Beyond E-Commerce

According to Nielsen, the Web is now the fastest-growing CPG sales channel, with over 10% of sales occurring online in select categories. Yet while CPG companies may have caught up with e-commerce, many still lag behind when it comes to understanding how to market to digital consumers. 

Marketers looking to truly engage digital consumers, not just to enable online purchases, need to start with five key principles:

1. Look Beyond the platform. It’s not just the distribution channel that has changed. Over the past decade, the way customers move through the purchase process for any type of product or service has fundamentally shifted. Consumers have become increasingly suspicious of “push” marketing techniques—whereby marketers “push” information to people in an effort to influence purchasing decisions—opting instead to “pull” in their own information. Today’s consumers often turn to friends and family for advice on what to buy, rather than to a company’s website or ad campaign.

In a 2010 study, “The Consumer Decision Journey,” consulting firm McKinsey posited that the traditional way of thinking about how customers make purchase decisions—typically represented by a funnel, with consumers narrowing down their decisions over time as they are influenced by various factors—no longer bears a resemblance to the way customers make decisions today.

2. Meet consumers where they are. CPG companies that understand these new customers and meet them where they are stand to gain substantial market share. Those that don’t will spend the next several years looking over their shoulder.

Customers “pull” more information these days because there’s plenty of it available. There is no end to sources of relatively unbiased information, from the running commentaries of friends on social media sites, to crowdsourced product reviews, to plain old word-of-mouth suggestions. Not only have consumers become quite good at finding the information they’re looking for, but they can do so from anywhere at any time.

According to recent Pew research, nearly half of all Americans are smartphone users. And according to the latest comScore report, four out of five of those 85.9 million people use their smartphones to research and make retail purchases.

CPG brands must start looking beyond the in-store experience and begin thinking about how to interact with their customers everywhere—at home, online, in-store, on devices, and on review and social media sites where customers might share their product experiences with others. It’s no longer enough for a brand to release the occasional coupon on their Facebook page. Although such activities are worthwhile, they’re the low-hanging fruit of digital marketing for CPG brands. To truly differentiate themselves, CPG brands need to connect with consumers on multiple levels by providing content and tools that are applicable to their daily lives.

Gluten Freely, a site recently launched by General Mills, is a great example. The site is content-rich with plenty of information and tips on gluten-free diets, not just product information. By providing an easy portal for gluten-free consumers, General Mills has connected with a new market segment while creating a great way to keep tabs on what products most interest this segment—both by tracking what customers search for on the site and by providing easy ways to post questions and comments.

ConAgra’s “Give Every Night New Flavor” program, launched in conjunction with several retailers, is another good model. The company created a microsite offering recipes and all the products needed to prepare them; built in-store displays that showcased the recipes; provided digital coupons; and advertised both online and in print. The program delivered double-digit growth in units, dollars and profit over the prior year.

3. Understand how social networks—not just Facebook—operate. Social networks—both digital and physical—are constantly influencing consumers. Unlike the traditional advertising paradigm wherein the natural campaign “end” is a purchase, in today’s digital world, companies need to ensure customer satisfaction long after the purchase date. If they don’t, they could face a dip in sales if customer complaints start cropping up on Twitter and Facebook.

The key to truly understanding and embracing social media is to discover the fundamental human mechanics behind it. Once upon a time, social influence was mediated entirely by a kind of extroversion and sociality. It was the person who maintains fifty friendships who had disproportionate influence. There were both people who were very social and people who were influential experts in various domains. The Internet has in many ways been a substitute for both of those groups. It has created a node that has tremendous influence because we all go to the same source. Technology has provided almost a substitute for the person everyone knows or who everyone turns to for advice.

Technology has also broadened the influence of social connectors who remain by a factor of ten. If just a handful of these people decide the app a company has released is //, their brand suddenly becomes more visible to thousands of other potential customers without any additional expenditure or promotional activity.

4. Don’t think about digital in terms of new customers. The traditional lifetime value (LTV) formula—used for the past several decades to determine marketing budgets—is being upended by the shift in how companies and customers interact. The LTV formula predicts the net profit attributable to a company’s entire relationship with a customer. The math is complicated; It takes into account churn and retention rates, retention costs, contribution margins, and time period. Traditionally, if the cost of acquiring customers is lower than the LTV of those customers, marketers would spend more on campaigns aimed at finding new customers.

Today, that’s not always the best strategy. Ideas about customer lifetime value and customer acquisition costs need to change because the markets they describe and predict are changing. Customers don’t want to be bought, they want to be wooed. Customers still seek immediate gratification to a certain extent, but they’re much more concerned about identifying with a brand and its values than they were in the past.

Beyond that, consumers don’t want to hear about a product or service from the company that sells it. They want recommendations from their trusted friends and family. Study after study has shown that word-of-mouth marketing, while slower to pay off, delivers nearly twice as much long-term customer value to companies as advertising.

However, the thinking behind word-of-mouth needs an update. Traditionally viewed as low-cost advertising with a high return, it could perhaps be better described as high-cost brand building with a high, long-term return. Companies could spend a lot of money creating apps, tools, and customer service programs that their audiences view as cool enough to share with their friends and family or to tweet about. But because all of those investments have a long shelf-life, unlike a month-long ad campaign, they will continue to generate returns for years. They are also likely to deliver ongoing word-of-mouth returns, which traditional marketing formulas don’t account for.

Companies that are able to turn marketing efforts into content or tools of real value to their customers will typically build a customer base that is loyal for life rather than acquiring the one-off customers drawn by catchy ad campaigns.

5. Stop trying to be cool and be useful instead. Consumers want companies to show them the value of a product, not a cool concept vaguely related to the product. There are plenty of good examples of this, ranging from the Nike+ running app, which links products, an app, and a digital community, to the Omaha Steak app, which simply helps consumers figure out when their steaks are done the way they like them.

The Nike app took years to develop and has delivered significant returns to the company. The Omaha Steak app is simple, took very little investment, and has won the attention of new customers as well as the loyalty of existing customers. Point being, there are plenty of ways to make your marketing useful.

Marketers must identify gaps to fill in parts of the experience chain that their competitors are missing. To be effective in today’s market, they need to develop digital tools and experiences that extend and enhance their brands. In short, marketing has fundamentally changed and marketers need to evolve to keep up or risk becoming irrelevant.

Tim Ross is CEO of SolutionSet and a 2012 40 Under 40 winner.

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