labels and better allocation

Another challenge for B2C is the need to improve promotion and marketing strategies to achieve better sales results, because currently the funds allocated to in-store promotions do not bring the expected results. Although e-commerce is developing dynamically, 95% of consumer goods (FMCG) sales revenue still comes from brick-and-mortar retail. In the United States, it is worth £0.78 trillion, while the B2C sector spends as much as £155 billion annually on marketing in physical locations. Most importantly, however, retailers manage to execute only 52% of marketing plans as intended, which means that in the US, consumer goods manufacturers misallocate nearly £80 billion a year to unsuccessful promotional and marketing activities.

There are more challenges related to brick-and-mortar retail: pressure to push for the highest margins and the development of retailers' private labels in supermarket and discount chains. Nearly half (49%) of surveyed B2C companies consider private labels a business threat because they compete with their own products.

Too little product choice and poor customer knowledge block industry growth

Too little product choice and poor customer knowledge block industry growth

Consumer goods manufacturers are not entirely satisfied with the key factors affecting retail sales effectiveness. They rate most highly their ability to manage inventory and shelf stock levels (55%), analytical capabilities (55%), and sales representatives' performance (50%). They have a much worse opinion of the state of knowledge about store customers and the ability to sell new products. Only 38% of respondents are fully satisfied with the way their company sells new products to retail stores.

Customer data is now essential for implementing personalized and automated communication between a company and the market. That is why as many as 82% of B2C manufacturers plan to increase investment in access to so-called data collected directly from customers visiting websites and social media – first-party data. Unfortunately, only 41% have even moderate access to other data sources as well, including information shared by retail stores. Difficulties in introducing new products into distribution and using information from stores are hampering the industry's growth.

Strengthening B2C relationships through online sales and relationship quality

Strengthening B2C relationships through online sales and relationship quality

Consumer goods manufacturers are increasingly selling directly to end customers. Today, virtually all companies (99%) are investing in the development of direct-to-customer sales channels. This comes with a major market opportunity. Research firm Nielsen reports that although online sales account for only 5% of the entire US consumer goods market, they generate 40% of sales growth. Given such enormous e-commerce effectiveness, the logical step is to move to online sales and invest in stronger relationships with consumers.

How can funds for retail advertising be allocated better?

Companies are looking for new methods to build positive experiences for customers who shop online. However, they will not achieve this overnight, especially due to the technological barrier related to acquiring and processing customer data. Currently, more than half (55%) of managers see such barriers, most often: lack of data on purchases in the traditional retail channel (25%); difficulties in analyzing data (24%); siloed data processing by separate departments within the organization and, at the same time, lack of cooperation (24%); insufficient integration of company IT systems (20%). And access to data is, after all, the key to ensuring personalization and presenting customers with the offers they are looking for at a given moment.

Trends in investment and advertising

Trends in investment and advertising

Aware of the value of data and the role customer experience plays in sales, the consumer goods sector wants to invest over the next two years primarily in acquiring customer data (first-party data) and improving the quality of digital customer service. The increase in investment in these areas will come at the expense of reducing spending on others – in the coming years, companies will reduce spending on advertising in traditional media, cut direct mail advertising (down 18%), spending on TV ads (down 16%), and support through telephone hotlines (down 14%).

Customers expect transparency and pro-social action from brands

Today, companies can no longer operate solely for profit. Nearly half (45%) of customers are more likely to buy from a company that donates to charitable causes, and more than half (51%) from an environmentally friendly company. The industry believes that their businesses are mostly fully transparent about business practices (e.g., product origin and environmental impact). However, supply chain transparency raises concern among 62%, and the level of concern is much greater than a year ago.

More than half of companies (52%) also have problems telling a coherent brand story, which carries significant communication risk. Investments in e-commerce, email marketing, and other channels do not help maintain full consistency.

Important conclusions and data from the report "Consumer Goods and the Battle for B2B and B2C Relationships"

• 79% of management at consumer goods companies believe that Amazon has raised customer expectations;
• 51% say it is a major threat to their brands;
• 49% of companies perceive the growth of private labels as a business threat;
• Only half of consumer goods manufacturers believe that their activities in developing and launching new products on the market are effective;
• 99% of companies are investing in the development of direct sales to end customers (D2C);
• 82% of companies will increase investment in access to data about their customers;
• 55% of companies see barriers in processing customer data due to too few data sources, technological limitations, and those resulting from organizational structure;
• 25% of consumer goods manufacturers use artificial intelligence – another 45% plan to use it within the next two years;
• According to 34% of companies, artificial intelligence will become the key technology connecting manufacturers with consumers within the next 5 years;
• 51% of consumers place greater trust in companies that take action to protect the environment, and 49% in companies engaged in charitable activities;
• On the one hand, 76% of managers at consumer goods companies claim that their business is fully transparent; on the other hand, 62% are more concerned about supply chain transparency than a year ago.

The Salesforce study was conducted in early 2019 on a group of 500 directors and board members of consumer goods companies from Europe, North America, Asia, and Australia.

The full report is available at:
https://c1.sfdcstatic.com/content/dam/web/en_us/www/documents/industries/consumer-goods/Consumer_Goods_and_The_Battle_for_B2B_and_B2C_Relationships.pdf

Summary

The Salesforce study shows that consumer goods manufacturers waste nearly half of their funds on in-store promotions – in the US, that is as much as £80 billion a year. Companies are losing market share to e-commerce platforms, and 79% of management believe that Amazon shaped new customer expectations. The key response is investing in direct D2C sales, in which 99% of companies already spend money.

The report also shows that despite declarations of transparency (76% of managers), concern about the supply chain is growing (62%). The industry is betting on first-party data, but 55% of companies see technological and organizational barriers to processing it. Within two years, spending on traditional advertising is expected to fall by as much as 18%.