It’s no secret that CPGs want younger consumers to buy their products. In the US, each year, millennials account for $600 billion in buying power, with Gen Z already at $44 billion. Collectively, millennials and Gen Z are the largest generational group in the US labor force. And as both segments reach full employment, their spending power will eclipse what we’ve historically seen from older consumers.
Unfortunately, CPGs have been challenged to meet this opportunity. That’s most evident in the purchase of private-label products from retailers. For example, last year, almost half of Amazon’s private-label sales were in consumer-packaged goods. Pre-Amazon, legacy CPGs would’ve been the beneficiary of that demand. Additionally, large CPG brands have seen their share of US brick-and-mortar sales drop nearly one-third, while upstart CPGs have seen an increase in share, growing to around 20%.
So, what’s happening? Candidly, CPGs have struggled to evolve with younger consumer preferences. Here’s what I mean, along with ways artificial intelligence can help them improve.
Personalization is a necessity.
The demand for personalized experiences is definitive for millennial and Gen Z consumers. Unilever’s CMO Keith Weed drove this point home a year ago, saying that successful CPGs need to “understand people on a one-to-one basis.” Research backs this up. Forty percent of Gen Z consumers want a more personalized shopping experience. They’ll even share more data with a brand to get it.
This has proven challenging for the CPG industry. Most CPG products are sold by third-party retailers. This makes it difficult for the manufacturer to deliver a true one-to-one experience at purchase. The CPG simply doesn’t “touch” the shopper. This is why e-commerce brands are successfully poaching millennial and Gen Z buyers. They have a direct relationship with the customer and can promise a more tailored experience via product recommendations.
But artificial intelligence can help CPGs better compete and deliver on the demand for personalization in other ways. For example, AI can analyze various customer datasets—both first-party and beyond—to conduct an “equity drivers evaluation.” This allows the CPG to identify the most resonant brand drivers for different types of consumers. It also makes it possible to granularly segment consumers by the identified drivers and develop brand “ratings” for each segment. This type of analysis can unlock valuable new insights that can be adopted in the design of campaign messaging, product positioning, and even product innovation. It enables CPGs to meet personalization preferences by millennials and Gen Z from the ground up.
The experience era.
Like personalization, younger consumers believe that the best brand interactions are experiential, not product-driven. This stems from broader shifts in preferences from millennials and Gen Z. A Harris Group study found that nearly three-quarters of millennials prefer to spend more on experiences over material items like homes, cars, and clothing. Similarly, a Forrester report found that millennials and Gen Z are “ushering in a new world order of empowered and entitled consumerism,” where brands must be “customer-obsessed and deliver experiences” that have real value. Despite having massive buying power, these consumers are discerning about why they spend, with an experience more likely to lure their dollars. Think brands like Glossier and Lush that have built product sales around experiences.
The savviest legacy CPGs have taken note of the shift and are embracing it accordingly. We’re seeing this manifest most notably with pop-up shops and showrooms. Personal care brands like St. Ives and Dove, for example, have launched pop-up destinations to grow product affinity through interactive and creative “in-store” experiences. For organizations without their own dedicated stores or a robust e-commerce business, these types of campaigns offer loads of value. Critically, though, they allow CPGs to deliver on the demand for experiences we increasingly see from millennials and Gen Z.
But AI can take this to another level. It’s a key component in the digitization of experiential marketing for CPGs. Pop-up shops enable huge value, but they simply aren’t as scalable or cost-effective as an online experience. For example, in the last several years, we’ve seen smart CPGs embrace facial recognition technology to sell things like makeup and snacks. L’Oréal acquired a facial recognition company recently to help its customers try on makeup via smartphones. In the UK, Unilever used similar technology to determine whether a person would like Marmite. These types of experiences, powered by data science, are exactly what younger consumers want. And, unlike pop-up shops, they are scalable.
Both today and tomorrow, millennials and Generation Z have unparalleled spending power. As CPGs attempt to attract those dollars, they need to adapt to shifting preferences by the two generations. Delivering on personalization and experiences will be the key to winning them over and keeping upstarts and challenger brands at bay. Fortunately, AI can help CPGs in both areas, enabling big new revenue opportunities over the long term and future-proofing marketshare.
Amitabh Bose (Ambo) is chief practice officer of CPG, retail, and hospitality at Fractal Analytics, which serves Fortune 500 companies including Visa, P&G, and Unilever.