Kellogg’s advises CPGs to differentiate online

Apr 30, 2018

Pat Lenius

Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters.

Store-based consumer packaged goods companies need to make online direct-to-consumer (D2C) a pillar of their brand strategy, but should focus on highly-differentiated value propositions, according to Chris Perry, senior director of e-commerce for Kellogg Company.

In a presentation at the Path to Purchase Summit in Schaumburg, IL, he listed the “right reasons” for a CPG brand to consider D2C e-commerce: Long-term growth; test and learn; build capability; innovate and launch platform; and data ownership.

He noted that D2C models have already been launched or are being planned for launch this year by 44 percent of CPG companies, and e-commerce is projected to deliver 50 percent of CPG growth through 2025.

But the right approach matters. Launching a “me-too” e-commerce model that directly competes with existing e-commerce retailers can be risky. Although it may be good for long-term leadership, battling competitors on their terms within their preferred model may lead to some losses.

“Joining forces” by partnering with existing e-commerce retailers and marketplace platforms, according to Mr. Perry, is good for short-term growth and capability-building, but the downside is that it requires conformity to others’ models with increasingly limited control.

His foremost advice for CPG vendors is to “change the game” and launch a disruptive model on your own terms that is optimal for long-term leadership, competitive advantage and “challenger brand out-maneuverability.”

As an example, he noted that Bear Naked, a granola bar and ready-to-eat cereal brand owned by Kellogg, enables consumers to customize their granola mixes online. The mixes are packed in 11-ounce canisters and shipped free of charge.

“With test-and-learn initiatives like Bear Naked Custom-Made Granola, Kellogg’s is ‘changing the game’ by testing unique value propositions and best-in-class brand experiences that Kellogg uniquely can offer to its consumers,” he said.

Beyond customization, CPG brands can stand out with their own sites by offering exclusive assortments, educational content, customer reviews, consultations, rewards programs, tie-ins to social causes or a focus on customer service.

His final words of advice: “Customer service and delight drives loyalty. You need to be the leader. Don’t let your competitor sign up first.”

DISCUSSION QUESTIONS: How would you rate the direct-to-consumer (DTC) online opportunity for CPG brands? What advantages may CPG brands have over retailers in delivering rich e-commerce experiences?

Please practice The RetailWire Golden Rule when submitting your comments.
"What CPGs can do in a DTC world is leverage all of their assets that a retailer may otherwise be hesitant to present."
"CPG brands can begin to differentiate from competition online and avoid being another no-name product being discounted at the grocer."
"Online-to-offline is a good long-term goal and DTC is one way to achieve it."

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24 Comments on "Kellogg’s advises CPGs to differentiate online"

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Mark Ryski

Online DTC presents new and exciting ways for CPG companies to build loyalty and test new products — CPGs should be embracing this. As noted in the article, while CPGs need to be cautious in how they move forward with their DTC initiatives, the advantage of interacting directly with consumers is profoundly useful in developing and launching new products without the constraints and cost of launching products in traditional channels.

Sterling Hawkins

There’s definitely an advantage and it’s not appropriate for some brands and CPGs. The bigger picture that applies to all CPGs is to create a highly personalized experience around the consumer that adds value. It may be through customized products, it could be highly curated content, or it might even be in-person programs and events. The point here is that it’s not about having to make a new channel, it’s about cultivating a real relationship with the shopper.

Lyle Bunn (Ph.D. Hon)

All brands must cannibalize themselves before somebody else does it for them. By extending their core offering into areas that serve smaller and smaller groups of consumer interest while adding to the sourcing and buying experience, brands deepen loyalty and benefit from the insights of consumer wants, needs and trends.

Phil Masiello

The correct approach for any consumer brand is to speak directly to the consumer and form a relationship. Online e-commerce allows this to happen without the interference of an intermediary.

Retailers have proven to be poor brand marketers. They focus too much on price and not enough on providing value. This price focus can dilute a brand’s image.

Having the brand speak directly to the consumer gives the brand the ability to speak in the brand’s voice. Unfortunately, most brands are not set up to understand online and e-commerce and rely on third-party e-commerce sellers.

Dr. Stephen Needel

Bear Naked is a great example of a product ripe for differentiation, customization and a higher price. My concern would be, how many products are there that fit this mold? As a shopper, I’m not looking to go to 30 or 40 different websites to do my weekly shopping (or even my monthly shopping). Unique products may well be worth D2C — not so much for most of what we buy.

Gabriela Baiter

Every shopper has their routine. Outside of brand differentiation, these sites need to also offer a differentiated service or price point to build loyalty. Auto-ship features would remove the friction of their customers needing to continuously return to the site when they run low. Even if they choose to just buy once, the initial data capture alone will allow the brand to deliver a steady drum beat of content that builds brand equity over time.

Ben Ball

There’s certainly nothing to argue with in Chris Perry’s assertions — and his cautions. Anything short of a truly unique value proposition will never get noticed, nor will consumers make the effort to go past their traditional online shopping portal to get to you.

But this has always been true, even in the traditional channels. Who would drive past Walmart to get to the “corn flakes store”? The good news about digital is that it makes the kind of truly unique propositions required (such as customized granola offerings) that are often by definition smaller scale businesses financially viable. You can afford to have a custom granola site. I doubt you could afford to have a national chain of custom granola stores. That’s the beauty of e-commerce.

Dave Nixon

Both. Partner to start and then as your own e-commerce channels and engagement grows, begin to move towards your own platforms.

The issue CPGs have currently is that they do not have rich or deep data on the end-shopper because retailers usually have that connection. Partnering long term with other e-commerce providers makes sure CPGs still do not have that direct valuable shopper and consumer data they could leverage to drive more brand affinity and loyalty.

Art Suriano

No doubt there is an opportunity here for CPGs to build their brand through e-commerce. I see this as an opportunity for consumers to customize what they want. It would be ideal if the grocer could coordinate ordering and delivery with the CPG company. If the CPG company allows the customer to customize their order, such as modifying a breakfast cereal, I would recommend having the product delivered to the store for the customer to pick it up when they are shopping. This method will get the customer in-store and give the CPG company a win for having the customer buy through their site. When shopping online and having home delivery, the CPG company and grocer should coordinate that as well, so the groceries delivered include the particular CPG order made by the customer. In both cases, there are additional promotional opportunities offered by providing coupons on future orders. These two methods will help boost business for the CPG company and the grocer.

Max Goldberg

Direct-to-consumer selling offers opportunities and pitfalls for CPG brands. On one hand, DTC allows the company to keep all of the profits. On the other, the company needs to create sales and distribution capabilities. Mr. Perry uttered all of the must-have pablums, but I doubt Bear Naked will generate enough sales to turn around the slump in the ready-to-eat cereal business.

Joel Goldstein

Competition against your own brand is not a good strategy for CPG products, as they run the risk of upsetting their brick-and-mortar retailers. Creating a direct-to-consumer line that they can sell online under another brand is an easy way to avoid price matching issues online vs. in-store.

Neil Saunders

This is an interesting suggestion. However, the problem is that consumers are not going to visit 50 or so different sites to buy their provisions. Most want to do a one-stop shop, perhaps visiting a few additional sites for special items. As such, the volume of these dedicated sites will not be great – and that runs counter to the whole ethos of big CPG. As such, this idea is a partial solution at best.

Jon Polin
I agree that the time is now for CPG brands to go direct to consumer, and Kellogg’s is one of the innovative leaders in this space. For many years, retailers and CPGs had a symbiotic relationship, in which retailers provided shelf space and traffic (customers) and CPGs provided products. Now that retailers are disrupting this relationship by, among other things, aggressively promoting their own private label brands, why shouldn’t CPGs go direct to the consumer? Continuing what Mr. Perry presented at the Path to Purchase Summit, what CPGs can do in a DTC world is leverage all of their assets that a retailer may otherwise be hesitant to present. These include recipes, videos, other forms of content, new products, trial sizes and so much more. Once CPGs embrace a DTC environment, the creativity and brand assets can be unleashed. The limitations of a DTC approach include technology, inefficient traffic/customer acquisition and challenging fulfillment economics. This is where I believe that numerous brands within one company, or even complementary brands across manufacturers have exciting opportunities to… Read more »
Dave Bruno

While most CPG products are not as easily as differentiated as customizable granola, I think the idea applies to most CPG brands. I agree with Mr. Perry that CPG brands should look to deliver differentiated and unique experiences in their online channels. Achieving scale (of both revenue and customers) is less important, in my opinion, than is building and extending relationships that translate into greater affinity in the traditional channels that do offer scale.

Cathy Hotka

Chris Perry’s most important point is that brands need to be proactive. Now that consumers have multiple ways to interact with brands beyond the store shelf, it’s important for brands to talk with consumers on their own terms. Look at Coca-Cola, introducing numerous new flavors and form factors, keeping customers engaged.

Brandon Rael

The DTC model has its advantages, however, it’s a slippery slope for brands to have differentiated strategies online and within the retail stores they are partnering with.

From the customer’s perspective, they are engaging with one brand, their products and regardless what channel they choose to shop it. By offering competitive pricing, messaging, product assortments online via a DTC model, you run the risk of creating confusion and ultimately what every retailer and CPG brand is aiming to avoid — friction. The more parties and channels you choose to go to the consumer with, the more effort and time it will take to engage with the brand.

With a physical presence, retailers and their CPG partners benefit by stimulating higher organic online traffic, lowering new customer acquisition costs and elevating the overall brand awareness.

Adrian Weidmann

Since 2007, when the Internet went supernova, global CPG brands have been working their way to connecting directly with their consumers. The business relationship between retailers and CPG companies has been historically adversarial. Being able to cut out the middle man would be a dream come true for CPG brands worldwide. The GAFA superpowers are rapidly making that dream a reality. Retail is certainly not dead but it must become something else. Brick-and-mortar retail must provide an emotional bond that cannot be replicated during and with an online experience. Retailers must create an immersive experiential environment that gives it a reason to exist. If not, shoppers will simply choose the easiest and most convenient path to purchase.

Carlos Arambula

Consumers’ purchasing behavior has evolved. Shopping begins with consumers researching a category, or with a well-placed ad in a social media site. CPG brands can begin to differentiate from competition online and avoid being another no-name product being discounted at the grocer.

CPG companies cannot expect retailers to create a brand, and merchandising activities at the retail level are designed to push product through, not to develop brand loyalty.

Establishing a brand relationship with consumers begins outside the retailer location. Any introductory offer, any retail level discount, is stronger if it is done in conjunction with a well-crafted social and digital push to consumers before they arrive at the retailers.

Kenneth Leung

The key is to find that unique value proposition for the consumer to directly interact with the CPG company. Whether it is information, community or custom products/brand merchandise, if the CPG company doesn’t deliver the value in interaction or commerce, there is no reason for consumers to participate.

Joan Treistman

I think we’re talking about brands going direct-to-consumer, bypassing retailers.

I totally agree with Stephen Needel and Neil Saunders who assert that they’re not expecting consumers to go to 30 or more different websites for weekly or monthly shopping. And of course, there’s also the question about how consumers will find out about these direct to consumer brands. If these brands are to be profitable then they’ll have to rely on cost efficient marketing. And if that’s the case, then we have to think about what kind of revenue those brands expect to glean from that strategy as they wipe out their retailer relationships for all their other brands.

I’m not saying direct to consumer brands can’t be successful, but I am agreeing with others posting that the product selected by marketers for this approach has to fit perfectly for its appeal and the strategy has to be precise to attract enough consumers to make it all worthwhile. Uniqueness is a factor, but so is news worthiness as perceived by shoppers.

Patricia Vekich Waldron

The brand is the business — CPGs must own their brand and deliver their value proposition directly to consumers even though they have multiple sales channels.

Karen S. Herman

One significant advantage CPG brands have in investing in an online direct-to-consumer (DTC) campaign is to gain a deeper level of engagement with the shopper. By using social channels to reach desired target markets and build buzz, then offering a uniquely crafted campaign full of product education, engagement and personalization, the CPG brands can win over the online shopper and build a relationship that eventually drives them to participate in an equally unique offline brand experience. Online-to-offline is a good long-term goal and DTC is one way to achieve it.

Jeff Miller

Chris hits the nail on the head perfectly in outlining what established and newer CPGs need to consider. His “right reasons” are 100% “right.” The DTC opportunity online for CPGs is massive and selfishly we think that subscriptions and membership options that focus relationships instead of transactions will be the hallmark of successful brands of the future.

CPG main advantages are around creating a sense of belonging and community, product discovery and exclusivity, personalization, and telling an authentic narrative around the brand which no retailer and especially not Amazon or Walmart can really do. The large retailers are focused on transactions and in many case don’t care about which brand they sell. Whereas, a CPG can and should take the time to get to know and connect with their customers.

Seth Nagle

CPGs need to look at DTC as a marketing opportunity/investment with consumers rather than compete with grocers and their shoppers.

Consumers want a unique experience and CPGs can own, create and deliver those. Look for CPGs to offer limited releases, product testing, and other cool offerings retail grocers can’t and shouldn’t try to deliver to the consumer.

"What CPGs can do in a DTC world is leverage all of their assets that a retailer may otherwise be hesitant to present."
"CPG brands can begin to differentiate from competition online and avoid being another no-name product being discounted at the grocer."
"Online-to-offline is a good long-term goal and DTC is one way to achieve it."

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