The digital future for consumer goods firms
As India moves online, the winners of tomorrow will be companies that have a clear digital vision, the willingness to learn and innovate and the determination to take big, bold strides into the digital future. Companies that delay adopting a transformational strategy will face a reduced market, mind and wallet share among a burgeoning online consumer base.
Most manufacturers of packaged consumer goods in India have acknowledged the digital opportunity, but their involvement has been largely tentative. As highlighted in the recent Bain-Google research report (2016) for the Indian Beauty and Hygiene Association (IBHA), Impact of Digital on Beauty and Hygiene, this reticence stems from several challenges: effectively measuring digital return on investment (RoI), making the online experience feel more real for consumers and developing a genuinely digital organization.
Global front runners have comprehensively dispelled these concerns with a variety of innovative solutions from co-creating brands with online opinion leaders to creating seamless online and offline shopping experiences.
For instance, US cosmetics brand Nyx devised metrics that measured the impact that each piece of content had on its site and leveraged user-generated content, high-quality visuals and interactive features to break the “touch and feel” barrier commonly associated with online products. It also raised consumer engagement to a new level by partnering with online content creators to accelerate new product development and brand building.
Similarly, French cosmetics retailer Sephora demonstrated multiple ways to use digital to support a high-quality, personalized shopping experience both online and offline. In China, skin-care company Jahwa channelled data analytics to empower its front-line staff and drive overall growth.
The lesson to learn from these digital leaders is clear: A successful digital strategy needs to be comprehensive and project beyond e-commerce and brand building to include new product development, supply chain, customer relationship management (CRM) and analytics. Leveraged to its full potential, digital can positively impact entire value chains and business models.
The future is already here
Within the next five years, India will add the equivalent of the US population—about 300 million people—to the ranks of its online community. Women, rural residents and young people, propelled by the convenience and accessibility of their mobile phones, will be the new online buyers and influencers. Importantly for packaged consumer product companies, expectations are that nearly 40% of India’s online population of 650 million will be shopping online in 2020. This fundamental shift presents manufacturers and retailers with a game-changing opportunity. In addition, expectations are for almost 8-10% of all packaged consumer goods sales (amounting to about $8 billion to $10 billion) to be transacted online, and more than one-third of total sales (about $35 billion) will likely be influenced by digital activity. This clearly highlights the urgent need for companies to have a coherent digital strategy.
Today, not only do digital households spend nearly double what their non-digital counterparts do on established packaged consumer products, they are also more likely to be early adopters of emerging categories, with two to three times higher penetration levels of such categories. These digitally savvy and increasingly assertive consumers are compelling companies to rethink traditional ways of operating. Nowhere has this been more evident than in beauty and hygiene (B&H). The impact of digital is already being felt in terms of higher digital density (online sales as a proportion of overall sales) as well as digital influence (the influence of digital information on consumers’ online and offline buying decisions).
Our research indicates that growth patterns will emulate the Chinese experience: 20-25% of B&H sales there were online in 2015, a sharp increase from 3% in 2010.
The Bain-Google report for IBHA (2016) underscores B&H’s position at the forefront of the digital revolution in India, projecting that the sector will grow at a 10% compound annual growth rate (CAGR), expanding from current estimates of $10 billion to nearly $17 billion by 2020. Of this, nearly 20% (about $3 billion) of all B&H sales are anticipated to shift online, while almost two-thirds (nearly $11 billion) of total sales are likely to be digitally influenced. Therefore, for packaged consumer goods makers, the online trend represents significant opportunity and high stakes.
Doing it right
As a first step on their digital journey, packaged consumer goods makers should understand and anticipate the role digital can play in the categories in which they operate, as well as the impact this will have on consumer behaviour and, consequently, on their brands and portfolios. Rather than being viewed discretely, digital marketing and sales efforts need to be integrated as essential and complementary elements in existing brand strategies.
Choosing where to focus in this nascent but quickly evolving digital landscape will be important, and will be determined on a quick experiment-learn-adapt cycle. Companies will need to tailor their portfolios and go-to-market approaches to target digitally active consumers. For instance, exclusive stock-keeping units (SKUs) and promotions for young working mothers who shop online for beauty products or search for deals. This approach will need to be further customized to a category’s stage of digital evolution—namely, differentially leveraging digital to educate consumers, drive product adoption or encourage premiumization.
Even as companies work to reinforce their brand images among digitally savvy consumers, each will need to manage a range of offline and online touchpoints to deliver a seamless consumer experience. This, in turn, will require the constant monitoring of the effectiveness of spending across these platforms and dynamically adjustments to advertising spending based on consumers’ evolving media-consumption habits.
To ensure that the entire organization is ready to deliver and sustain digital’s full potential, companies will need to look at digital capabilities across the value chain. Consumer goods companies should develop new ecosystem partnerships, both online (with e-commerce players, social media websites and analytics firms that offer insights into digital consumers) and offline (with logistics firms, the media and creative agencies).
The future is digital. The winners of tomorrow will be firms that can systematically plot their digital transformation agenda and leverage digital across the value chain as they progress on this journey.
Nikhil Ojha is a partner with Bain & Co., India, leads the firm’s strategy practice and is a member of the consumer and retail practice in India. Sachin Khandelwal is principal and a member of Bain’s consumer products practice in India.