The consumer products (CP) industry could undergo more change in the next five years than it has in the last 50. Driving this change are major market shifts that are fundamentally transforming the way that CP companies think about growth and consumer engagement.
First, a global growth pivot is underway. Going forward, the majority of industry growth will be driven through increasing per-capita spending – or consumption – among existing consumers, rather than capturing new spend through the acquisition of net new consumers. And, simultaneously, the definition of consumption is broadening beyond simply the quantity and frequency of consumption of physical goods to include the consumption of related value in the form of services, content, and more.
Why is this happening? First, there’s a significant shift in global demographics underway as a result of declining global birth rates and increasing life expectancy. For example, McKinsey & Company estimates that 75 percent of global consumption growth between now and 2030 will come from per-capita spending growth.
And, at the same time, increasing urbanization is increasing demand for products and services, fueling global consumption growth. McKinsey further estimates that while 50% of the world’s population will live in cities by 2030, 81% of all consumption will be by people living in cities and a full 91% of all consumption growth will be driven by people living in cities.
All of this goes hand-in-hand with another major market shift that’s driving change in CP companies: our increasingly “connected everything” world.
Today, consumers, businesses and technologies are connected in real-time, all the time. A person’s smart car can connect to their home’s smart thermostat, for example, and automatically trigger it to warm or cool the house to a designated temperature when the car is within a certain distance. A fitness app can track their workouts and tell them when it’s time to replace their running shoes or even how to adjust their diet to stay on track with their fitness goals. And in stores, smart-shelf technology can communicate with the back room to prompt restocking if on-shelf product levels fall below a certain threshold.
These are just a few of many, many examples of how this ever-growing connectivity is creating tremendous opportunities for CP companies to provide greater consumer engagement and seamless consumer experiences – even independent of direct consumer connectivity – to help increase consumption.
The shift toward consumption, fueled and enabled by the increasing opportunities for real-time consumer engagement and the increasing connectivity of things, is fundamentally changing the opportunity for driving growth while also creating a new definition of value for CP companies. It’s no longer only about purchase and use, but also about providing meaningful interactions and inherently valuable experiences to consumers through the delivery of products, services, content and more via continuous consumer interaction rather than the occasional, and traditional, purchase-and-use cycle.
A Shifting View of ‘Moments’
In this new environment, CP companies looking to tap into the potential of this growth pivot in a “connected everything” world are shifting their focus away from the traditional moments-of-truth approach to instead focus on moments of opportunity.
Moments of truth are built around two key moments – purchase and use – with an emphasis on high transaction volumes and standard products that can be sold through a standard supply chain. In this approach, everything is done to favor efficiency of scale to help drive market share and return on investment.
Moments of opportunity are about creating ongoing and personal engagements with consumers – even if those engagements are independent of a purchase. Value comes from the interactions the CP company has with the consumer and from what is learned about the consumer in those interactions. This creates opportunities for the CP company to sense and create personalized, just-for-me experiences and outcomes, which are initiated and controlled (pulled) by the customer but enabled by the company.
CP companies making the move to moments of opportunity are constructing entirely new digital value networks. These networks provide the agility and speed that CP companies require to create and deliver real-time outcomes, right in consumers’ moments of need. The value networks also allow companies to measure success in new ways. This could include measuring market-growth share instead of market share, or measuring return on engagement instead of return on investment.
Are You Ready?
Considering the new implications regarding how and where CP companies are competing, what they’re competing with, and how they measure success, ask yourself: Are you ready as an organization to compete and grow in this new reality?
To help you find out, take the SAP Digital Consumer Products Readiness Assessment. It’s a short survey that evaluates technological readiness in four key areas. It can provide insights into how mature your organization is in deploying an enterprisewide digital value chain and allows you to see how you compare to other CP companies.
And, for more information on how SAP is helping Consumer Products companies leverage technology to thrive in the new digital economy, visit Consumer products: Reimagined for the new economy.