DTC and private-label brands’ competitive advantage? First-party consumer data that CPG brands can’t access—or so they think.
In the age of data-driven marketing, most marketers are swimming in customer data. Of course, whether marketers can make heads or tails of it—and if they’re even collecting the right information in the first place—is a struggle for another article. Still, most marketers struggle with understanding all this information, not accessing it in the first place.
A notable exception to this rule is CPG. Because CPG brands rely on retailers to sell their goods, they are effectively shut out of much of the first-party consumer data that marketers in other industries use to optimize their marketing and demonstrate ROI. Retailers have no real incentive to share the insights that they own with the brands whose products they sell. In effect, CPG brands are stuck looking at a black box—they know what they sold but very little about who they sold it to or why they bought it.
E-commerce takes the black box retail problem and ratchets up the scale. In comparison to brick-and-mortar retail, e-commerce players have the ability to gather massive amounts of first-party data about their consumers, from their onsite search and browsing history to their abandoned carts to what links they click in promotional emails. E-commerce may only account for 13.2% of total retail sales in the US, but that number is projected to double in the coming decade. The data imbalance between e-retailers and CPG brands will only grow as more and more purchases move online.
This gaping blind spot wouldn’t be a problem if CPG brands only competed with each other—while CPG marketers would lag behind their peers in other industries, they’d still face a level playing field in terms of access to consumer insights. But consumers don’t only have a choice between, say, Gillette and Schick razors. Gillette and Schick are also up against direct-to-consumer options, like Harry’s or Dollar Shave Club, as well as private-label options, like Amazon’s Solimo or CVS’ Blade. The rise of these adjacent-industry competitors is one reason that CPG as an overall category has essentially flatlined since the 2008 recession.
The bottom line: DTC and private-label competitors have direct access to first-party consumer data, and CPG brands don’t. To protect their market share, CPG brands have to overcome this black box challenge.
Amazon: CPG’s Best Frenemy
To demonstrate how vulnerable this state of affairs makes legacy CPG players, look no further than the biggest e-retailer of them all. Amazon currently owns just shy of half of all US e-commerce. In other words, US consumers spend as much money on Amazon as on all other online marketplaces combined. Brands have no choice but to play ball with Amazon or risk missing out on a huge market.
There are, obviously, plenty of advantages to working within Amazon’s marketplace. Few CPG brands want to own their own e-commerce operations, which makes a turnkey partnership like Amazon incredibly appealing. Even for brands willing to make the technological investment to establish their own e-commerce capabilities, it’s likely a supplement to other retail channel partnerships rather than a replacement. Consumers aren’t accustomed to going directly to an individual brand to purchase their products; for inexpensive consumer goods, buying multiple items all in one place is the norm. And, quite simply, Amazon is where customers already are—according to a 2018 NPR/Marist poll, a whopping 92 percent of US online shoppers buy from Amazon, and 44 percent of online shoppers turn to Amazon search first, even before Google.
So where’s the catch? Amazon has a huge CPG business of its own. Their private-label brands are projected to reach $25 billion in revenue by 2023—about the size of, say, Mondelez. Consider the grocery category alone: The acquisition of Whole Foods added $2 billion in annual revenue from Whole Foods’ 365 Everyday Value brand to Amazon’s pre-existing $2 billion private-label grocery business.
Now consider Amazon’s key competitive advantage: They are masters of collecting and interpreting mountains of first-party consumer data. This data is how they deliver hyper-targeted marketing and offer personalized product recommendations. (In fact, in Jebbit’s research on trust and consumer data, consumers ranked Amazon as the most trusted company, suggesting that it’s not how much information companies collect but how they use it to benefit the consumer that cultivates consumer trust.) They use insights from this data to formulate hypotheses and reduce risk in go-to-market plans. The strategic bets Amazon has made to dramatically expand their business are powered by this in-house market research—research they undertake through the sale of products that they now compete with directly.
Selling through Amazon is the very definition of a devil’s bargain. They enable reach that CPG brands can’t turn away from, then use the information they learn about those brands’ customers to target them for their own competitive products.
Unlocking Consumer Insights Beyond the Point of Sale
Big CPG brands can’t disentangle themselves from e-commerce partners like Amazon, but if they want to protect their market share from DTC and private-label competitors, they should take their cue from those very competitors and invest in first-party data as a competitive advantage.
The big question, of course, is how. Retailers own the point of sale, which means they also own the first-party data generated there—who is buying, how frequently they are buying, and, in some cases, why they are buying and for whom they are buying—and they have no reason to share that information. If CPG brands can’t break into that black box, then they have to circumvent it. In other words, brands need to develop opportunities other than the point of sale to interact with and learn about their consumers.
That’s not a totally foreign concept for CPG brands, but the usual methods—surveys, focus groups, etc.—are constrained by their inability to scale. Third-party market research, on the other hand, is expensive, and its methods are opaque. Neither can compete with the volume of information e-retailers learn about their customers just as a matter of business.
But just as moving online changed the game for retail and enabled them to understand consumers in a whole new way, so can other digital channels change CPG’s understanding of their consumers. By creating digital experiences on site, in app, and on social media that encourage interaction, brands can learn about their target audience at scale. E-commerce by default creates digital interaction around the point of sale, but there is no reason brands can’t create interactive experiences at touchpoints throughout the customer journey.
In fact, by being deliberate in creating experiences meant to better understand consumers, brands can sidestep a persistent problem in collecting first-party data as a byproduct of other transactions. Browsing and purchase data imply, but don’t actually capture, consumer preferences and motivations, leading marketers to make incorrect assumptions that can result in wasted marketing spend and annoyed customers. By creating experiences that are meant to elicit volunteered information—or declared data—marketers can seek the exact insights they need instead of proxies for that information.
What might this look like in practice? An interactive lookbook with built-in polls could gauge consumer interest in new products. A simple quiz could lead consumers to personalized product recommendations based on their lifestyle and preferences. Even the stalwart survey can become an engaging experience with a branded facelift and an attractive user interface. The possibilities are as varied as the insights marketers might want to capture.
Retailers may own the customer experience at the point of sale, but that doesn’t have to block CPG brands from forging relationships with consumers directly. With a little creativity, innovative CPG marketers can unlock valuable insights and get more from their marketing efforts.
Published March 11, 2019