Getting the ‘brick to click’ journey right

Published: June 5, 2018 12:53 AM

But the brick to click journey is not easy for a sector that has forever obsessed with physical distribution and supply chain networks for deep market penetration.

smartphones, consumers, FMCG, digital movement, e commerceFor consumer durables, the offline to online route is not easy, considering the sector has forever obsessed with physical distribution and supply chain networks for deep market penetration

For consumer durables, the offline to online route is not easy, considering the sector has forever obsessed with physical distribution and supply chain networks for deep market penetration

More and more Indians are going online daily fuelled by access to affordable smartphones and broadband connectivity. Netizens are projected to grow from 390 million in 2017 to over 650 million by 2020, which will be more than the expected population of the G7 countries combined. This digital movement is supported by maturing online channels, improving logistics and advancing last mile connectivity. Influenced by this movement, consumption across socio-economic strata is leaning towards product and service discoverability and online commerce. An AT Kearney Google report predicts that in the next two years, 175 million netizens will be shopping online. A Google BCG report predicts 40% of the FMCG spend in 2020 will be digitally influenced, translating to a value of $45 billion.

This presents a new landscape, new competitors and new competitive metrics for consumer durable brands to grow. But the brick to click journey is not easy for a sector that has forever obsessed with physical distribution and supply chain networks for deep market penetration. On the other hand, online= commerce has a lower entry barrier and gives quick national/global access. So, which model of business should consumer durables brands consider in the country?

Important to make the right portfolio choice

For starters, replicating the offline portfolio will not yield desired results online. The online consumer, especially the young and high-valued, is increasingly more conscious of their needs today. They are well-informed about products and services, well-travelled, and initiated about their needs and benefits in terms of health and lifestyle choices. This is reflected in the growing niche searches and offerings on e-commerce platforms. For example, a search for steel cut oats on Amazon throws up around 53 results. Hence, getting the portfolio right and staying abreast with the consumer’s evolution is important. This will aid brands to offer tailored products for sustained growth.

Thinking traditional for distribution won’t work

Manufacturers often face a predicament of either considering a direct-to-consumer portal or associating with an established e-marketplace. Here, it is most advisable for FMCG brands to initially leverage existing major or niche (like an ‘organic’ only) e-commerce marketplaces. Brands should take their portfolio into consideration as these marketplaces already have an online customer base, traction, logistical support and last mile delivery networks in place.

Even though e-commerce isn’t the core product or proposition for FMCG brands, e-marketplaces bring marketing, logistics and consumer buying behavioural-insights to the table, which is crucial for online sales. Brands also need to look at product packaging and pricing for online commerce. Current product packaging, meant to be visually appealing on the shelf and stacked properly in crates for retail distribution is not suited for online discoverability or last mile delivery in bags on motorcycles. Apart from more resilient packaging, it is also important to look at larger pack sizes or bundling to improve the value proposition for the e-commerce partner.

E-tailing incurs more costs than bricks-and-mortars due to year-round promotions, with customer returns that amount to 10-15% of orders. These can be addressed through larger pack sizes or a bundling approach coupled with engaging consumers better to share delivery costs. Brands can also look at providing specific delivery slots and exploring innovative partnerships with convenience stores and FMCG distribution chains.

Total commitment to e-commerce is a must

FMCG brands need a shift in mindset, culture and operational agility to effectively compete and grow in the online world. It demands a structural change within the organisation with different departments in sync to drive the advancement. For starters, there is a need to have a dedicated e-commerce team with relevant experience and
understanding the online-way of working, backed by dedicated budgets. The company also needs to have an online-first approach, not only in the business vertical but across business administrative functions.

Very often, dedicated e-commerce teams within brands struggle to get support or sync with marketing, finance, packaging, sales and distribution departments. The traditional FMCG approach of long R&D cycles and testing for the perfect product, and packaging doesn’t work in the online world where start-ups introduce products and services which evolve with real-time customer feedback. Hence, stakeholders within an organisation need to support the ability to fail fast and move on.

The road ahead

In summary, the growing consumer digital movement, which today is a small portion of FMCG sector sales, will be sizeable over the years. It will be arrogant for brands to rely on their offline strengths and unwise to leave this landscape to nimble emerging start-ups that will slowly but surely eat away market share. A case in point is the California-based start-up Dollar Shave Club. It ditched the traditional marketing and distribution route to establish a direct consumer relationship online and an agile supply chain.

A business that shipped razors through post ate into Gillette’s market share. Though the start-up was acquired by Unilever eventually for $1 billion, it drew a winning streak with its competitive pricing, a direct connection with its consumer through e-commerce and leveraged the sporadic change in the consumer economy. The brick to click journey for FMCG brands will need a level of reorientation in structure and mindset, and is worth the investment in the long run.

By: Harsh K Rai

The author is VP & commercial unit GM (F&B), PepsiCo

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