The Supply Side: Kellogg’s, S.C. Johnson appealing direct to consumers

The days of consumer product goods (CPG) companies relying on retailers like Wal-Mart for co-marketing help are fading. The retail giant reportedly has all but abandoned co-marketing trade promotions program it has used for the past few years.

CPG companies have responded by working to build direct and personal contact with consumers via membership loyalty programs, e-mails and newsletters that tout their product, provide consumer tips and product expertise on a regular basis.

Cereal king Kellogg’s continues to try and redefine itself and come out from under declining market share. Its iconic brands Frosted Flakes and Frosted Mini Wheats saw sales erode last year by 4.5% and 5%, respectively. While the company still spends a hefty $1 billion annually on advertising it’s also now more focused on connecting with families in a direct manner through a loyalty rewards program and coupon offers on its wide variety of products from cookies to Special K protein bars.

Like traditional loyalty programs, consumers earn bonus points from purchasing Kellogg products which can used to purchase items in the online store which include everything from branded items to retail gift card and donations made to charities and schools.

PRODUCT INSIGHT
S.C. Johnson launched its Right@Home site last year that provides consumers with direct dialogue about cleaning solutions and other other topics relating to the home. The CPG site sends regular emails to subscribers that feature S.C. Johnson products being used in certain household applications. The topic areas routinely discussed on the site include cleaning and organization, food and cooking, home design and family time.

The site also has a tool that allow consumers to create a shopping list for S.C.Johnson products. Right@Home also allows S.C. Johnson to provided targeted coupon offers to those consumers who are most likely to buy the product. The company also sends email alerts when certain products are on sale or being specially promoted at Wal-Mart and Target. S.C. Johnson sends an average of six emails per month to subscribers to its Right@Home subscriber base.

SUBSCRIPTION SALES
Neither Kellogg nor S.C. Johnson are offering consumers a direct purchase opportunity from their sites at this time, unlike Procter & Gamble who continues to grow its subscription direct to consumer service through its e-store which was launched five years ago. When P&G launched its e-store in March 2010, it was seen as bold move on the part of a supplier to cross into the retail space.

The Financial Times reported in 2010 that the e-store site was part of the company’s drive to increase its total online sales which at that time accounted for less than 1% of its $79 billion in revenue. P&G’s e-store business has grown to the point late last year that the CPG announced an $89 million distribution center of its own in Dayton, Ohio.

With Amazon.com and other pure online retailers offering discounted subscription and automatic shipment of staples like Tide laundry detergent to diapers, CPGs are seeing reduced margins from their iconic retail brands. One way CPGs can help bridge some of that loss is to offer direct-to-consumer, which takes time and substantial investment, according to Annibal Sodero, supply chain expert at the University of Arkansas.

“Win wherever people shop,” that's what Alex Tosolini, P&G's senior VP of global eBusiness, told eMarketer recently. "Our job is not to change consumer behavior. Our job is to follow consumers' behavior and be present with our brands."

ANALYST INSIGHT
Carol Spieckerman, CEO of newmarketbuilders, said there are several dynamics  converging that make it quite attractive for brand marketers to dial up their direct-to-consumer outreach.

“Although many retailers have played a great game of catch-up in the digital space, brand marketers can’t afford to cede all of their content marketing and consumer outreach to retailers. Retailers may still own the shelf but the dizzying number of digital outlets available to brand marketers is quite another proposition,” Spieckerman told The City Wire.

Dr. Stephen Needel, managing partner at Advanced Simulations, recently noted on RetailWire that the last forecast seen (from Steve Bishop) is that online for CPG might represent 11% to 17% in the year 2025. With that, he said CPGs still need retailers.

Spieckerman said the opportunity for CPGs to forge direct relationships with consumers, and to collect valuable data on their habits in the process, is too compelling to pass up. She said retailers have become more tolerant of suppliers’ direct-to-consumer efforts because it amps up brand equity and increases brand awareness which benefits retailers.