Consumer Packaged Goods
Consumer packaged goods (CPG) are consumable goods such as food and beverages, footwear and apparel, tobacco, and cleaning products. In general, CPGs are things that get used up and have to be replaced frequently, in contrast to items that people usually keep for a long time, such as cars and furniture. Although the CPG industry has been slow to invest in new technology, it is increasingly turning to computerized and Web-based applications for customer relationship management (CRM), supply chain management (SCM), enterprise resource planning (ERP), and marketing automation. A number of vendors, including Oracle, SAP, and Siebel Systems offer products for the CPG sector.
Consumer packaged goods are the everyday use items that consumers purchase mostly from supermarkets. They include food and beverages, cosmetics, skin care, hair care, feminine care,home cleaning, and detergents. The most striking feature of this industry is the wide range of consumer needs and preferences involved. The buyers can be considered fragmented in the sense that there is no single marketing strategy that can effectively address all consumer needs. A retailer has a particularly important role to fulfill in the supply chain i.e. aggregation of demand and supply. We discuss below the unique characteristics of the CPG Industry that have significance for the use of Web.
The CPGI consists of low-value products that have can be considered “mundane.”Consumer goods can be considered non-durable and most individual purchases of consumer products are of low value. The margins for the manufacturer and the retailer on these products are very low, but they rely on the high turnover of the products to be profitable. Thus, it is critical to provide a very good product and channel experience to the consumer on a continual basis to ensure maximum consumer satisfaction.
Products within the CPGI have short-product lives and are frequently re-purchased. Many of these products are considered necessities and demand is typically steady. The consumer’s need from many products within the industry is long-term (e.g., feminine care products), with some being life-long (e.g., deodorant, soaps). However, the demand for a specific brand within the CPGI is influenced by several factors, including price of the product, the consumer’s discretionary household income, the demographics of consumers, and the innovation of the product (Standard & Poor’s, 2000).
The CPGI is highly competitive across brands. Consumer products are closely associated with and differentiated by brands. Brands are an important way, other than the actual product experience, that the product benefits are communicated to the consumer. Consequently, consumer goods manufacturers spend enormous efforts at building their brands and media is a critical component of brand building. Major consumer goods manufacturers, such as Procter & Gamble and Unilever are known to be big advertisers in television and radio.
It is difficult for CPGI companies to raise product prices. The CPGI is saturated (Standard & Poor’s, 2000) and highly competitive. This makes it difficult for companies to raise prices despite any increases in raw materials cost.
It is becoming more difficult for consumers to differentiate competing brands as the number of product introductions is continually increasing. Companies within the industry are frequently enhancing older product lines, while new product lines are also be introduced. The innovativeness of a product can enhance the demand for the product. Being the first company to market a new product type is advantageous within this industry as it takes considerable effort to lure customers away (Standard & Poor’s, 2000). However, as more brands and product features are offered, it will become harder for consumers to differentiate among the products that are offered.
It is difficult to develop brand loyalty since switching costs are low. Even though the value of each purchase is relatively small, a loyal consumer is likely to purchase the products several times over his/her lifetime. But the low switching costs make consumers to easily switch their brands, if their experience with the existing brands is not satisfactory. Thus, organizations are constantly struggling to increase the bond between the consumer and the brand, by personalizing the products and offering superior customer service. However, brands that are strong within the industry tend to develop a competitive advantage through the loyalty of its users.
Private-label goods are becoming more accepted by consumers. However, some branded products are protected by emotional factors and consumer doubts regarding the quality of the private-label good (e.g. health and beauty products).
Low growth in sales is expected in the United States. Only small increases in the U.S. population and in the number of U.S. households are expected in upcoming years. In order to increase sales, CPGI players will need to gain market share from competition in the domestic market or they will need to focus on strengthening their positions in international markets. Finding new ways to reduce current costs also will become important as companies work to improve profitability in this tight market.
An aging population will change consumption patterns. This will lower the demand for certain products types (e.g., household maintenance products) while other product types, specifically those with features that appeal to older consumers (e.g., anti-aging health care products), will grow in demand.
Women are the primary purchasers of CPGI products. Women form the major target group for the messages of consumer goods companies. Several consumer products, such as skin careand beauty care, are addressed directly to women. Other products, such as food and beverages,home cleaning and detergents are addressed to women as the primary decision makers or decision influencers. In addition to the media choice, companies have to decide on the type of programs they sponsor, so as to attract the attention of their target audience.
New distribution channels are needed to meet today’s consumers. CPGI companies need to expand their distribution channel from the traditional outlets (e.g., Food, Drug, Mass
Merchanding Retailerst) to other outlets that will be accessible to consumers.As we can see from the above characteristics, marketing consumer goods involves constant
feedback from consumers about their experience with the products and the ability to rapidly respond to the consumer needs and preferences. Further, since the manufacturers are far removed from the consumers, they have to rely on the information supplied by the retailers to understand the demand for their products. With the emergence of the Web as a new channel, consumer goods manufacturers are hoping to overcome these limitations and create a closer relationship with their consumers in order to serve them better and be their preferred brands.
Characteristics of Products
Characteristics of Industry