IDC InfoBrief, sponsored by Publicis Sapient

March 2023 | Region Focus: Worldwide

Breaking Barriers to Becoming Digital First

Consumer brands must leverage technology across operations to identify opportunities, deliver premier customer experiences, and drive revenue.

Authors:

Leslie Hand, Group Vice President, IDC Retail and Financial Insights, IDC
Dorothy Creamer, Senior Research Manager, IDC Retail Insights, IDC

Executive Summary
B2B and D2C Brands Prioritize Digitalization to Drive Business
Digitalization of CPGs Delivers Against KPIs with Faster Time to Market and Cost Savings
Critical Success Factors in Becoming Digital First
Customization and Contextualization Matter
Visibility Through the Product Life Cycle Enables Faster and More Profitable Product Development
Modernizing the Supply Chain Will Result in Responsive and Predictive Production, Fulfillment and Replenishment
Agility for B2B2C Will Require Integration to Connect and Digitize Cross-Channel Touchpoints
AI-Powered CPG Brands Prioritize Service and Support
Automation Serves as the Foundation for Future-Ready Operations
Sector Priorities Within Consumer Products
CPG Sector Business Priorities to Consider
B2B Priorities Summary
Essential Guidance
About the Analysts
Message from the Sponsor

Executive Summary

Becoming Digital First

Consumer goods (CPG) brands are increasingly seeing benefits from being digital first, but the competitive bar has been raised. To be digital first, companies must use technologies to address internal processes, customer experience, products and services, and partnerships.

47% of consumer brands feel they are digital first to a large degree, have a digital-first strategy, and have deployed digital technologies at scale across the organization.
53% of CPG brands are somewhat less confident; while they have a digital strategy, they are in the process of transforming the business to become more digital.

“As consumer demand and preference continue to drive change at pace and the model for retailer partnership shifts, it is critical for Consumer Goods firms to prioritize becoming digital-first organizations. This means cementing digitization across all functions with a customer-journey focused operating model, developing the foundations to garner insights at pace to enable personalization and product innovation through direct-to-consumer models and utilizing AI and automation tools to provide experience-focused relationships with customers.”
— Elizabeth Papasakelariou, Publicis Sapient, Consumer Products Lead

The Need for Personalization and Customer Data Management Drives Data Democratization Across All Areas of Business

70% of CPG brands say that using technology to utilize contextualized data as it relates to financial operations and operational activities such as labor management, manufacturing, supply chain, logistics, and asset management is critical to success.
49% of CPG brands are most concerned with the ability to customize products as part of enterprise strategy to ultimately improve customer experience across the board.

Digitization Will Enable Brands to Respond to New Product Needs and Demands, and Weather Supply Chain Issues

Becoming digital first will require the integration of systems and access to real-time data across operations and customer-facing interactions. Market pressures of the last 12 months only increase CPG companies’ resolve to innovate, develop new products, and identify new revenue streams.

30% of CPGs view market pressures as an opportunity to invest in digital innovation to drive growth.
52% view market pressures as a requirement to eliminate costs associated with digital innovation, and the balance of CPGs will not change their approach to digital innovation.

AI and Automation Will Be Critical To Efficient Operations and Enterprise Management

Balancing serving B2B customers with a variety of newer direct-to-consumer channels is driving investments in customer data platforms (CDPs) and AI-enabled commerce and marketing capabilities. These investments aim to reduce the cost of customer acquisition (while improving acquisition and retention), increase customer lifetime value (CLV), and better predict supply chain needs.

Big Data and analytics is the most important innovation cited by 36% of retailers and 37% of CPG brands.

B2B and D2C Brands Prioritize Digitalization to Drive Business

IDC research shows that brands are prioritizing simplifying and reducing the costs of becoming digital by modernizing more completely—leaving legacy capabilities in the past and innovating for the future—but significant barriers to achieving digital-first status remain.

59% of CPGs have a digital strategy and are in the process of transforming the business to become more digital.
32% of CPGs have a digital-first strategy and have deployed digital technologies at scale across the organization.

Greatest Barriers for CPGs to Achieving Digital Infrastructure Resiliency Goals by 2024:

Cost and complexity of supporting multiple generations of infrastructure and applications across bare metal, VMs, containers, and public clouds: 45%
Lack of necessary staff skills and/or headcount for infrastructure and cloud administration and operations: 37%
Growth in volume and diversity of data disrupting data storage, integration, and management: 30%
Insufficient automation and analytics to effectively optimize infrastructure and workload performance across clouds, edge, and datacenters: 30%
Rapid growth of edge computing and services disrupting network architectures and data management: 27%
Mission-critical workloads constraints (e.g., latency, performance, and/or security) require continued use of legacy systems: 23%
Internal decision-making conflicts/lack of executive alignment about digital infrastructure resiliency and digital business priorities: 23%
High cost of public cloud services: 21%

Digitalization of CPGs Delivers Against KPIs with Faster Time to Market and Cost Savings

DX Initiatives for Brands Yield Greatest Benefits in Time to Market and Cost Savings:

Less time to market: 30%
Cost savings: 25%
Less business risk: 25%
Customer satisfaction: 24%
Operational efficiency: 24%
Sustainability: 24%
Employee productivity: 23%
Business agility: 21%
Innovation: 19%
Profits: 15%
Revenue: 14%

To be digital-first and yield benefits, brands must address digital transformation holistically across the organization. Solutions must:

Be cross-channel (omni-channel)
Be integrated across processes
Address customer and employee experience
Offer real-time access to data to evaluate products and services and enable abilities to introduce new products more quickly into the most profitable channels
Leverage partnerships
Increase speed of innovation cycles and enable brands to pivot quickly

Critical Success Factors in Becoming Digital First

Customization and Contextualization Matter

Data combined with digitalization is the key for CPGs to personalize product development and appropriate marketing.

Top Focus Areas for CPGs:

Customer onboarding and support (product customization, implementation assessment and modification, digital-based training, customer care and support, digital self-support, crowd-sourced support): 49%
Customer fulfillment (supply chain intelligence, inventory management, order management and fulfillment, contactless fulfillment): 45%
Customer satisfaction (customer satisfaction measurement, brand sentiment, sourcing visibility, sustainable products, customer loyalty management, digital rewards, continuous engagement): 42%
Sales and renewals (partner and channel integration, interaction management, ubiquitous commerce, headless commerce, predictive upsell and resell): 41%
Customer data and intelligence (customer data management, customer journey analysis, voice of the customer, social influence, personalization/contextualization, external customer data and analysis, sentiment analysis): 36%
Advertising and marketing (digital content optimization, digital and omni-channel marketing, contextual marketing, social marketing, extended reality engagement, AI-driven engagement): 35%
Customer trust and privacy (secure customer data, customer identity, secure transactions, fraud management, privacy management): 31%
Organizational customer-centricity (customer-oriented operating model, empowered workers, inclusive hiring): 20%

Product customization will be increasingly important for brands to manage and leverage to drive revenue.

Visibility Through the Product Life Cycle Enables Faster and More Profitable Product Development

Seamless operations will require robust visibility into the supply chain to achieve CPG brands’ business objectives, including driving revenue and improving customer satisfaction.

Improving end-to-end supply chain visibility and building more responsive supply chain planning capabilities will establish a strong foundation for tackling factory floor, middle and last mile, and Tier 2 and Tier 3 visibility challenges.

45% of CPG brands and 38% of retailers prioritize supply chain planning
48% of CPG brands and 33% of retailers prioritize end-to-end supply chains

With better end-to-end supply chain visibility, CPG brands can start to deepen collaborative relationships by focusing on meeting customer needs with product design flexibility and planning and execution of the supply chain.

Where is the focus for visibility in the supply chain? (Retail | CPG)

End-to-end supply chain: 33% | 48%
Supply chain planning: 38% | 45%
In the warehouse: 30% | 39%
Planning to first-mile supply chain execution: 31% | 36%
In the retail store: 32% | 24%
On the road: 29% | 24%
Aftermarket/service life cycle: 24% | 21%
With Tier 1 suppliers: 18% | 21%
Middle-mile to last-mile execution: 22% | 15%
In the factory: 24% | 12%
Below Tier 1 suppliers: 18% | 12%

Modernizing the Supply Chain Will Result in Responsive and Predictive Production, Fulfillment and Replenishment

Poor integration of supply chain applications thwarts digitizing the supply chain. The top CPG supply chain risk mitigation strategy is to better integrate supply chain applications (39%); 33% of retailers are also focused on integration.
Seamless access to current data creates an opportunity to fine-tune supplier diversification and logistics contingency planning, driving costs out of the supply chain while improving the ability to meet on-time demand commitments.
33% of CPG brands are digitizing the supply chain to gain better visibility by connecting the dots between applications, reducing delays, and enabling proactive demand planning.
CPG brands and retailers are challenged by demand volatility. To address this volatility, a third of retailers (33%) and consumer brands (31%) are looking to improve supply chain planning tools.

What steps are you taking to mitigate existing or potential supply chain planning issues this year? (Retail | CPG)

Better integration of supply chain applications: 33% | 39%
Better logistics contingency planning: 34% | 35%
Greater visibility into supply chain execution/fulfillment: 29% | 33%
Supplier diversification: 34% | 31%
Better use of demand data: 33% | 31%
Improve supply chain planning tools: 33% | 31%
Flexible product design: 23% | 28%
Flexible factories: 23% | 22%
Task automation: 20% | 22%
Greater visibility below Tier 1: 16% | 14%
Greater visibility into Tier 1: 22% | 14%

Agility for B2B2C Will Require Integration to Connect and Digitize Cross-Channel Touchpoints

Retailers and CPG brands will increasingly apply AI to become more resilient and responsive to demand and customer and consumer needs.

Most companies are modernizing IT and manufacturing operations. Marketing, sales, and customer service are also being streamlined.

As CPG companies add direct-to-consumer capabilities, AI will support balancing the needs of B2B channels with other commerce (ecommerce, pop-ups, marketplaces, etc.) capabilities.

Big Data and analytics is the most important innovation cited by retailers (36%) and CPG brands (37%).

Majority of Business Processes to Use AI by 2023 (Responses are not mutually exclusive)

Used AI in past 12 months | Plan to use AI in next 12 months
IT operations: 64% | 52%
Manufacturing operations: 58% | 28%
Marketing: 54% | 52%
Sales: 52% | 56%
Customer service and support: 50% | 40%
Security: 48% | 52%
Finance/accounting: 48% | 52%
Supply chain: 46% | 52%
Fraud/risk management: 46% | 44%
Service delivery: 44% | 50%
R&D/engineering: 44% | 56%
Human resources: 44% | 44%
Commerce: 42% | 52%
Management/maintenance of physical assets: 38% | 46%
Procurement: 26% | 72%

AI-Powered CPG Brands Prioritize Service and Support

CPG brands are investing in improving how well they can serve B2B customers and direct consumers. Overall, CPG brands are investing the most in a variety of technologies to drive improvements in customer service and support, marketing, and service delivery. Top technology areas for investment include discovery/analysis, personalization, chatbots/virtual agents, and prediction/forecasting.

What kinds of AI applications are you investigating or deploying currently for the following business process areas?

Chatbot, digital assistant, virtual agent

Customer service and support: 40%
Marketing: 33%
Service delivery: 32%
Manufacturing operations: 17%
IT operations: 28%
Human resources: 32%
Finance/accounting: 21%
Commerce: 29%
Security: 17%
Procurement: 15%
Sales: 27%
Management/maintenance of physical assets: 11%
Fraud/risk management: 22%
Supply chain: 22%
R&D/engineering: 18%

Personalization

Customer service and support: 32%
Marketing: 48%
Service delivery: 41%
Manufacturing operations: 17%
IT operations: 31%
Human resources: 36%
Finance/accounting: 42%
Commerce: 33%
Security: 38%
Procurement: 39%
Sales: 31%
Management/maintenance of physical assets: 32%
Fraud/risk management: 17%
Supply chain: 26%
R&D/engineering: 36%

Recommendation engine

Customer service and support: 32%
Marketing: 33%
Service delivery: 23%
Manufacturing operations: 24%
IT operations: 41%
Human resources: 18%
Finance/accounting: 29%
Commerce: 19%
Security: 33%
Procurement: 15%
Sales: 19%
Management/maintenance of physical assets: 26%
Fraud/risk management: 4%
Supply chain: 9%
R&D/engineering: 18%

Anomaly detection

Customer service and support: 24%
Marketing: 30%
Service delivery: 46%
Manufacturing operations: 41%
IT operations: 44%
Human resources: 23%
Finance/accounting: 13%
Commerce: 19%
Security: 33%
Procurement: 31%
Sales: 19%
Management/maintenance of physical assets: 37%
Fraud/risk management: 35%
Supply chain: 22%
R&D/engineering: 27%

Intelligent document processing

Customer service and support: 44%
Marketing: 15%
Service delivery: 23%
Manufacturing operations: 21%
IT operations: 16%
Human resources: 18%
Finance/accounting: 25%
Commerce: 33%
Security: 21%
Procurement: 39%
Sales: 27%
Management/maintenance of physical assets: 47%
Fraud/risk management: 17%
Supply chain: 35%
R&D/engineering: 14%

Prediction/forecasting

Customer service and support: 36%
Marketing: 41%
Service delivery: 27%
Manufacturing operations: 48%
IT operations: 16%
Human resources: 23%
Finance/accounting: 25%
Commerce: 29%
Security: 17%
Procurement: 23%
Sales: 35%
Management/maintenance of physical assets: 11%
Fraud/risk management: 26%
Supply chain: 39%
R&D/engineering: 23%

Preventative maintenance

Customer service and support: 20%
Marketing: 22%
Service delivery: 46%
Manufacturing operations: 45%
IT operations: 31%
Human resources: 18%
Finance/accounting: 38%
Commerce: 33%
Security: 42%
Procurement: 39%
Sales: 31%
Management/maintenance of physical assets: 26%
Fraud/risk management: 39%
Supply chain: 26%
R&D/engineering: 27%

Digital human

Customer service and support: 20%
Marketing: 26%
Service delivery: 18%
Manufacturing operations: 24%
IT operations: 25%
Human resources: 41%
Finance/accounting: 46%
Commerce: 29%
Security: 21%
Procurement: 15%
Sales: 31%
Management/maintenance of physical assets: 37%
Fraud/risk management: 44%
Supply chain: 26%
R&D/engineering: 27%

Discovery or analysis

Customer service and support: 48%
Marketing: 44%
Service delivery: 27%
Manufacturing operations: 38%
IT operations: 44%
Human resources: 64%
Finance/accounting: 29%
Commerce: 43%
Security: 33%
Procurement: 39%
Sales: 31%
Management/maintenance of physical assets: 21%
Fraud/risk management: 39%
Supply chain: 26%
R&D/engineering: 27%

Automation Serves as the Foundation for Future-Ready Operations

Partner management will become increasingly automated, as will strategic planning. Data access and visibility across commerce channels and partners will be vital for having a holistic view of business and identifying areas of opportunity and new revenue streams.

Primary Approaches for Digital Infrastructure Activities:

System/service configuration, deployment, life-cycle management and break/fix: 23% rely on internal staff as today, 39% automate as much as possible, 21% shift to as-a-service, 17% shift to third party
Digital infrastructure architecture, planning and site reliability engineering: 29% internal, 31% automate, 27% as-a-service, 13% third party
Ongoing system, data and application monitoring, troubleshooting and remediation: 29% internal, 27% automate, 30% as-a-service, 13% third party
Budgeting, capacity planning and cost management: 25% internal, 34% automate, 24% as-a-service, 17% third party
Data protection, cyber resiliency and compliance management: 28% internal, 26% automate, 25% as-a-service, 21% third party
Managing vendor and partner contracts and SLAs: 32% internal, 34% automate, 17% as-a-service, 17% third party
Strategic planning for business resiliency and agility: 31% internal, 37% automate, 22% as-a-service, 10% third party

Legend:

Rely on internal staff in the same manner as today
Automate the activity as much as possible to minimize internal staff time, but retain internal control
Shift responsibility to be included in an as-a-service solution from a public cloud service or infrastructure vendor
Shift responsibility to a consulting, SI, hoster or third party other than a cloud or infrastructure vendor

Sector Priorities Within Consumer Products

CPG Sector Business Priorities to Consider

Luxury, Beauty and Personal Care

Grow loyalty and extend customer care personalization by targeting marketing and digitizing the product selection process by adding AI-enabled support and augmented reality try-before-you-buy elements.
Leverage digitalization to grow/find new/alternative revenue/business models.

Food and Beverage

Improve collaboration for better last-mile fulfillment and acquiring/retaining customers through personalized offerings.
Improve demand forecasting capabilities to optimize inventory/promotions/pricing.

Consumer Durables (white goods, electronics)

Improve collaboration for better supply chain planning, production, and replenishment.
Focus on trend analysis and aligning sourcing, logistics, and fulfillment with customer feedback.

B2B Priorities Summary

Personalization of customer data management and marketing
Agile B2B2C integration to connect and digitize all touchpoints
Rapid new product and product life-cycle management processes
AI-enabled operations and process management
Responsive supply chain planning, production, and replenishment orchestration and automation enabled by AI-driven forecasting and seamless workflow

Essential Guidance

Carefully consider and identify the intended benefits and value to be derived from digital-first initiatives.
While retailers’ strategic objectives aim to increase revenue, customer satisfaction is paramount as well. Identify how to measure customer satisfaction and communicate that to stakeholders.
Automate operations where appropriate, with considerations for how automation will benefit both customers and employees.
Recognize differences between retail segments to adapt solutions appropriately. Luxury brands are the most digitally advanced from a marketing perspective, and personal care companies have the most sophisticated supply chain and collaboration capabilities, with food and beverage brands split between leaders and laggards.
Address the typical “softer” challenges/roadblocks to innovation, including lack of commitment from management, lack of a digital transformation roadmap, organizational barriers like resistance to change, and lack of a company-wide culture for innovation. These challenges can be addressed by involving cross-departmental teams in innovation conversations. Find out where innovation is most needed—where there are gaps and what is causing issues with customer service. These conversations will also help to avoid areas where technical debt could become an issue with antiquated systems.
Connecting systems to ensure data-driven decision-making must happen across the enterprise will require the involvement from C-level executives to store-level employees.

About the Analysts

Leslie Hand, Group Vice President, IDC Retail and Financial Insights, IDC

As group vice president, Leslie Hand is responsible for the research direction and teams supporting IDC Retail Insights and IDC Financial Insights. Hand works closely with the teams to help guide technology suppliers and buyers to develop best practices and strategies, aligned with where they are and where they want to go, leveraging IDC quantitative and qualitative data sets. Hand’s specific research focus includes a particular emphasis on the digital transformation of the future “store,” which operates in real time, is AI-enabled, and connects omni-channel customers to the frictionless, “touch-free,” and secure experience they desire.

Dorothy Creamer, Senior Research Manager, IDC Retail Insights, IDC

Dorothy Creamer is a senior research analyst for IDC Research, Hospitality & Travel Digital Transformation Strategies, providing research and advisory services for hotels, casinos, restaurants, and travel organizations. Dorothy’s research focuses on how these business segments are transforming and leveraging technology to increase efficiencies, deliver operational benefits, and identify new revenue streams. Dorothy’s research reports on effective digital strategies to empower both guests and employees and analysis of areas of opportunity in a fast-evolving and highly competitive segment.

Message from the Sponsor

Publicis Sapient is the digital business transformation hub of Publicis Groupe.

We partner to help established organizations get to their future, digitally-enabled state, both in the way they work and the way they serve their customers. We help unlock value through a start-up mindset and modern methods, fusing strategy, consulting, and customer experience with agile engineering and problem-solving creativity. As digital pioneers with 20,000 people and 53 offices around the globe, our experience spanning technology, data sciences, consulting, and customer obsession—combined with our culture of curiosity and relentlessness—enables us to accelerate our clients’ businesses through designing the products and services their customers truly value.

In Consumer Products, Publicis Sapient enables our clients to get ahead of the fast-paced consumer goods space, unlocking agility with the power of data and commerce experiences—from a new consumer engagement model with Nestle to story-led commerce with Bang & Olufsen.

For more information, visit Consumer Products Consulting & Solutions | CPG | Publicis Sapient

“As the landscape for Consumer Product brands increases in complexity and speed, Publicis Sapient is committed to partnering with our clients to solve new, unforeseen challenges. With a long history of ‘firsts,’ Publicis Sapient is dedicated to delivering long-term growth through digital business transformation.”
— Elizabeth Papasakelariou, Publicis Sapient, Consumer Products Lead

IDC Custom Solutions

This publication was produced by IDC Custom Solutions. As a premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets, IDC’s Custom Solutions group helps clients plan, market, sell, and succeed in the global marketplace. We create actionable market intelligence and influential content marketing programs that yield measurable results.

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