The 7 disruptive forces in the consumer products industry
By: Sinan Gul
Tags: Disruption, Transformation, Consumerism, Business, Organizational Change

The 7 disruptive forces in the consumer products industry

We are in the midst of a seismic revolution. One of which the impact might even be bigger than the industrial revolution as the current revolution is empowering billions and billions of people. What are the biggest manifestations of this revolution in the Consumer Products industry? Where can we see the biggest shifts and what does this mean for the industry? As per below I am calling out the most critical manifestations.

The consumer product industry has had one dominant distribution channel over the last 200 years, if not the last 2000 years: Retail. The trusted brick and mortar stores have supplied the consumers, especially during the last 60 years with all the main products in demand. However with internet, e-commerce platforms started to emerge and gain market share since the mid-90’s. Technology has changed the landscape forever and is rapidly developing almost daily. Where it initially started of with linear B2C eCommerce platforms like Amazon and Alibaba. It rapidly added C2C platforms like eBay, Etsy and others. As the crowd is more connected in more ways than ever before and new online communities are being born everywhere, distribution channels (and the undiscovered opportunities they offer) are emerging in more ways than we can ever imagine. One thing is sure brick and mortar will never have the dominant position again as it once did.

We all know the typical picture of the 80’s and the 90’s, where after dinner the whole family would gather around the television and would watch whatever the cable company would provide us. This made it relatively easy to reach the mass population. How that is changed nowadays… The only reason why we now watch TV at our home is to use it as big screen for our iPad, if we want to share something with the rest of the family. What the cable is offering is no longer consumed at our house. The TV is no longer the only device, tablets, smartphones and even smartwatches are currently used to interact with the bigger connected world. With the help of Netflix and others we watch what we want, when we want and how we want. Our kids are vivid consumers of YouTube to follow their small local celebrity. A crazy piece of short video can go viral and reach and influence many more than a traditional add from any corporate. That is today’s reality. Communication with the masses is now open for everybody.

Market entry barriers such as high investment cost in mass communication, limited distribution channels and difficult access to knowledge and financial resources have disappeared. This has opened the way for millions of small and very agile startups to attack the status quo. Where before the digital and crowd revolution there were only a limited number of competitors, currently the competition is endless and tenacious. If we do not provide the consumer what she wants, the consumer can turn in a finger click into a producer. A blogger with a loyal fan base can create a new brand any moment of the day and outrun a much larger corporate. In the post revolution era the competition will be fierce and voracious.

Product innovations with line extensions have played a critical role in the last 60 years in the consumer product industry. Where we once found product/market fit through a new piece of technology, we would add new sub brands and other SKU’s through line extension to ensure that there was always some excitement around a brand. As the competitive landscape has changed very dramatically and millions of startups have entered the marketplace, traditional “New Product Development” with incremental innovation as described by professor Clayton Christensen in “Innovator’s Dilemma”, is no longer enough. The marketplace is showing what we call “multi dimensional innovation”. New business models, such as subscription based and products as a service are rising. New ways in how we engage with the consumer, where we see both online and offline combinations, are emerging. Technology only innovation is no longer sufficient. We need to excite and surprise the consumer in multiple ways, not only in what we offer, but also in how we offer it, when we offer it, with whom we offer it and why we offer it.

Rightfully so, it is called the most important asset of any organization: Human Capital. Although this remains still very important, also in the post digital and crowd revolution era, the composition of it is changing fundamentally. Our workforce is becoming more and more hybrid and agile. No one size fits all, with only permanent employment. More and more relation types are evolving between an organization and the workforce: permanent employment, contractors, freelancers, crowd sourcing, outsourcing, consulting, robotics, AI and many more. Also here it is about having access to knowledge and capabilities and not necessarily having it embed fully in the internal organization. Companies who have embraced the augmented workforce have access to more and higher capabilities, are able to build more satisfying relationships with generation Y and Z (who value flexibility and meaningfulness), can adopt to external changes more easily and have a more flexible cost base. Therefore the post revolution company has a much smaller core of permanent employees who can access an abundant pool of talent a capabilities in various forms.

In the times that we had limited communication channels and limited distribution channels, the only way to realize an attractive return on investment on a newly developed product for the CP industry, was to focus on the large mass: the mainstream majority. To develop a beauty care product for a person with ginger hair was not very profitable as only 2% of the population have ginger colored hair. Using the existing mass communication channels would be too expensive. And how would you do the distribution? No retail store would allocate expensive shelf space to a product which serves only 2% of the population. How different is that Today. The Digital and Crowd Revolution has empowered billions and billions of people in all of their diverse appearances. Now we have uncountable number of communication channels focusing on people with ginger colored hair, blogs, websites, Facebook, Instagram and many, many more. Also we now have the online distribution channels, which are just one click away and on top of that the “shelve space” of the etailers is much more accessible than their brick and mortar predecessors. All of this leads to an unprecedented fragmentation. Mass production for the mainstream majority is no longer sufficient. People want to have specific products and services for their specific needs and problems, which turns the marketplace into an ocean of endless niches. The CP industry will have to embrace this reality and adapt how we build our products and services. Bye, bye to traditional NPD cycles…

Building knowledge through in-house R&D activities has been the usual way to build competitive advantage for any established company. Develop new technology, make sure it is unique and if possible get a patent on it to protect it for the coming years. Ask yourself: Will the next Nobel prize winner in your domain, come from inside your organization or outside it? If you understand a bit how to do probability calculations, you will know that knowledge and disruption will almost always come from the outside. Billions and billions of people are getting more and more connected, and they are not only sharing selfies… Knowledge is getting more and more accessible. No longer is knowledge a competitive advantage, but your connectivity with the relevant ecosystem is. You do not need to own the knowledge you need to have access to it. This started of with the bits and bytes, where platforms like GitHub openly share source codes so that the crowd can learn and improve it. This trend is now moving into other domains. You have a questions or want to get access to a certain knowledge domain? Post a question on social media and allow the crowd to help you out. Reddit, twitter, Facebook. This is not only to share your daily small joys and obstacles, but also a starting point for your deeper knowledge acquisition. You need a specialist in a certain domain, use the many crowd sourcing platforms: ponoko.com for product design and manufacturing, you want to build a new brand identity ask the crowd via chardix.com The power of so called “collective intelligence” is enormous and is here to stay.

In Conclusion

The core capabilities which have brought success to the consumer products industry the last 60 years are becoming redundant. Organizations who are not able to evolve their “legacy DNA” and adjust their core capabilities to the new reality will become irrelevant and will be replaced by new companies who are born in the post “Digital and Crowd Revolution” era. Exciting times ahead, with endless opportunities and challenges for the industry!