Why Packaged-Goods Players Are Bullish on E-Commerce

Marketers Hope to Regain Touch Ceded to Retailers and 'Lost' With End Consumer

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CINCINNATI (AdAge.com) -- By number of shoppers and sales, packaged-goods e-commerce remains decidedly tiny. But Amazon's acquisition Nov. 8 of Quidsi-owner of Diapers.com, Soap.com and the newer BeautyBar.com for a reported $545 million in cash and debt has given the space some big-money validation. It also reflects outsize interest in the channel by packaged-goods marketers, dozens of which have opened their own e-stores or increased focus and spending on e-commerce in the past year.

It's certainly not yet about the big numbers e-commerce is putting up; the 1 million monthly visitors to Diapers.com and 467,000 to Soap.com as measured by Compete.com last month combined wouldn't even amount to a day's worth of traffic to Walmart. But consumer packaged-goods marketers are counting on growth in e-commerce and seeking to drive it, in part because of what it can mean to them in developing closer relationships with their consumers.

"This is an emerging trend for branded manufacturers in particular because they believe, rightfully so, that they've lost touch with their end customer, kind of ceded that to the retailer," said Pat Conroy, vice chairman and U.S. consumer products leader of Deloitte.

The same desire to overcome or manage the separation of CPG brands from their end consumers is fueling interest in the other fastest-growing areas of marketing outlays-shopper and social-media marketing. Indeed, e-commerce, shopper, search and social-media marketing increasingly are fused in many programs, such as Procter & Gamble Co.'s move in September to open e-commerce for several brands via its Pampers Facebook fan page with fulfillment of orders from Amazon.com.

Need to connect
Brian Wiegand, CEO of Alice.com, which is providing a platform for more than 40 CPG brands to operate their own e-stores via a system that allows centralized fulfillment and marketing-program delivery, sees brands' need to better connect with their consumers at the heart of growing interest. While Alice provides a system for them to do so, he said it doesn't really matter to most marketers whether it's a true direct sale to consumers or through a third party like Amazon or Walmart.com, as long as they can participate directly with consumers in the process.

Mr. Wiegand said he's seeing increasingly ambitious projections from CPG marketers of having 1% to as much as 5% of their sales direct to consumers online -- fulfilled either by their own systems or those of e-tailers such as Amazon -- by 2015. He believes that may be overly ambitious for an industry that still gets far less than 1% of sales online today. But the bigger goal by CPG manufacturers, he said, is to have "a direct relationship with 50% to 80% of their customers, meaning I have them in a database."

While that, too, may be overly optimistic, the rapid growth of fan bases for many branded Facebook pages in the past year to millions or even tens of millions at least fuels the hope.

Building those direct, database-driven relationships can be particularly valuable to multibrand efforts, not just by allowing for bundled offers or other digitally powered versions of conventional promotions, but also for solution selling that may not always be immediately obvious.

By selling direct, CPG brands can also keep the gross margin retailers get now, often 20% or more of the purchase price. They also can sell in an environment where private label isn't a threat. The down side, though, is that much of that margin is eaten away by increased handling costs or subsidizing shipping costs to make online costs comparable to buying the products offline for consumers.

Threat to conventional retailers
To the extent CPGs move into direct sales, it does pose a threat to conventional retailers, and to that end, some of vowed not to bypass the middle man. Unilever CEO Paul Polman on an August conference call noted the company has "made a clear commitment to these retailers that we're not going into e-store type activities and competing with them." In opening its own e-store, P&G isn't looking to cut in on its retailers' turf, Kirk Perry VP-North America said, but to learn things it can apply in programs with other retailers, much like a bricks-and-mortar test store the company operates is used in shopper marketing.

The growth in shopper-marketing, too, is driven largely by CPG brands wanting to shape the retail environment where their products are sold and be part of a conversation they've increasingly been left out of as retailers took greater control of the marketing in their own aisles.

"The retailer really was choking that conversation point," said John Andrews, CEO of Collective Bias, a unit of Mars Advertising that specializes in shopper and social-media marketing. "Now there's a direct path that a lot of CPG players are seeing that they can leverage for insights, leverage for maybe bringing some conversational pressure to bear on product selection."

At least some of the pressure on Walmart to return products cut as part of assortment streamlining earlier this year came from CPG brands using direct consumer feedback about shoppers who left the store when they couldn't find products they used to buy, he said. That's one of the more concrete examples of where having that direct relationship with consumers can play out in the store.

Bar-code scanning has potential
Emerging digital and mobile capabilities, meanwhile, are letting marketers communicate at the shelf even if they don't have any special displays or advertising there, Mr. Andrews said. A recent program Collective Bias launched with USA Weekend, bloggers and Whrrl encouraging shoppers to check in at the shelf and get meal ideas is one example.

More broadly, bar-code scanning at the shelf, while a small factor today, promises to open up a world of marketing implications, not only for price comparisons but also for related marketing programs through such players as Stickybits, which allows marketers-or anyone-to tag barcodes with information that will come up when they're scanned.

A study released in September by ScanLife found a sevenfold increase in consumer bar-code scanning in the past year, driven heavily by bar-code readers coming as standard apps on many Android phones and new bar-code scanning apps for the iPhone from Amazon, among others. While many have assumed shoppers would mostly scan bar-codes for big-ticket purchases, ScanLife found more than 35% of consumer scans were for packaged goods.

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