Adapting to Online Shopping in the CPG Industry: Challenges
Ecommerce Challenges for CPG Manufacturers
1. Generating Impulse Purchases
- Boston Consulting Group stated that CPG manufacturers "have struggled to develop online categories in which a high percentage of sales are impulse or unplanned purchases."
- Confectionery products are especially important for impulse purchases, as nearly 50% of those purchases are impulse purchases.
- The impulse-purchase challenge with ecommerce for CPG manufacturers has been described as "one of the biggest challenges" they are facing.
- Impulse purchases are key for CPG manufacturers with regard to ecommerce, as 71% of ecommerce consumers shopping for baby products said they make impulse purchases, as do 55% of those shopping for beauty/health products and 37% of online grocery shoppers.
- CPG brand Hershey experienced this challenge of generating impulse purchases with ecommerce. Hershey dealt with the challenge by (1) providing "an option to reload the cart with previously purchased items and show recipes that allow then to buy all the ingredients with one click," (2) using "data-driven targeted advertising," and (3) suggesting products to online consumers (particularly for consumers who haven't yet met the free-shipping threshold).
- CPG brands Wrigely's and Mars have experienced this challenge of generating impulse purchases with ecommerce. They dealt with this challenge through a strategy they called "Transaction Zone Vision." Part of that strategy involved basing their product recommendations on trends in wellness, health, and snacking, so that consumers are more inclined to make impulse purchases.
2. Unit Economics
- The unit economics of CPG products is an ecommerce challenge experienced by CPG manufacturers.
- This challenge facing CPG manufacturers was identified by multiple sources, including OneSpace and Path to Purchase IQ.
- With ecommerce, CPG manufacturers incur higher costs than they do with brick-and-mortar retail. Thus, the unit economics for CPG manufacturers with regard to ecommerce products are adversely impacted, meaning ecommerce is less cost-effective for them.
- The underlying issue of this challenge is that CPG products are quickly consumed, which is generally reflected in their affordable price points, yet ecommerce requires greater costs for CPG manufacturers. Of those added costs, shipping is the most expensive component.
- For CPG manufacturers, the unit economics of ecommerce "can be less profitable" compared to other sales channels.
- CPG brand Kimberly-Clark faced this challenge of unit economics. The company dealt with this challenge by lowering its expenses, in order to "protect net income from the negative impact of rising commodity costs and reduced selling prices."
- CPG brand Colgate Palmolive faced this challenge of unit economics with regard to ecommerce. One way the company dealt with this challenge was by implementing its initiative called Funding The Growth, which was created "to help offset some of the high raw material inflation."
3. Product Attributes & Packaging
- The attributes of and packaging for products is an ecommerce challenge experienced by CPG manufacturers.
- Multiple sources identified this challenge for CPG manufacturers, including Digital Commerce 360, OneSpace, and SmartBrief.
- The restrictive attributes of some CPG products, such as size, weight, or spoilage pose direct challenges for CPG manufacturers.
- Directly related to product attributes is product packaging, which also is a challenge that CPG manufacturers are experiencing. Proper packaging is essential with ecommerce because the products are all shipped to consumers. Thus, they must be well-equipped to endure that journey.
- According to the CEO of BoldtSmith Packaging Consultants, "[c]ost challenges can plague the e-commerce shift, because investments are necessary to ensure that packaging is optimized for the online channel."
- CPG brand Unilever experienced the challenge of product packaging for ecommerce with regard to its Seventh Generation laundry detergent. To optimize its packaging for ecommerce shipping, Unilever engaged DowDuPont (a plastic manufacturer) to create a more-durable neck and cap for its detergent bottles. The solution developed by DowDuPont was then sent out as part of "real e-commerce shipments to ensure it was stronger than the previous product."
- CPG brand Procter & Gamble experienced this challenge of product packaging for ecommerce with regard to its liquid laundry detergent. Procter & Gamble designed its liquid detergent "in a cardboard box designed to be shipped to consumers’ homes" which it calls the Tide Eco-Box. This link is to a photo of the detergent box.
We identified the three challenges included above by reviewing articles published by reputable sources about the challenges that CPG manufacturers are experiencing with respect to ecommerce. The challenges we chose were the main ones we found cited by multiple sources. We listed a few of those sources in the section pertaining to each challenge above as examples. Next, we looked for examples of CPG brands that have experienced those challenges and how they dealt with them. To find examples of such companies, we looked for articles describing approaches that CPG brands have implemented with regard to each challenge. Examples of sources that published articles on that topic included the Financial Times and Forbes. Together, this research process provided us with three key challenges that CPG manufacturers are facing with regard to ecommerce and examples of CPG brands that have experienced and addressed those challenges.