Commentary: How CPG Companies Can Respond to the Impact from COVID-19
Consumer buying behaviors are changing dramatically as a result of COVID-19 – what people buy, where they buy, how they buy, how much they buy, and how often. This places great strain and uncertainty on a complex and already overstretched supply chain and is forcing CPG companies to rethink their strategies and capabilities around manufacturing/production, inventory management and logistics, distribution, pricing strategies, content, partnerships, consumer engagement and commerce.
These new behaviors are likely to continue long after the spread of the virus stabilizes and as society emerges from quarantined and restricted living to a new norm. For example, we anticipate increased, sustained levels of online grocery shopping long after people return to their normal lives as well as continuing, higher levels of consumption of health and wellness products, cleaning agents, detergents, hand sanitizers, and more.
Some of the ways that CPGs can respond to the impact from COVID-19 include AI-enabled demand and supply chain planning, price transparency, dynamic pricing, education, corporate community/philanthropy, repurposing production, improving response times and digitalization of factories.
- AI-enabled demand and supply chain planning: CPGs should look to leverage AI/ML to more accurately predict product demand spikes resulting from the spread of the virus as consumers move from preventative health management, to pantry preparation/stock piling, to quarantined living, to restricted living, and finally to living the new norm. This will help to ensure that essential products are available in the right place at the right time. Secondly, AI/ML can to be used to proactively identify breaks/chokes in the existing supply chain resulting from the restricted movement of people and goods as well as quarantined factories, farms etc. By identifying potential supply chain disruptions resulting from the spread of the virus, CPGs can begin to identify and organize alternative supply chains to ensure the continuous movement of goods.
- Price Transparency: What we’re seeing now is a lot of price gouging on high demand products like hand sanitizers, toilet paper and certain cleaning agents. This has to stop. CPGs could alert people to where they can buy high demand/low supply products at affordable prices. They should partner with retailers to let consumers know where they can get affordable products to prevent price gouging and provide more transparency about where consumers can buy essential products at the cheapest price. It’s about ethical responsibility.
- Dynamic Pricing: Dynamic pricing is the practice of varying the price of a product or service to reflect changing market conditions. As economic uncertainty begins to place greater pressure on individual markets and families find themselves in more financial stress with the inevitable economic downturn resulting from the spread of the virus, it is fair to assume that certain consumers will experience a greater challenge in purchasing the necessary products to keep themselves safe from the virus. CPGs must look at opportunities to initiate dynamic pricing to prevent price gouging (e.g., when demand greatly exceeds supply) and to ensure that lower-income families and more economically deprived regions are not disadvantaged in their ability to curb the spread of the virus and stay healthy.
- Education: CPGs should help consumers make smart decisions about the products they could buy to increase personal hygiene and prevent the spread of infection by providing education through social media and their brand website(s). We’re seeing a lot of consumers panic buying, so it would be helpful for consumers to know how much and what type of products they should be buying based on their circumstances.
There is an opportunity for CPGs to step up here to guide and educate people and become that trusted source of information that helps people understand their health-and-wellness options. CPGs should make a commitment to ensuring that the community continues to thrive and they aren’t disproportionately affected by the virus.
- Corporate/Community Philanthropy: Many consumers simply can’t afford to purchase the recommended products to prevent the spread of the virus (products such as hand sanitizers, high-quality cleaning agents etc. are outside the household budget of many consumers). CPGs should give back to those in need and create online communities that get people engaging and encourage them to help in these efforts to give back.
- Repurposing Production: There is an opportunity for CPGs to repurpose their factories and production focus to address product shortages in certain categories.
For instance, the French luxury conglomerate LVMH has announced that they will repurpose their factories where it usually makes fragrance and cosmetics for the likes of Dior, Guerlain, and Givenchy and instead produce hand sanitizer. This is a great opportunity for CPGs to put aside short-term profit aspirations in an effort to help people fight the spread of the virus and become a better corporate citizen.
- Improving Response Times: Coronavirus highlights again the importance of real-time view across supply chain (inventory, order management etc.). CPGs should review and design ways of reducing order turnaround times and response rates to be able to react quickly to changes in demand. Also, they should consider setting up the capability to ship directly from the factory to save lead-time and avoid inventory being misallocated to the wrong DCs/retailers.
- Digital Factory: CPGs should look into manufacturing site optimization and automation to be able to produce with less manpower. The digitizing of manufacturing sites and integration to other digital systems can be key.
There are a number of actions CPGs can take to mitigate some of the impact that COVID-19 is having on their consumers and their business. With consumer shopping behaviors changing at an unprecedented pace, agility will be key in all of these actions to ensure success moving forward. CPGs must leverage available data sources and predictive models to effectively anticipate and react to potential supply chain disruptions. They must stay on top of changing consumer behavior and react to fluctuations in demand levels with speed and scale. Most importantly, they must avoid marketing to fear and instead find creative ways to help consumers live their lives with greater certainty and less anxiety over the coming weeks and months.
Scott Clarke is VP, consumer products industry lead at Publicis Sapient.