February 04, 2022
Brands embracing the approach of Composable Commerce will be more able to execute digital commerce and differentiation strategies. In a few years, we predict they will put the competition behind them.
Covid-19 has accelerated the need for a more agile and flexible digital infrastructure, not least for the brands that have now been benevolently forced into the Direct to Consumer (DTC) territory. For example, many brands with Consumer-Packaged Goods (CPG) are rethinking and revolutionizing their contact with the consumer, and this places special demands on the digital commerce infrastructure to be reactive, flexible and agile.
Group SVP Technology, Casper Rasmussen was recently interviewed by Danish news publication, Berlingske Tidende, to discuss his key insights into the future of consumer commerce, and why it’s crucial for brands, CPG in particular, to enable Composable Commerce. You can find the full article here.
What do you see happening in CPG space?
Casper Rasmussen: So far, consumers have bought consumables, like Heinz, Tide, and Snickers through the physical and digital retail channels that consumers use daily. CPGs have no direct and strong relationship with their consumers. There is always a third party between themselves and the consumer they would like to create bonds with. But especially during Covid-19, many CPGs have initiated and accelerated new DTC strategies so that they interact and act directly with the consumer without compromising on differentiation, branding or consumer insights, which are often hampered by traditional intermediaries and channels.
How does Composable Commerce play into this?
Think of Composable Commerce as like a collection of Lego bricks; each brick represents a digital ability that is core to its digital business, which the company can put together and re-configure in different ways. The company can thus select the bricks they want to use to build exactly the type of digital solution needed for a particular channel and purpose.
CPGs have so far been weak within DTC, but now Composable Commerce allows them to execute on all consumer behavioural changes and interact with them in new ways that create value for both parties. CPG's business is becoming much more consumer-centric and digital-native than it is today.
In executing DTC strategies and their pursuit of good and meaningful consumer interaction, CPGs are recognizing the need for rapid readiness for change to keep up with shifts in consumer behaviour and preferences. Here we are not talking quarterly or annually, we are talking daily and constantly with the new generations, the numerous media, and more digital-native competition. With CC, you can hit the market faster and be much more relevant, flexible and reactive in the way you do business digitally.
Will CPGs be limited in what marketing strategies they can employ under a CC approach?
With CC, companies can orchestrate a range of different digital strategies simultaneously, some in their own channels, others through third parties like with partnerships, marketplaces etc. All these digitally enabled touchpoints are 100% integrated and orchestrated because of the enablement by a digital core, which the company protects, matures and strengthens in line with its other assets, such as logistics, employee competencies, patents and more. Alternative strategies, which create compromises to cohesion, flexibility and agility, are the typical approaches involving individual technology stack paired against the individual channels.
Differentiation is crucial today, how will CC help CPGs with differentiation?
Differentiation in customer experience is an important part of the DTC strategy, and is particularly suitable for CPGs, because the competition is fierce and the opportunities for product differentiation are very small in the respective product categories on the shelves in the supermarket.
There must be a brand differentiation before consumers will prefer buying a particular product. Therefore, differentiation strategies in relation to loyalty, convenience and/or digital customer experiences are necessary. Arla’s launch of Karoline’s Kitchen, back in the 1970s, was a differentiation strategy that had nothing to do with physical product qualities. That was an incredibly wise move at the time! When a respected recipe calls for cream from Arla, we tend to choose that cream, even though we could pick any other variant. This is how we work as human beings.
Additionally, the use of data plays an important role in the successful execution of the DTC strategy. With a complete orchestration of data, companies can derive insights into the relationship between themselves and the consumer and ultimately strengthen both the product and the relationship with consumers.
CPGs do not necessarily execute DTC strategies solely to generate more revenue. They do it just as much to gain a greater understanding of their customers and of the market and of how they can thereby make their product offerings better. Insights are important for understanding the patterns that are in the market and ultimately the role the product plays in the life of the consumer. The anchoring of digital capabilities in the core business, with Composable Commerce, minimizes the noise and data conflicts that often arise across multiple channel-specific solutions. CPGs with the right digital strategy can thus ensure crystal clear insights into consumer behaviour and preferences, which will ultimately strengthen both the direct relationship, but also product differentiation and optimization in the more traditional channels.
Projections for the Future
As closely connected to the shifts we see happening in brands around the world as Casper is, he’s often someone we go to for understanding the trends and predictions for the future, we wanted to capture his thoughts on the future of CPGs and Composable Commerce.
One of the core qualities of Composable Commerce is a company's ability to combine different digital capabilities and create targeted solutions as needed, solving the technical challenge required by the new trends, behaviours or business opportunities—both easily and quickly. Thus, the attention on Composable Commerce is steadily increasing, and as a CPG you should not sit on your hands for too long.
We expect that 80% of companies will outcompete their competitors in 2023 by having such a flexible and agile way of activating channels and touchpoints. Consumer behaviour will change faster and faster, we will see more players in the market, and we will see a greater need for companies to adapt quickly to the behaviours that arise to become relevant. It is a large, unmanageable tangle of many different interactions, which only becomes more complex over time. However, if you have a solution that is agile and flexible enough to execute your DTC and differentiation strategies, you can overtake the market. Companies that have not invested in the right infrastructure will find it difficult to adapt and do so quickly enough.
For a strong partner to help you make the needed transition into a Composable Commerce structure, contact Valtech and let our experts help you with a free consultation.