The consumer goods companies are dictated by the unpredictable, cyclical nature of consumer demand. Consumer goods industry include subsegments such as food and beverage, footwear and apparel, health and beauty, and household care. The Digital transformation in consumer goods has been providing them with new opportunities for growth, better customer experience, improved operational efficiency, and business and cultural transformation.
The Beginning of Digital Transformation in Consumer Goods
It is difficult to pinpoint a specific date for the start of digital transformation in consumer goods industry as the adoption of digital technologies has been happening gradually over time. However, some specific events and developments that have contributed to digital transformation in consumer goods include: the rise of e-commerce, mobile technology, artificial intelligence, Internet of Behaviors, predictive analytics, and data analytics. The French beauty company L’Oréal possibly was one among the first in consumer goods industry to adopt a structured approach to digital transformation. L’Oréal first embarked on its digital transformation journey more than a decade ago. Today, it provides an excellent case study of effective, successful digital transformation. L’Oréal’s journey emphasizes the role of senior leadership in setting the vision for transformation and highlights the importance of linking supply chain digital strategy to company-wide digital strategy. [1]
The rise of digital technologies, such as social media and mobile apps, artificial intelligence, Internet of Behaviors, has enabled consumer goods companies to reach and engage with their customers in new and innovative ways, and has created new opportunities for companies to gather data about customer preferences and behavior. The soft drink giant, Coca-Cola is extensively leveraging data analytics, artificial intelligence, and Internet of Behaviors of data on various brands and products it offers. The brand across its vending machines is applying big data analytics and AI algorithms to interact with its customers. The brand on social media uses AI algorithms to understand when, where, and how its customers like to consume their products and derive popularity of individual products by location.
The growth of digital technologies and platforms has had a profound impact on the consumer goods industry. It has enabled new business models and customer experiences to emerge as an integral part of digital transformation in consumer goods. The biggest among all consumer goods industry, Unilever has embraced the journey of digital transformation in a structured manner. It has actively digitized all aspects of their business to leverage data and increase digital capability in everything they do. The company has implemented IoT, artificial intelligence, virtual reality, and digital twin technology to automate and optimize all aspects of business processes. The effective use of key digital technologies helped Unilever gain deeper insights into consumer behavior, optimize its supply chain, enhance its operational efficiency, and develop new products and services.
Digital Transformation in Consumer Goods Industry is Key to Growth Strategy
Consumer goods companies are experiencing unprecedented change – change in terms of not only how they connect with suppliers, customers, and consumers but also the technologies they use to affect these interactions.[2] It is observed that the new age consumers are less brand loyal than ever and are increasingly geared toward products aligning with sustainability, health, wellness, and lifestyle. These new age consumers are increasingly looking for experiences rather than just products. This change in consumer behavior is backed by the rise in disposal income and seamless access to the global products. This rise in the demanding consumers have forced most of the consumer goods companies to walk the path of digital transformation.
L’Oréal is one of the first consumer goods company to walk the journey of digital transformation. In 2012, foreseeing their future challenges, L’Oréal launched – Connected Beauty Incubator – a division within the company’s research division dedicated entirely to technological innovation and industry disruption. [3] This division was the first step of L’Oréal towards its journey of digital transformation. In last one decade, L’Oréal also introduced many innovations in the space of personalization and increasing the proximity of interactions with the consumer. One such example is the Lancôme brand’s Teint Particulier foundation concept, which analyzed consumer skin tones at the beauty counter enabling a foundation to be blended on the spot to meet their needs. [4]
Today almost all major consumer goods company have embraced digital transformation. These companies are operating at different stages of digital transformation. The consumer goods companies increasingly focused on digital transformation to stay ahead of the competition and remain relevant; many companies in the space are rapidly embracing digital technology to provide the best products and services for their customers.
It also offers opportunity to work on a global scale, while maintaining flexibility, speed, quality, and innovation within their businesses. The most innovative of these companies are using the power of digitalization – i.e., the integration and information sharing among multiple digital technologies – to transform their businesses and better connect to consumers to drive innovation.[5] For example, Coca-Cola’s digital transformation strategies are primarily focused on operational efficiency leveraging data and technology, enhancing customer experience through both online and offline channels, and strengthening its digital culture. Coca-Cola, to achieve the set digital transformation goals is using several digital technologies including artificial intelligence, big data, cloud computing, blockchain, IoT, robotics, and behavioral analytics to achieve operational efficiency, and enhancing customer experience.
The Coca-Cola in its digital transformation journey focused on – How to create more relevant, more personalized experiences for consumers and the retail customers who serve them; How to make the company better from the inside by using data and technology to accelerate and remove processes and, ultimately, remove the barriers that exist; How to create disruption within the company before external factors do, and How to change the fabric of a company that views itself as a traditional consumer goods company. Similarly, Nestle’s digital transformation strategy known as Vision2Life has four key priorities: bring value to the people who receive IT services; operate as one global IT team but with local expertise; interlock product management with business stakeholders; and make IT a technology differentiator not just a provider.
The enormity of the digital transformation opportunities and challenges absolutely requires that business and technology leaders immediately assess and adapt their IT investment priorities and map how they relate to the capabilities required for digital transformation – and it must be a collaboration between IT and the line of business. [6] Put simply, digital transformation is the integration of digital technology into all areas of a business, resulting in fundamental changes in how a business operates and the value they deliver to their customers. It’s about changing the way a business interacts with its customers and how they provide their customers with a consistent experience whenever and wherever they need it. For example, PepsiCo is developing a modernized data and cloud infrastructure replete with automated processes and workflows. To date the company has moved 5,000 applications to Microsoft Azure as it applies predictive analytics, AI, robotics, and process automation in many of its business operations. [7] Similarly, P&G with help from Microsoft, is also tapping into key disruptive technologies, including AI, big data, blockchain, cloud, IoT, digital twin, AI, machine learning and robotic process automation among others to digitally transform its operations.
It is important to understand that digital transformation in consumer goods industry is a conscious movement from point solutions that deliver incremental value to integrated process and technology solutions that provide transformational outcomes in terms of customer experience, business efficiency, business innovation. The digital transformation does also help business transform culture. Unilever has 2.5 billion daily customers and runs 300 production facilities, operating across 190 different countries. The company decided to develop its data analytics infrastructure, by collecting more customer and behavioral data. In 2019, Unilever gathered 900 million individual consumer records, which was an enormous increase compared to the modest 200 million the year before. The brand having data and predictive analytics capabilities, can increase the accuracy of demand estimations and plan its production. This data driven approach helped Unilever launched many new data-driven brands. [8]
There are multiple case studies that confirms digital transformation in consumer goods helped companies to increase their revenues, improve their operations, better compete with other companies in the industry, and allowed companies to provide their customers with more personalized and interactive experiences. In addition, digital transformation in consumer goods helps companies to better understand their customers and create more targeted and effective products and services.
[1] L’Oréal: the beauty of supply chain digitalization; Ralf W. Seifert, Richard Markoff; 2022 in Innovation – imd.org
[2] IDC Industry Brief – The Consumer Goods Industry in the Digital Age; Simon Ellis – Salesforce; March 2017
[3] How L’Oréal Leads Beauty With Digital Transformation; Vance Duong; 2022 savvycomsoftware.com
[4] L’Oréal: the beauty of supply chain digitalization; Ralf W. Seifert, Richard Markoff; 2022 in Innovation – imd.org/
[5] Digitalization—Unlocking Unlimited Potential for Consumer-Products Companies; By Suzanne Kopcha, Vice President, Consumer Products and Retail at Siemens PLM Software; INDUSTRY BRIEFING: DIGITALIZATION IN FOOD & BEVERAGE
[6] IDC Industry Brief – The Consumer Goods Industry in the Digital Age; Simon Ellis – Salesforce; March 2017
[7] PepsiCo transforms for the digital era Feature; Paula Rooney; cio.com -2022
[8]10 companies with successful digital transformation [examples]; August 2020; Future Processing | https://www.future-processing.com/blog/10-companies-with-successful-digital-transformation/
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