Consumer packaged-goods face a critical juncture in ecommerce. This segment is among the fastest growing industries in ecommerce, but is also very much in its infancy. Its explosive growth is shaping a new frontier of consumer engagement and is giving rise to new collaborative models.
The brands and etailers who partner to deliver the right shopper solutions will gain tremendous first-mover advantages. They’ll chart the roadmap for success. They’ll emerge as the early winners and define what’s “best in class.” As Jeff Bezos said — and it’s glaringly evident across the ecommerce ecosystem now —“What’s dangerous is not to evolve.”
The 2012 eRankings Report, co-sponsored by Etailing Solutions, RetailNet Group and the Center for Ecommerce Excellence, is the first in an annual series that will monitor and survey insights into ecommerce for consumer packaged-goods. This report was developed to be a foundation for how to win in ecommerce, and to see it from both the manufacturer and etailer point-of-view.
First and foremost, we want to thank the more than 50 etailers and manufacturers who participated in the study, which addresses the commonalities and differences between the two parties in key business objectives; business challenges, opportunities and planned capabilities; best-in-class etailers and manufacturers as ranked by each other and their peers; and how effectively etailers and manufacturers are addressing shopper needs.
Key findings from the report point to the underlying need for manufacturers and etailers to partner to drive growth more effectively. Highlights include:
• Sixty-nine percent of packaged-goods manufacturers cite stronger shopper insights as the number-one opportunity for growing sales online.
• Eighty-six percent of etailers cite insufficient resourcing and a lack of ecommerce knowledge as the biggest challenge in working with manufacturers.
• The top three competencies manufacturers are developing include loyalty, shopper insights and more efficient item setup/maintenance.
A Highly Charged Environment
Amazon’s simple but compelling proposition of “Skip The Store, It’s at Your Door” has caused great disruption at retail. Packaged-goods ecommerce has become a highly charged competitive environment among pure-play etailers, and between pure plays and traditional brick-and-mortar retailers. Mergers and acquisitions, pricing wars and new strategic initiatives are prevalent, as etailers fight to attract, convert and retain the growing number of shoppers buying packaged-goods online.
Retailing, in general, is at an inflection point. As shoppers embed technology more deeply into their lives and shopping patterns, ecommerce growth is accelerating and outpacing growth in store-based models by three to four times. The online divisions of brick-and-mortar retailers are often growing faster than their store-based counterparts, and non-store etailers (led clearly by Amazon) are scaling quickly. While packaged-goods has not been among the first categories to move online, today it is among the fastest growing online.
And yet, packaged-goods etailing is still somewhat green. Brick-and-click retailers are investing aggressively in new technology and capabilities (some are even acquiring pure-play online etailers) and grappling with the complexity of integrating siloed organizations and systems. Pure players and brick-and-click retailers alike are still charting the path to profitability in a variety of “connected” models, ranging from single-item shipments of shelf-stable packaged-goods to full-basket grocery delivery models. While most packaged-goods manufacturers have prioritized digital as a marketing and commercial opportunity, reporting structures, funding models, and capabilities are still rapidly evolving.
The potential for a robust business clearly exists. A variety of data sources point to great, untapped potential as we compare the US to more mature markets. Penetration for packaged-goods products online in the US is roughly one-third that of the UK and basket size — as well as average expenditure per trip — trail even further behind.
Opportunities exist not only in conversion and category growth, but also in crafting insight-driven shopper-marketing initiatives that build brand equity, expand market baskets and optimize shopper lifetime value. As shoppers continue to migrate online and form new brand and retailer affinities, those brands and etailers who partner to deliver the right shopper solutions will gain tremendous advantages.
Packaged-goods ecommerce must be treated like a bona fide business, not an experiment. We are all very much pioneers across this burgeoning ecosystem and can all play key roles in its long-term success. This is a time for brand marketers and etailers to partner to create winning insight-driven strategies and business practices. They must develop road maps to optimize success in the short- and long-term, while devoting the proper support and resources to ecommerce.
Both parties must tackle key challenges, including logistics, profitability, category management and standardized metrics. It’s time to treat the ecommerce industry as not just another sales channel but as a highly viable one-to-one marketing medium and an incubator for learning.
Opportunities For Partnership
Our report details how manufacturers rank specific objectives — from driving conversion and profitable sales to building bigger baskets and loyalty. While manufacturers and etailers generally align on objectives like profitable sales and higher conversion rates, the study points to other distinct differences.
Manufacturers attach more importance to “increasing buying rate,” as well as longer-term objectives like “stronger loyalty.” Etailers, by comparison, rate almost all common objectives higher than manufacturers, reflecting the urgency of their business environment. Of utmost importance to etailers are short-term objectives, like profitability and conversion.
This points to the first partnership opportunity: strategic planning. Manufacturers and etailers need to gain alignment upfront at the senior levels on short- and long-term goals, and develop plans together for mutual benefit. Being that packaged-goods ecommerce is relatively immature, applying the same rigor to strategic planning that is customary in the traditional business is critical.
The study delves below the surface of etailer-manufacturer relationships to uncover opportunities and barriers that affect collaboration and growth, as well as planned competency development.
In addition to shared concerns about pricing and basic business performance, both manufacturers and etailers are concerned about resourcing and organizational commitment to ecommerce. They also cite a shared concern over consumer insights as a critical driver of the business.
Manufacturers expect etailers to provide a robust and compelling online environment, and etailers expect manufacturers to deliver innovative products and an attractive assortment. However, we see four areas for productive — if not mandatory — collaboration.
Category management is part and parcel of joint planning and execution. Progressive manufacturers and etailers benefit greatly when they share best practices and work together to try to optimize both marketing policies such as pricing, product assortment, promotion and virtual merchandising, as well as supply-chain logistics.
This approach, in turn, requires a high degree of organizational readiness for both parties — making sure ecommerce initiatives are adequately funded and staffed with the right talent in jobs that are perceived as attractive and on the path of upward mobility.
As with any disciplined business, performance management is critical. Being specific about the definition of success, key metrics with specific quantitative and qualitative goals and timelines, and developing a regular cadence of measurement and adjustment are all critical ingredients, especially in an emerging channel. One of the great performance management paradoxes is that while packaged-goods ecommerce is inherently suited to deliver robust learnings in real time, the industry is suffering from a lack of standardized key performance indicators and established best practices.
Lastly, this summary would not be complete without mentioning the need for cooperation around insight development. Interestingly, as detailed in the report, we see many differences between etailers and manufacturers and how these views contrast with those of the shopper. For example, competitive pricing is ranked highly by manufacturers (fourth) and even more so by etailers, who rank it of top importance. However, pricing, while important to shoppers, trails behind other criteria like convenience, shipping costs, the ability to touch/see the actual product purchased, and better assortment.
For online packaged-goods shoppers, it’s not just about finding the best price, but also about a positive, holistic, convenient shopping experience. In developing shopper insights together, etailers and manufacturers can grow categories, expand market baskets and build loyalty, in addition to driving penetration. In particular, the development of multiple categories across the packaged-goods space offers an even greater opportunity to provide complete shopper solutions and build more favorable economies of scope and scale.
The etailer rankings, as viewed by the manufacturers in the study, cover pure-play etailers and click-and-brick retailers. It provides data on eight different criteria (from fastest growing to best resourced to most strategic).
Amazon.com, as a pioneer of ecommerce, takes the top spot, earning top-five honors in all categories. Quidsi, ranking number two, is cited as a top two or three performer in every category except best practices, where it still ranks a respectable number five. Walmart.com, tied with Quidsi for number two, has a similar profile, but has a slight dip in its rating for innovative programs.
The report details which etailers received honorable mentions for strengths according to particular criteria (e.g., most strategic, partnership around best practices, fastest growing, innovation, insights, excellence in logistics, etc.) For example, Target, Dollar General and Staples received honorable mentions for “fastest growing” while Drugstore.com, Sam’s Club and Alice scored well for “sharing best practices.”
Our manufacturer rankings are based on retailer feedback along eight similar dimensions, ranked by both etailers and their peers. Procter & Gamble occupies the undisputed top spot, scoring highest in all categories except perceived growth, where it ranks second. Unilever, while significantly behind Procter & Gamble in mentions, is the clear number two, with notable strengths in global expertise and superior logistics. Kimberly-Clark is perceived as especially strong in logistics.
The report also covers which manufacturers received honorable mentions for strengths according to particular criteria, including SC Johnson, Clorox and L’Oreal for “fastest growing” and Kraft, Coca-Cola and Henkel for “global expertise.”
When it comes to ecommerce, packaged-goods marketers are fairly raw and unsophisticated. They’re also one of the fastest growing industries in ecommerce. This explosive growth has ignited packaged-goods marketers and etailers to take a closer look at how they can collaborate to grow and refine packaged-goods ecommerce. It’s vital that brands and retailers alike define their place in this explosive channel, while helping to define the entire category.