How CPG companies connect with customers: PwC

For the consumer packaged goods (CPG) industry, knowing your customers — how their needs, wants and behaviors can change over time — is essential. However, only a fraction of these companies use this information to continually adapt their go-to-market strategies.

Loyal customers often hold the key to long-term growth, and effective marketing leaders recognize the need for a customer-centric approach. To help with this, we created a six-point framework that can help CPGs become more customer-oriented, stay relevant and create new opportunities for growth.

CPGs are losing customers to other options

Companies routinely invest in advertising and marketing to draw in new customers and keep their existing ones interested, with the goal of boosting sales and building brand affinity. However, our analysis of the top 25 CPG companies from 2012-22, based on advertising and media (A&M) spend from Capital IQ data, indicates contrary results. While the average A&M spend has steadily increased, it hasn’t generated equivalent returns.

One likely reason is that customers have been shifting their preferences and loyalties to alternative players — including e-commerce platforms, retailer marketplaces, new-age startups and intermediaries — that can offer more choices, convenience, personalization and engagement. While the pace and intensity of customer expectations rises, data privacy regulations and walled gardens are limiting CPGs’ ability to collect customer data and help improve their end-user insight.

Bridge the gap from consumer to loyal customer

CPGs should work toward putting their customers at the forefront of their strategies and actions to build deeper relationships, strengthen loyalty and drive growth. But how can they effectively transition to a trusted, customer-centric model? We suggest six tactics that can help make the connection.

Consumer-first framework

1. Human-centric insights

The first step is to concentrate on the customers who contribute to high value outcomes, as they typically generate most of the profits and often help invent new products and services. To find these customers, evaluate performance indicators such as lifetime value (LTV) at an individual level. It’s important to fine-tune technology to help unlock value. Invest in an advanced insights engine that can help develop a deeper knowledge of target customers. Develop these human-led insights by creating ways to collect first-party data and use it to build a single view of customers across various touchpoints.

2. Tailored channel innovation

To help keep pace with today’s consumers, CPGs can innovate their products and services based on the unique value proposition of each channel. This involves understanding the different expectations and preferences of customers who shop through traditional, hybrid or direct channels and designing offerings accordingly.

Differentiation by channel:

Points of differentiation	Traditional	Hybrid	Direct
Product characteristics	Mass-produced	Mass-produced with customizable features	Personalized products with innovative packaging
Innovation approach	Inside-out, led by subject matter specialists	Product modularity and incremental approach	Customer-focused rapid innovation
A&M approach	Mass-advertised	Integrated marketing	Personalized marketing

_{^{Source: PwC Strategy& analysis}}

Customers who shop through traditional channels, for example, may prefer mass-produced products with standard features, while those who shop through direct channels may seek personalized products with more elaborate packaging.

Companies that adapt their innovation approach, and their marketing and pricing strategies, for each channel have an opportunity to deliver more value to customers and differentiate themselves from competitors.

As your company switches from the traditional to direct channel, it can raise prices, but it may also consider lowering internal costs by scaling and automating capabilities. This can help improve customer engagement to help drive retention and refine marketing to cut acquisition costs.

3. Audience-led marketing

Instead of brand-led marketing that comes from within, adopt audience-led marketing. Prioritize your customers over the products and craft campaigns that can align with their interests, values and aspirations. This demands a more in-depth and detailed knowledge of customer micro-segments and their brand choices to help design highly effective brand messages.

CPGs can help drive their desired outcomes by activating the right channels and experiences to engage customers in ways that appeal to them. Social media, influencers, gamification and various other distribution tactics can be used to create immersive and interactive experiences that help build trust and loyalty. By adopting an audience-led marketing approach, companies can increase their reach, relevance and retention among customers and help generate higher returns on their marketing spend.

4. Frictionless commerce

Gone are the days when customers were satisfied with companies providing them with omnichannel commerce features. Many of them now want seamless, convenient, consistent and hassle-free experiences across channels throughout the customer journey. In response, companies will likely need to step up their game by integrating disjointed backend systems and processes so they can create those frictionless experiences. Augment traditional channels with the right set of direct commerce capabilities to help win customer hearts and minds across each touchpoint in their journey.

To help increase awareness, companies can use methods such as intelligent prospecting and targeting or commercial integration with collaborators. Once they attract customers, they can offer different assortments, smart shopping assistance and niche experiences to help keep them interested. They can also simplify the conversion process by using social media, conversational commerce or omnichannel fulfillment. For long-term retention, they can use post-purchase analytics and reactivation as well as personalized customer relations.

5. Adaptive value chain

Continually adapt the end-to-end value chain to help meet changing consumer demands and industry dynamics. This requires building differentiated capabilities that can help deliver superior value to customers and help improve economic performance. Here are a few examples.

Use agile manufacturing, demand forecasting and integrated planning to improve production efficiency and flexibility.
Use intelligent warehousing, last-mile delivery and return mechanisms to enhance logistics and distribution efficiency.
Use customer journey orchestration, omnichannel fulfillment and e-commerce to help improve selling and delivery performance and profitability.

To help measure and manage economic performance, companies should aim to upgrade their metrics and tools to focus on customer-centric indicators such as lifetime value and retention rate. By adapting the value chain, they can help improve operations while deepening loyalty.

6. Behavior-led rewards

Loyalty programs are becoming imperative to help build long-term customer relationships. Still, customer-centric companies need to bring something new, bold and enticing to their reward program to stand out, gain the customer’s attention — then retention — and drive desired outcomes.

In our recent survey, executives reported that their annual budget for loyalty programs averages 5% of the company's revenue, with a significant 91% believing that their loyalty program should offer more rewards or benefits to members. Interestingly, despite 70% of businesses having a formal loyalty program, 80% admitted that their program is like others in their industry, highlighting the need for differentiation.

This begins with an evaluation of the kind of behavior the company wants to incentivize — collecting data, making repeat purchases, strengthening brand affinity, etc. — and deciding on the underlying value proposition of the reward program. This can help determine the program’s blueprint, including the accrual and redemption mechanisms, the engagement experiences, and the customer segmentation and differentiation.

The benefits of customer-centricity

Building a trusted, customer-centric CPG company is not often an easy task. It requires a strong vision, roadmap and coordination by different entities within the company. However, it can also bring sustainable benefits such as accelerated revenue growth, innovation and brand affinity. A customer-first mindset is often the ultimate key for CPGs to future-proof their business and thrive in the face of a new era of consumption.