If you’re like most people over 30, you remember walking the aisles of your neighborhood Blockbuster video store on a Friday night – picking up VHS boxes and reading the backs, arguing with your friends over what to rent, and grabbing some candy on the way out. You watched as the industry moved away from VHS and began picking up DVD boxes instead, wondering if you would be doing the same with Blu-ray or HD DVD in a few years.
Of course, the technology would change. You knew that. But most people did not see an even more transformative shift in the business: DVD rental by mail and streaming video on demand obliterated Blockbuster before it knew what hit it. In 2005, it seemed ridiculous that Blockbuster would declare bankruptcy and shutter its more than 6,500 stores two years later.
It happened. And the same thing is starting to happen right now with the CPG business. It may seem impossible that the notion of buying CPG products in a brick-and-mortar grocery store will seem ridiculous to many shoppers in the near future, but we’re already well on the way. It’s happening.
Understanding Change of Buying Behavior
Just as Generation X did with e-commerce for goods like electronics, books, and apparel in the late 1990s, Millennials are evolving their buying behaviors and sending ripples through retail supply chains. This group of digital natives consume more than half of all their media online, and now discovers almost 50 percent of new products there, as well. Millennials don’t make notes or lists for new products they want to buy. They put them in online shopping carts the moment awareness turns into intent, using them as digital shopping lists so the item is fulfilled when they convert the entire cart without them having to think about it again. As other generations follow suite, IRI predicts that half of all CPG growth will come from online sales by 2020.
Leaders in the CPG space see the writing on the wall and are making significant changes to their business models to position themselves for this future. In 2016, Amazon announced plans to build Click-and-Collect stores under its Amazon Fresh brand, Google is expanding its Google Express grocery delivery service to additional US cities, and Walgreens launched a Ship-to-Store program at over 7,600 Stores. CPG was also likely a factor in Walmart’s $3.3 billion acquisition of Jet.com, which has managed to generate over one third of its revenue from CPG alone. Unilever recently paid $1 billion to acquire the online brand Dollar Shave Club, and Mondelez announced its goal to generate $1 billion in online revenue by 2020.
Lesson of Blockbuster
Timing is the most important factor to keeping up with buying trends. Blockbuster waited six years after Netflix launched to create its own video mail service. By that time, it was already too late. No matter how Blockbuster tried to compete on price, it could not penetrate into the new model of recurring monthly subscriptions that Netflix had already dominated. Consumers did not want to switch providers. Sitting and waiting by the sidelines to see how it all pans out is a losing proposition.
Appropriate timing also gave Netflix the opportunity to launch into new spaces using a tiered approach. It didn’t jump right into video on demand and produce original content right away. Instead, the company added these features individually, giving itself adequate time to optimize how each was delivered. Netflix also made large investments in technology, concentrating on areas where it reduced friction in the purchase process. It recognized that to succeed in the future of the entertainment industry, it had to be first and foremost a technology company.
Interestingly, the technology that drove changes in how people consume video content is now positioned to have a big impact on CPG brands. Netflix, Amazon, Hulu and other providers of streaming video on demand are driving consumers away for traditional pay TV, an environment that CPG has relied heavily on for brand advertising. This means brands must shift investments to other avenues to reach consumers, most notably online.
Position Yourself for Change
The nature of CPG products makes the buying behaviors of its consumers different from other sectors, so copying what other industries have done to succeed online would be a mistake. The low-risk, high-impulse decision making that fuels CPG sales is different than consumer electronics, where consumers may spend hours researching a single purchase. Since CPG consumers place a high value on convenience, getting in and getting out is key. Online strategy should focus on enabling quick and painless conversions over prolonged engagement and education. Think about it: How much time do you want to spend considering a purchase of paper towels?
Winning CPG brands will enable purchases at every digital touchpoint. This is a massive pivot for an industry with a rich history marketing on legacy channels where conversions were not possible. In the digital landscape, CPG brands must compete with everything and everyone for consumer attention, and the competition is strong. Consumer attention spans are short and engagement opportunities are fragmented across many touchpoints. Brands can’t afford for engagement to be about building brand awareness alone. They must fully leverage every opportunity to make a sale.
Today’s shoppers desire the ability to buy wherever and whenever they are ready. No matter where brands are engaging with them online, they must build a simple and quick path to conversion. When consumers are brought to a shopping cart quickly, they have the flexibility to save the cart and return to execute an order on their timeline. Few people are going to buy your $5 item when it costs $5 to ship. Most will wait until they have amassed enough products in their cart to justify shipping cost or time needed to drive to the store to pick up their online order.
Once in the cart, brands can leverage retailer re-targeting programs which keep your products in front of consumers long after your initial engagement has passed. This is critical, as consumers are 70% more likely to buy when re-targeted. Finally, the deeper you can get a consumer into the purchase process, the more likely they are to buy. On average, once in a cart, 25% of consumers will proceed with an order.
Over the next several years, the CPG industry will find itself fragmented between its own version of Blockbuster brands and Netflix brands. You know which side you want to be on. Start your path to getting there today.
This article originally appeared on CPGmatters.