Written by: Chitra Agarwal
17/07/2018
5 minutes read
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For entrepreneurs looking to capitalise on India’s new found digital dividend, fast moving consumer goods (FMCG) is a truly attractive sector. The rise of e-commerce platforms, as well as social media marketing, has made it possible for new brands to make their case to the Indian consumer, without having to navigate the barriers of brick & mortar sales channels dominated by large conglomerates. Research by the Boston Consulting Group(BCG) and Google, estimates that digitally influenced FMCG purchases could touch INR 45 bn by 2020[1]. Interestingly, ~60% of the digital opportunity is from the top 10% of households, indicating a higher potential for premium offerings.
Incumbents in India are yet to fully capitalise on this opportunity- still treating digital as a way to supplement other channels or in some cases to drive loyalty (e.g. Tide Wash Club, ‘Subscribe & Save’ options on Amazon). Few brands have also used digital mediums to launch premium or differentiated versions of regular products (e.g. Teaveda from Tata Tea). On the other hand, the success of global "online first" brands like the Dollar Shave Club (now owned by Unilever), The Honest Company, Soylent etc. have led to several local clones. Today we have new brands mushrooming each month in categories as diverse as natural baby products, male grooming, organic milk, feminine hygiene, ayurvedic drinks and even idli batter.
Based on experiences from these early entrants, as well as case studies from other markets, here are the 5 most important tips for entrepreneurs looking to make a mark in this space:
#1 Build a winning product: As a new venture with limited resources, the focus is key to designing your product. Global winners have shown that the impact of one great product is better than a wide portfolio (e.g. Casper's mattresses). Also, research shows that digitally influenced consumers are more likely to purchase products, which offer a solution to a problem (e.g. hair fall) than search for a generic category (e.g. shampoo). Under-penetrated categories such as baby food, health supplements have found better traction online as compared to well-penetrated ones such as laundry detergent or toothpaste.
#2 “Tech” only what you need: While creating proprietary tech assets could win favor with investors, smartly using third- party e-commerce platforms for payments, distribution, as well as customer service, could make more sense in the consumer goods space. Depending on factors such as frequency of purchase, pricing changes, and customer profile, you could choose to a) create your own app like Licious for meats, b) market via hyperlocal platforms like Grofers/MilkBasket for new brands of gourmet foods, or c) leverage niche category sites like Nykaa for cosmetics. Larger platforms like Amazon could provide access to larger customer base and logistical support, so becoming a seller on these is now a hygiene decision. However, there is a danger of being lost in the clutter so these cannot be your only digital sales channel.
#3 Enter the consideration set: Loyalty is at an all- time low for consumer goods products. In certain categories like snacks and cosmetics, less than 5% of consumers choose to repeat purchases without considering other options[2]. Research from McKinsey & Co on the consumer decision journey has shown that being in the initial consideration set of your target consumers is the most important predictor of growth. For a new brand, this could entail “going viral” with your launch as well as focused messaging through brand news that stays current. The role of influencer marketing has grown significantly with millions of consumers basing their purchase decisions on YouTube stars who give out recipes or styling tips.
#4 Generate maximum return for your digital marketing spend: Given the plentitude of digital media agencies, entrepreneurs tend to outsource the management of their entire social media portfolio. CMOs should find a competent agency which is ready to link a part of their fee to success metrics and lay down very specific before handing over the execution and daily management of the digital strategy. Video as a medium (especially ads on streaming providers) and local language content are the key trends in digital marketing content to watch out for.
#5 Avoid death by numbers: Online customers and digital marketing translate to tons of data which often result in complicated KPIs/ dashboards. However, nimble entrepreneurs would be better off driving their sales team with 2-3 priority metrics that are reliable indicators of customer growth and closely linked to business goals. For example, a brand which is counting on word of mouth publicity could track “new customer addition through referrals”, while one whose profitability is linked to subscriptions would track the “% of customers opting for regular subscription.”
[1] Source: Decoding Digital Impact, A $45 bn opportunity in FMCG, BCG/Google, Sep 2017
[2] Source: The new battleground for marketing-led growth, by David Court, Dave Elzinga, Bo Finneman, and Jesko Perrey, McKinsey Quarterly, Feb 2017
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