Photo source: Amazon
How disruptive is Alexa to CPG brands?
Through a special arrangement, what follows is an excerpt of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.
“Alexa, order a 12-pack of toilet paper, a case of bottled water and a bag of tortilla chips.”
Welcome to the new moment of truth.
If you’re the brand manager of a CPG product, this existential threat should shake you to your brand-loving, MBA-trained core. The in-store marketing model that has ruled the consumer products industry for more than a century is being replaced by a talking cylinder.
Artificial intelligence and the generation of smartphone shopping assistants, from Siri to chatbots, are upending the traditional path to purchase, but they are all brand agnostic. Those ephemeral intangibles long considered the essence of a brand don’t matter. Price and delivery time are more likely to drive preference and selection in this new AI-driven store.
Beefing up slotting fees won’t make this threat go away. There are no endcaps here. No packaging. No in-store signage. No fancy floor graphics to put your beloved brand top of mind before a dozen other competing SKUs. There is only the abyss of the talking algorithm sheathed in the metal grid of a hidden speaker.
Can a brand mean anything to an algorithm? Harder still, if there is no longer an actual physical place where a brand might exist and come to life to consumers, how do brands connect with shoppers?
A similar crisis confronted brands more than a decade ago. Lifestyle brands like Nike and Coach became retailers themselves rather than leave their fate to retailers alone. They went direct to the consumer. Of course, a toilet paper store or a soda pop store is an absurd notion, but adopting the mentality of a retailer is not.
The moment of truth will increasingly happen outside the walls of a traditional retail store. And the one thing brands have done everything possible to avoid is now a necessity. There is no other choice: Brands must find a way to go direct to the consumer, either through their own portals or through radically improved formats operated by their existing retail partners.
This is a new moment of truth for brands, too.
Discussion Questions
DISCUSSION QUESTIONS: How should CPG brands adjust now that the “moment of truth” often occurs outside traditional retail stores? What new strategies can brands devise with their retail partners and on their own?
Poll
BrainTrust
Ryan Mathews
Founder, CEO, Black Monk Consulting
Alex Senn
Founder and CEO at Orkiv.com
An in-home or in-room voice interface is a platform. Alexa now has more than 1,500 “skills” which serve as apps used with Alexa for brand-specific experiences. As a platform it is much like a retail shelf for e-commerce, so brands will compete for position and consumer awareness. The rules of supply and partnership, along with the preferred positioning that we have come to see in online search engines, very much apply to Alexa. This interface demands greater CPG brand pro-action.
Brands need to be everywhere, both in terms of message and availability. If they are successful in communicating their message, consumers will seek them out. Brands can help their sales by partnering with retailers, as they have been doing, and by being available in non-traditional places, which may include direct sales. The one thing brands can’t do is remain static.
I’ve been writing about this very topic and touched on the dangers of retailers cozying up to Alexa in this article. Ultimately, CPG’s have it far worse than retailers and will lose the consumer clout and trust they’ve spent decades acquiring.
While I agree with Lee that direct-to-consumer is a big part of the CPG future I disagree about chatbots and assistants being brand agnostic. Let Alexa do your shopping and she will pick house brands every time. That’s not being agnostic. That’s a very calculated and profitable determination.
While it’s true that purchasing is shifting to outside of traditional stores, it’s not true that the value of brands is necessarily diminished. In fact, the opportunity is now for brands to leverage intelligence and data to influence purchase decisions at the exact moment of truth. Imagine a consumer telling a voice assistant, “buy me a 12-pack of toilet paper.” Toilet paper manufacturers now know that a consumer is ready to purchase within their category and is ripe to be influenced as to which brand to buy. This is an amazing opportunity for smart and progressive CPGs. In fact, the model and players most at risk here are the outdated sprayers-and-prayers who distribute a coupon or FSI and hope that a consumer uses it.
CPG brands must realize that consumers are increasingly creating their own “stores” which are defined by the platforms they choose to interfaces with. Amazon’s endgame is to surround the consumer with interface points and CPG companies need to understand that they only have two choices — lose sales or learn to play by a whole new set of rules. This requires forgetting about how to adopt traditional marketing plans to new tools and developing a new plan, hiring digital-savvy employees who live the same way the customer lives and not chasing every new technology as though it will be the last one ever created. As for strategies, this is a hardware/software play and all strategies need to start with that understanding.
Solid insights Ryan, as usual! The future retailing models will be impacted by the increasing reality of consumers creating their own “stores.”
If a CPG brand isn’t considering an Alexa skill or being a part of the Dash buttons we saw rolled out prior to this, they are dying slowly and painfully. The idea that a CPG brand can survive in the long term without fully investing in getting to the top of the ordering list on Alexa, chatbots, Google shopping and more is absurd.
I think more and more Amazon may start a pay-to-play effort to determine who Alexa gives the sale to. Right now it is a pure price/time-conscience method of delivery but soon there will be other methods such as bidding to get the default order of an Alexa unit. Along these lines, you may have more and more AI which determines your default preferences and suggestions. You could see down the road Amazon introducing preferences within a consumer account. Their preferred defaults for things like toilet paper, razors, paper towels, etc. This again may cause a bidding war for what becomes suggested at the top of the A.I. algorithm controlling it.
Time to step up and get straight to consumers through whatever means possible.
I wonder how long it will be until another phase of technology exists for advertising and promoting a product. Something tells me we’re not too far away from a day when I ask Alexa to order me a 12-pack of toilet paper, a case of bottled water and a bag of tortilla chips and she replies back: “Surely but before I do, would you be interested in trying the ‘ABC’ brand for tortilla chips? You can receive 20 percent off your purchase and based on your likes; I think this could be an excellent choice for you.”
It seems almost natural that eventually this is how we’re going to market. Then there will be a setting to turn the ads off or limit them, etc. It’s just the natural evolution. However, in the meantime, CPG brands need to explore all options of how they can reach consumers directly, better promotions with their retail partners and when applicable free sample opportunities for attracting new customers.
Well stated Art! The potential “advertising” in this conversational UI is untapped and much greater than we are prepared for today.
The whole concept of a “store” as currently envisaged, and how CPG brands interact with it, is under assault from several different directions and Alexa is just one of several disrupters. The growth of online selling; the emergence of a huge, powerful and effective online retailer; increasing consumer disinterest in shopping large stores; the development of new consumer behaviors and demands; and the fact that stores have not changed all that much over the past couple of decades are just some of the massive influences on brick-and-mortar retailing along with the likes of Alexa.
On top of that, Amazon is in the process of acquiring a large brick-and-mortar retailer and we don’t really know where that is going to lead in the shape of the format of retailing, both traditional and digital. CPG brand strategies are going to have to encompass new types of retail outlets, many hybrid, and determine how to effectively get a brand message to a new type of consumer.
Get used to this. The retail industry is being shaken up. The retailer must find a new way to compete with Alexa, Siri and any other interactive platform that will carry out simple commands, such as ordering toilet paper. By the way, simple commands will become more complex as these platforms get smarter and smarter. What will eventually happen is that these platforms will allow you to order what you want from where you want. So Siri may allow you to order from your local store, as long as the local store is set up to deliver at the same level as Amazon.
Conversational commerce is shaking up traditional retail and it creates countless opportunities for brands. Many are open ecosystems (at the moment) and creating brand experiences bring participating CPGs closer to the consumer in a way never before seen. It does need to be treated as a new and distinct channel, not simply an extension of a brand’s existing mobile or digital strategy.
Similar to paid search benefits on search engines (like Google, where your brand shows up at the top of the search results page) these home personal assistant speakers can also leverage trade spend.
The fact is everything about consumers’ path to purchase is undergoing radical changes these days. It’s not just evolutionary, in many cases it’s revolutionary, and voice-based AIs like Alexa are a great example. CPG brands and retailers alike need to adapt and be willing to experiment with new ways of interacting with consumers. The risk for all brands is that these AI platforms will be controlled by players like Amazon, Apple, Google or maybe Microsoft. They will get to set the rules of engagement and brands will need to learn how to cozy up to these platform owners to get their products placed.
The opportunity, however, is huge and I agree with Art Suriano that it’s only a matter of time before Alexa offers you special deals by category for “sponsored” brands when you ask to place an order. CPG brands need to explore ways to leverage Alexa skills and to work with Amazon for those placements. And then they’ll have to do the same with Apple and Google.
CPG brands have and will continue to adapt to technological and cultural changes. The algorithms and databases behind Alexa and others can be prioritized for a price. Whether you buy Charmin or Cottonelle will most likely be guided by someone’s marketing budget. Slotting fees, MDF, end cap premiums will morph into priority selection based who pays the most. Another tactic will be availability and inventory selection — we seem to always be back to inventory and supply chain.
Hang out in a grocery store and you’ll never hear a parent say “Little Bobby, just grab any one from that huge row of toilet paper packages.” So I’m mystified by why there’s so much Sturm und Drang about Alexa and brands.
I suppose Alexa could set up a “what does Doug like when he orders toilet paper?” setting — but then brands are back to being ok.
All this to say: I’m confused. Is this just another shiny bauble used to keep marketers awake at night and distract retailers from doing their real jobs?
The challenge for CPG brands is that the rate of change in consumer purchase behavior is changing much faster than the decision-making processes inside most of the established companies. The way CPG brands have historically communicated with consumers, whether via traditional advertising campaigns or in stores at their retail partners, need to shift with the changing realities. While the moment of truth for a consumer purchase remains primarily in a physical store, it is quickly changing to the digital realm. Voice, or conversational user interface, is increasingly removing purchase friction while adding new definition of convenience that is wrapped in a digitally native supply chain.
The communication and engagement between CPG brand and consumer needs to take the changing consumer behavior. Realizing that limitless interaction points exist before and after the proverbial “moment of truth” for the consumer across all channels and devices and many of these touch points are out of a brand’s or a retailer’s control. So, just as Alexa and other voice UX platforms are becoming the digital equivalents of the last physical mile in logistics, CPG brands need to approach the new platforms as another influence opportunity in their broad engagement with consumers.
A long time objective of CPG at retail has been to “get on the list” to “get in the basket.” Making list making more efficient — or even automating the majority of the list — is certainly a threat as much of marketing is focused on connecting into the shopper decision making process. This will certainly be something worth watching closely.
If CPG companies had not realized that consumer choice can happen outside the store by now, they are probably too far behind to recover. CPG brands need to be connecting with their consumers using every technology in new and different ways. They need to be experimenting with new ways for their consumers to make purchases. If they have just realized that consumer purchase and search outside the store is happening, it is too late for them to catch up.