- Bas Kemme
- 25 jan
- 7 minuten om te lezen
As Peter Drucker once said, “The purpose of business is to create and keep a customer”. Embracing new technologies and business models seem nowadays a must-do to achieve significant sustainable top-line growth or even stay in the game.
The majority of our fast-moving consumer goods (FMCG) clients are however concerned about slow growth. Right now, most incremental growth is coming from new, disruptive business models. Small, asset-light, regional competitors are getting the lion’s share of growth while large established companies seem unable to organically innovate at scale.
“Surely we ought to be able to create a successful DTC model with our top brands and internal capabilities without spending this kind of money, but how?”
Business leaders often embark on a digital transformation with no clear and distinctive focus. Before they know it, their entire organization is experimenting with all kinds of digital initiatives in the hope that this will defend against disruption. Incubators are set up to start scouting start-ups, but with only a vague idea of what they are looking for start-ups are often bought without a clear idea of the role they are meant to play within the total business portfolio. To add to the challenge, the price tag often seems steep. A CEO we recently spoke to summed up his reaction to Unilever’s acquisition of Dollar Shave Club for $1 BN (5xRevenue) as an expensive learning platform for Direct to Consumer (DTC): “Surely we ought to be able to create a successful DTC model with our top brands and internal capabilities without spending this kind of money, but how?”
“Who is really making money from their digital bets? Is there really a pay-back?”
Most large companies are finally concluding that ‘letting a thousand flowers bloom’ without a clear overall plan or structure does not cut it. Many CEOs often find themselves overwhelmed, and uncertainty is followed by scepticism: “Who is really making money from their digital bets? Is there really a pay-back?” These kind of reactions are not unreasonable but the intermediate and often mediocre outcome of early experiments is sometimes confused with the greater need and purpose because – make no mistake – the business landscape is being transformed and no one can afford to watch from the sidelines.
We want to explore some of the CEO's most critical questions right now:
1. How can I find new ways to generate profitable growth?
2. Is digital purely a channel shift or can it truly generate growth?
3. How do I decide between alternative ideas? How do I focus my investments?
4. How do I effectively get started now? Should I be a first mover or a follower?
In the work we do with our clients, we follow a structured and pragmatic approach in addressing these questions.
1. How can I find new ways to generate profitable growth?
We approach the growth challenge from three complementary lenses:
Unlocking value by increasing penetration with higher physical availability of existing value propositions – broadening the range of geographies, channels or consumer groups you serve – in particular in market segments with disproportionate growth for maximum tailwind.
Supercharging value creation by increasing penetration and share of wallet with stronger customer value propositions which increase mental availability (by augmenting consumer/brand emotional connections and loyalty), by building communities around your critical mission, by responding to customer needs in a faster, more agile way, and potentially locking-in consumers and by going beyond-the-product and delivering value-adding adjacent services that consumers are willing to pay for.
Disrupting how value is created by helping non-consumers to overcome barriers to consumption (wealth, skill, access and time), and by addressing new consumer jobs to be done with novel value propositions and experiences, providing a complete solution to a consumer need, occasion or event and ultimately elevating the consumer need to a new level (e.g. from “build me a better running shoe” to “help me perform”).
These three levers are not mutually exclusive and focus will differ by type of business, level of maturity and degree of consumer engagement. While there is often an obsession with disruption, what companies sometimes forget is that there can be lots of unexplored headroom for growth in the other levers. Sustainable growth requires a portfolio of levers.
2. Is digital purely a channel shift or can it truly generate growth?
In our view, digital can support you Unlocking value by ensuring maximum physical availability. This is ultimately about getting the digital basics right but has the potential to drive significant value in multiple ways:
From stepping up your Category Management capabilities to optimize presence at digital retailers through simple digital changes that often pay off significantly. For example, Coty improving the imagery quality for COVERGIRL on Amazon boosted online sales by 46%
Using content to drive a life-style based consumer experience while collaborating to ensure consumers can reach you, at the right time. For example, Diageo has partnered with Amazon Prime to create a new travel series that inspires but also leads to purchase
Hitting the market with a new product fast – numerous clients are asking for digital only launch plans
Scaling-up small brands and new product introductions profitably through differentiated DTC models
Managing category and product portfolio in major digital platforms such as Amazon through Online Category Management (OCM)
Controlling your pricing through Dynamic Digital Pricing (DDP)
Increasing penetration with broad targeting using mass customized advertising, e.g. Facebook
Using data availability to instantly shift resources to further benefit from pockets of growth, e.g. geographies with increasing online/offline demand
Digital as an enabler to Supercharging value creation is about focusing on maximizing mental availability and engaging with consumers well beyond the product and their purchase. Brands that are successful in this, benefit from increased loyalty and drive long term value, e.g.:
Innovative DTC models aiming to connect and increase the switch barriers with digital-first consumers, e.g. Younique, Honest Beauty, Warby Parker and Glossier
Nike creating a ‘portable’ Omni-channel experience to directly support, enhance and accelerate the customer journey. Julep championing crowd-driven product development
However, be careful! If misguided it can also create a massive PR nightmare as illustrated by the recent Pepsi/Kendall Jenner ad fiasco
The right execution to demonstrate brand values can bring massive payout in the form of earned media and increased brand loyalty, as proven by these campaigns: Dove’s “Real Beauty”, Heineken’s “Open Your World”, AXE’s “Is It Ok for Guys?”, and Volvo’s “The Epic Split feat. Van Damme”. However, be careful! If misguided it can also create a massive PR nightmare as illustrated by the recent Pepsi/Kendall Jenner ad fiasco
Burberry’s “Art of the Trench” is the epitome of creating a dialogue between consumers and turning user-generated content into a powerful social media platform that creates a real community
Finally, to Disrupt digital provides the connectivity and platforms that enable brands to deliver outcomes rather than products. Whether it is mobility, beauty, health improvements or just an enjoyable social event, digital is a key enabler to create the full service offering and total consumer experience.
There are the obvious examples in travel with Uber and Airbnb, but there are also outstanding success examples in consumer goods:
More than half Domino's worldwide sales now come through digital channels!
Domino’s Pizza transformation from pizza-delivery to a world leader in digital ordering platforms that happens to sell pizza, has resulted in unprecedented business performance (from $8.8 per share in 2010 to over $200 by May 2017). This is a great example of overcoming the time and access barrier to consumption. The company has reinvented itself completely during the last seven years after hitting an all-time low back in 2008, dropping nearly 90% over 18 months. The crisis inspired a customer-focused transformation that has made the company a digital leader. It started with a clear goal: making ordering so drop-dead simple, across so many channels, that customers would not even have to think about it. Today, customers can order their pizza by text message, tweet, instructing Siri or Amazon Echo, or automatically by simply opening the company’s Zero Click app launched in 2016. By becoming a digital business Domino’s has created a virtuous cycle and can quickly test, evaluate and adjust using advanced data analytics to learn from consumers, and more than half Domino's worldwide sales now come through digital channels!
Nike is another notable company that has broadened their vision and used digital as an enabler, shifting its objective from selling trainers to getting people to run. Their entire digital eco-system and platform are created around this aspiration.
3. How do I decide between alternative ideas? How do I focus my investments?
Many CEOs ask us how to prioritize all these digital initiatives and where to focus on. For a company which has established how they want to Unlock, Supercharge and/or Disrupt and the specific role of digital can play, prioritization becomes easy. This doesn’t mean that you shouldn’t be testing and investigating new options, instead this provides the broad focus areas and criteria those experiments should be assessed against.
To do so, be more deliberate and specific about what you expect digital to do for your customers and how it will help grow the company. As you take a more structured, portfolio approach to digital, do not forget the economics! This should ultimately be about real incremental profitable growth, not experimentation for its own sake. What we often recommend is to institutionalize a venture capital-like, disciplined approach to digital initiatives with clear stage gates and deliberate choices around resource allocation. We can write another chapter on that topic, to follow next.
4. How do I effectively get started now? Should I be a first mover or a follower?
The focus of the effort should be in experimentation and learning, however we do believe that to ensure the right direction is set, a short visioning upfront is required. For each level of growth – Unlock, Supercharge, Disrupt – specify the strategic priorities and what role digital can play. The more the company is aiming to disrupt – and not everyone can or should – the more the vision needs to clearly articulate what the company/ business is aiming to stand for from a consumer perspective and what needs, occasions or outcomes they want to own. This can require some effort upfront.
Once this is established the search fields and opportunity areas for incubators, the venture capital priorities and the digital experiments assessment criteria should all follow logically. This becomes the desired portfolio, together geared to deliver the company’s aspiration.
The initiatives should then be managed as a portfolio with ruthless review and prioritization, and no issues about culling experiments and initiatives to ensure the portfolio is sufficient, aligned and optimized to reliably and predictably deliver.
The approach, governance and expectations are likely to differ depending on the growth lever being addressed:
Unlock initiatives are likely to hold the quick wins and should be managed to shorter timeframes and specific financial KPIs. Most likely the ownership will sit with existing business units. These initiatives should be generating value in 12-18 months… or probably stopped!
Supercharge and Disrupt initiatives need to be managed differently. The KPIs are likely to be broader, more partnerships are required and at least initially governance should not sit with the business units to ensure focus and a distinction from the current thinking, as well as any constraints such as short-term focus and inappropriate incentives. However, the scalability of these initiatives has to be kept in mind-don’t let them drift too far from how they will ultimately drive sustainable profitable value.
