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FMCG – the next sector to fall to digital business disruption?

Posted by March 25, 2013
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The digital business revolution has caused massive disruption for many sectors: music, media retail, consumer electronics/ communications and recently even payment and financial services. But strangely the world’s FMCG (fast-moving consumer goods, like shampoo) giants, like Unilever, P&G and Nestle, have remained relatively unaffected by these seismic shifts. But is that about to change?

DOLLAR SHAVE CLUB is a service business that should send shivers down the spine of the executives at P&G’s Gillette – as well as a heap of other FMCG brands. Their proposition is simple: you pay as little as a dollar a month to have razor blades delivered to your door. It sounds like a simple, small-scale online business, so why should it scare the big players?

1. You don’t need to own your supply chain: It’s become simpler than ever to find third party vendors in emerging markets, who’ll manufacture products like razors at the right price, quality and in limited quantity. It’s also become easier to use outsourced logistics to move and store your product around the globe.

2. You don’t need massive distribution: Part of the reason for big FMCGs’ hegemony is their ability to negotiate a huge presence in the supermarkets we all use for our weekly shop. With the increasing use of online shopping, Dollar Shave deliberately chose to sell only online avoiding the need for such large-scale relationships.

3. You don’t need to spend millions on communications: Much of the cost of FMCG products is incurred by their branding and marketing activities. Dollar Shave avoids this by leveraging the power of social media to create an engaging brand presence and one of the most shared viral ads this year.

4. Technically generic products are often good enough: In the continuing arms race between the big FMCGs, the quest to create technically superior products is unceasing. But Dollar Shave recognises that after years of development, standard razor blades are good enough and that many recent innovations are superfluous.

5. Selling direct strips out huge amounts of cost: All of the above means that you can take a product direct to consumers for a much lower price point than with the traditional FMCG retail distribution model. So Dollar Shave can sell a product that is as good, or certainly good enough, at a disruptively low price point.

6. Going direct creates an ongoing service relationship with customers: An issue for FMCGs is that in supermarkets and chemists, their products have to compete with own-brands. The beauty of the Dollar Shave model is that it allows the brand to have a direct, ongoing relationship with its customers, giving an opportunity to sell other shaving and grooming-related products in future.

So let’s see what happens in the months and years to come, I’m betting that there won’t be sea change overnight, but the opportunity to disrupt the FMCG giants is certainly there and will be capitalised on.

For me, the businesses that succeed in doing this will be those who aren’t afraid to break free from the idea of pushing product through retail and create direct relationships with consumers via digital services and social media.

Where do you think the future of FMCG lies? Do you think digital can help topple the giants?

Phil Goad, Insight & Service Design Lead at Nile has over 10 years’ experience consulting on insight, brand and service design challenges. He has a BSc in Cognitive Psychology & Neuroscience and applies this to understanding consumer needs and behaviour.

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