Understanding Consumer Goods
Consumer goods are goods sold to consumers for use in the home or school or for recreational or personal use. There are three main types of consumer goods: durable goods, nondurable goods, and services. Durable goods are consumer goods that have a long-life span (e.g. 3+ years) and are used over time. Examples include bicycles and refrigerators. Nondurable goods are consumed in less than three years and have short lifespans. Examples of nondurable goods include food and drinks. Services include auto repairs and haircuts. Consumer goods are also called finals good, or end product, because they are the ultimate output of a productive process that occurs over time. Entrepreneurs and businesses combine capital goods (such as machinery in a factory), labor from workers, and raw materials (such as land and basic metals), to produce consumer goods for sale. Goods that are used in these production processes, but not themselves sold to consumers are known as producer goods. The Consumer Product Safety Act was written in 1972 to oversee the sale of most common consumer goods. The act created the U.S. Consumer Product Safety Commission, a group of five appointed officials who oversee the safety of products and issue recalls of existing products. Marketing of Consumer Goods From a marketing standpoint, consumer goods can be grouped into four categories: convenience, shopping, specialty, and unsought goods. These categories are based on consumer buying patterns. Convenience goods are those that are regularly consumed and are readily available for purchase. These goods are mostly sold by wholesalers and retailers and include items such as milk and tobacco products. Convenience goods can be further segmented into staple convenience goods (fulfilling basic customer necessities) and impulse convenience goods (non-priority goods, such as cigarettes). Shopping goods are those in which a purchase requires more thought and planning than with convenience goods. Shopping goods are more expensive and have more durability and longer lifespans than convenience goods. Shopping goods include furniture and televisions. Specialty consumer goods are rare and often considered luxurious. The purchase of specialty goods is reserved for an elite class of shoppers with the financial means to conduct the purchase. Marketing efforts are geared to a niche market, usually the upper class. These products include furs and fine jewelry. Unsought consumer goods are readily available but are purchased by a few members of the available market. These items are not usually purchased repeatedly and usually serve specific needs, such as life insurance.
Fast-Moving Consumer Goods-Client Case Study
Are You Spending More Than You Should?
A leading consumer goods manufacturer was interested in improving the purchasing organization and creating cost reductions. The purchasing organization managed 35 percent of the purchased spent. However, the buyers had varying levels of experience and spend much of their time on labor intensive activities. There were few contracts in place which put the manufacturer at the risk of supply and pricing changes.
The project was divided into two phases. The initial was to conduct a high level spend analysis with a procurement assessment to identify opportunities for potential savings and improving the procurement function. The second phase was to implement the savings using proven sourcing methodologies and guide process improvement activities to enhance effectiveness of the purchasing organization.
Data was gathered on purchase history, purchasing patterns and behaviors, and supplier contracts and agreements. A comprehensive analysis was conducted to break down the annualized spend by product category, SKU, supplier and end user locations.
The ordering procedures were observed and interviews were conducted to discuss the current procurement operations, including ordering procedures, supplier reviews, customer service requirements, forecasting and inventory planning – all with an interest in how each influences purchasing.
Based on the observations, the interviews and the results of the spend analysis, the purchasing organization was benchmarked using our Guidelines to Best Practices. Opportunities for improvement were identified and prioritized into short, medium and long term improvements.
After the highest priority commodities were targeted, the current pricing and specifications information was gathered to understand the purchased spend baseline. Due to lack of product specifications, a Request for Information (RFI) was issued to the current suppliers to assist with the baseline development. The Request for Proposal (RFP) was then customized with the current specifications collected from the RFI and additional requirements desired by the manufacturer. Alternative suppliers were identified and a RFP was issued to maximize the effectiveness of a competitive solicitation. After the responses were received, all proposals were analyzed and additional target pricings were created to generate maximum savings. Additional rounds of supplier negotiations were conducted and final candidates were presented to the manufacturer. Throughout the process of bringing the new suppliers on board, Establish facilitated evaluation team discussions to build consensus and prepared negotiation scripts for final negotiation.
Most of the buyers were not sufficiently empowered to qualify suppliers, determine purchase specifications, and identify substitute products or alternative suppliers. Procurement training sessions were conducted to improve the buyers’ knowledge on the sourcing process.
Other process improvement activities facilitated include improving the buyer-supplier relationship, creating logical sourcing groups, consolidating the number of suppliers, and investigating rationalization and standardization opportunities.
Five Best Procurement Practices for FMCG
As competition intensifies in the fast-moving-consumer-goods (FMCG) sector, procurement department plays a critical role to manage order planning with budget allocation, budget planning and cost savings, and to ensure delivery on time. The best procurement practices are designed to be cost-effective and improve productivity.
Shopping Preferences during the COVID19 times
In 2020, what began as a global health crisis gave way to an economic crisis. As economies around the globe navigate new COVID cases, new virus strains and vaccine rollouts, we are living in a fundamentally altered world. To better understand changing consumer sentiment and behavior, we have been tracking monthly the relationship between physical and financial well-being, spending intentions and the trends accelerated by the pandemic.
Check back each month to play with the interactive dashboard below to see how these dynamics continue to unfold.
For further insights, please also explore our Consumer Tracker collection page, which synthesizes select trends and delivers sector-specific analysis.
2021 Consumer Products Industry Outlook
The state of the consumer The buying behavior of consumers changed significantly during the pandemic, and those behaviors are likely to persist throughout much of 2021. Namely, the trend toward at-home consumption will likely continue. Executives see consumers simplifying their lifestyles (around 80%) and retreating into the home (65%). Almost universally (95%), they see the work-from-home trend continuing for consumers. Executives predict that the top purchase drivers will be health and safety (92%), trust (92%), and quality (88%). Global State of the Consumer Tracker showed that more than a third of consumers still did not feel safe participating in everyday activities such as shopping in stores, while around 40% were willing to pay a premium for convenience, which was primarily driven by a desire to maintain safety. And there was, of course, a move to online shopping channels for both delivery and pickup. Seven in 10 executives said consumers are not going to return to prepandemic in-store shopping patterns in 2021, but that could change with successful vaccination. While consumer health concerns are high and universally felt, the financial aspects of the pandemic are experienced unevenly. For instance, younger consumers are much more likely to say they are worried about making upcoming payments or that they are putting off large purchases.4 Labor market conditions are playing a part. Despite generally improving since April, unemployment is still high entering 2021, and many of those who are employed remain wary about their economic prospects. The bifurcation of consumers, who in many ways live in different financial worlds, is likely to continue regardless of any relief on the health front.
Direction Of The Industry
With this economic backdrop and the context of the changing consumer in mind, CPG companies recognize they should navigate the road ahead with care. As mentioned earlier, there is much reason for optimism, and companies will address their individual circumstances in a variety of ways. But the direction of the industry in 2021 will likely be characterized by the following five no-regret moves.
Accelerating the shift to digital
People will see the words “digital acceleration” in almost everything they read this year, but that makes them no less true. Out of every capability or strategy assessed by our executive panel, digital showed the largest maturity gap. Three in four executives said it is important to meeting their objectives, but only one in four believed that their company is advanced in digital relative to their industry peers. It is no wonder that most executives say their companies will significantly increase their investment in digital. More specifically, 80% of those making investments are allocating resources to improving their e-commerce and shopping platforms. That includes about 60% who are investing in their digital DTC channels, as discussed earlier. But the digital shift includes other areas as well, like building internal capabilities and efficiencies with technology. In fact, improving productivity and efficiency was a close second to growing revenue as the top overall industry outcome sought for 2021. Cloud computing is, of course, behind the scenes in almost every case. But in what, specifically, are companies investing? After already making significant outlays in 2020, three in five execs say they will invest further in their work-from-home platforms during the coming year. More than one in three are upgrading their enterprise technology, as well as investing in robotic process automation (RPA) and artificial intelligence (AI) technology, as the Industry 4.0 movement marches forward on the manufacturing side.
Building Supply Chain Resilience
Global supply chain disruptions are increasing in frequency and magnitude. The last few years saw major disruptions spurred by geopolitical events (e.g., Brexit, US-China trade war), climate-related disasters, and public health crises. COVID-19 became the latest and most devastating event that exposed the vulnerabilities that underpin the foundations of global supply networks. For decades, globalization, low-cost supply, and minimal inventory were the key tenets of efficient supply chain management. The industry is not abandoning those goals, but the emphasis in 2021 is on building resilience. Resilience can come down to something as seemingly mundane as the right packaging.
When consumers suddenly started eating all their meals at home, food companies had to quickly source and deploy packaging appropriate to retail channels in order to switch over their higher-bulk food service sector lines. Or, as consumers wanted to shop in-store less frequently, companies needed innovative packaging to do things like preserve the shelf life of fresh food or reduce packaging waste on deliveries. Often, it is a combination of things. Simply put, resilience is how companies keep their supply chains from breaking and restore them quickly when they do. It is also how they can gain the nimbleness and scalability to power new go-to-market approaches and innovative business models. Building resilience means creating surety of supply so you can manufacture the finished goods you want, predicting demand to know how much you need and where it will be needed, and building in flexibility to shift supply around to different locations and channels as the situation inevitably changes. Note that this isn’t a “wartime” resilience, where inventory is stockpiled just in case. It is instead a bounded resilience. Consumer products companies seek to manage costs, understand trade-offs, and not overreact to shocks, especially since the next crisis will often manifest differently from the last.
Connecting Purpose To Profit
Consumers want more than improved protection of their health and safety to come out of the COVID-19 crisis. In fact, nearly nine in 10 say the pandemic is an opportunity for large companies to hit ‘reset’ and focus on doing right by their workers, consumers, communities, and the environment. CPG companies have good reasons to make these investments. Purpose has evolved from a differentiator and competitive advantage to a core business mandate that requires line-of-business and even board-level attention. A recent “strength of purpose” study of more than 8,000 global consumers and 75 companies demonstrated that when a brand has a strong purpose, consumers are four times more likely to buy, six times more likely to protect, four and a half times more likely to recommend, and four times more likely to trust the brand.14 Other research shows consumers are even willing to pay a small premium for products from companies that have transparent supply chains.