Welcome to Retail 5.0—the latest generation of retail, and the next era of the sector’s evolution, characterized by marketplaces mastering personalization at scale, big data being effectively leveraged, and category domination by fast-paced, agile brand manufacturers, asserts new research from digital commerce data, insight and advisory firm Edge by Ascential.
According to the firm’s new report, How to Win in Retail 5.0, growth for consumer packaged goods (CPG) brands will be driven by online shoppers on a small number of giant online marketplaces as we enter the next phase of worldwide retail.
Two challenges for brands
By 2025, analysts forecast that online sales will account for 40 percent of total CPG sales. The dominance of digital marketplaces will mean further digitization and compression of retail channels, creating opportunities for CPGs to win big. The report identifies two priority challenges that CPG brands need to overcome to ensure long term survival: winning at capturing the marketplace shopper and winning at product innovation and delivery.
Three steps for brand growth
According to the report, CPGs will not win the race to win over consumers with mass personalization, when faced with the huge spending power, motivation and the network effects of marketplaces such as Amazon and Alibaba. CPGs should focus now on which marketplaces are worth operating in and how to deploy winning strategies on those retailers. Edge by Ascential advises a three-step approach to a marketplace-centric growth strategy:
- Focus on leading global marketplaces and prioritize them: No two platforms, or the markets in which they operate, are alike. CPGs should develop a marketplace prioritization framework based on factors such as priority markets, consumer and brand fit.
- Learn the marketplaces’ ecosystems and how to win on each: For example, on Amazon, CPGs should gain a deep understanding of what it takes to be on Amazon Prime and how to convert their shoppers to “subscribe and save” purchasing, locking them into a far stickier and more profitable relationship.
- Optimize marketing to capture marketplace consumers: CPGs should shift spend away from more traditional paid search and social marketing and allocate it to on-platform marketplace marketing with creative, targeted marketing messages around product benefits and value.
The report also highlights the need for CPGs to review their distribution models, ensuring at least 30 percent of stock is immediately available for rapid global distribution. Much like commodity traders, who trade inventory based on demand and supply dynamics to maximize profitability, the best CPG firms will allocate inventory to different marketplaces on a daily basis to optimize its yield and must also always meet surges in consumer demand on marketplaces globally, with no out of stocks. Sales events will continue to be a primary source of massive inventory demand surges globally, such as Alibaba’s Singles Day or Amazon Prime Day.
“The message is clear: if you can’t beat ’em, join ’em,” said Deren Baker, CEO of Edge by Ascential, in a news release. “As the world becomes a smaller place and the technology gap between the big ecommerce marketplaces and everyone else grows ever wider, we recommend that CPG brands avoid following the crowd on mass personalization and instead focus on implementing an effective marketplace strategy.”